Company Quick10K Filing
Quick10K
Nuzee
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
10-K 2013-09-30 Annual: 2013-09-30
8-K 2019-08-28 Earnings, Regulation FD, Exhibits
8-K 2019-07-30 Regulation FD, Exhibits
8-K 2019-05-09 Enter Agreement, Other Events, Exhibits
8-K 2019-05-07 Sale of Shares, Regulation FD, Exhibits
8-K 2019-01-23 Leave Agreement, Officers, Exhibits
8-K 2018-12-09 Enter Agreement, Exhibits
8-K 2018-08-31 Officers
8-K 2018-07-02 Sale of Shares
8-K 2018-06-27 Enter Agreement, Exhibits
KORS Michael Kors 10,037
NEPH Nephros 431
IWBB IWeb 121
IVTY Invuity 97
AXREF Amarc Resources 8
PAYD Paid 5
PWVI Powerverde 3
TLLT Xsport Global 0
GLNS Golden Star Resource 0
HBUV Hubilu Venture 0
NUZE 2019-06-30
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II.
Item 1. Legal Proceedings None.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities None.
Item 4. Mine Safety Disclosures Not Applicable.
Item 5. Other Information
Item 6. Exhibits
EX-31.1 nz_ex31z1.htm
EX-31.2 nz_ex31z2.htm
EX-32.1 nz_ex32z1.htm
EX-32.2 nz_ex32z2.htm

Nuzee Earnings 2019-06-30

NUZE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

NUZEE, INC. - Form 10-Q SEC filing
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

 

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. 000-55157

 

NUZEE, INC.

 

(exact name of registrant as specified in its charter)

 

Nevada

 

38-3849791

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

2865 Scott Street, Suite 107, Vista, CA, 92081

 

(Address of principal executive offices)   (zip code)

 

(760) 295-2408

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

N/A

Title of each class

 

Name of each exchange on which registered

 

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.   Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

 

Accelerated filer

¨

Non-accelerated Filer

x

                                           

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 x

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ¨  No ¨

 

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of August 9, 2019, NuZee, Inc. had 40,865,736 shares of common stock outstanding.


1


 

Table of Contents

 

                                                                                                                                                                        

Page

 

 

PART I

 

 

 

Item 1.  Financial Statements

4

Consolidated Balance Sheets (unaudited)

5

Consolidated Statements of Operations (unaudited)

6

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

7

Consolidated Statements of Stockholders' Equity (Deficit) (unaudited)

8

Consolidated Statements of Cash Flows (unaudited)

10

Notes to Consolidated Financial Statements (unaudited)

11

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.  Controls and Procedures

18

 

 

PART II

20

 

 

Item 1.  Legal Proceedings

20

Item 1A.  Risk Factors

20

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 3.  Defaults Upon Senior Securities

20

Item 4.   Mine Safety Disclosures

20

Item 5.  Other Information

20

Item 6.  Exhibits

20

 

 

SIGNATURES

21


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, as amended (the “Exchange Act”), Such forward-looking statements reflect the views of NuZee, Inc. (hereinafter "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 our 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, and indebtedness covenant compliance, 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," "targets" 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 involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: dilution of shareholder investments as a result of necessary capital raises, expenditures to produce and distribute our product, changes in sale levels, changes in the nutritional beverage market, competitor growth, third-party relationship dependent growth, changes in health benefits of our ingredients as a result of subsequent studies, general economic or industry conditions, nationally and/or in the communities in which we conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services, and prices.

 

We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in the section below entitled "Risk Factors" and other sections of this report, which 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.


4


 

NuZee, Inc.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

                                                                                                                                         

 

     June 30, 2019     

 

September 30, 2018

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

3,061,430   

 

1,806,666   

Accounts receivable, net

 

357,982   

 

144,632   

Accounts receivable - Related party

 

117   

 

222   

Inventories, net

 

289,856   

 

134,877   

Other current assets

 

279,566   

 

134,632   

Other current assets - Related party

 

34,568   

 

33,887   

Total current assets

 

4,023,519   

 

2,254,916   

 

 

 

 

 

Property and equipment, net

 

1,987,751   

 

674,393   

 

 

 

 

 

Other assets:

 

 

 

 

Goodwill

 

17,112   

 

17,112   

Customer List, net

 

25,818   

 

34,424   

Other asset

 

2,316   

 

1,667   

 

 

45,246   

 

53,203   

 

 

 

 

 

Total assets

 

6,056,516   

 

2,982,512   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

570,189   

 

268,283   

Current portion of long-term loan payable

 

24,468   

 

44,229   

Other current liabilities

 

124,631   

 

160,773   

Other current liabilities - Related party

 

1,068   

 

2,782   

Total current liabilities

 

720,356   

 

476,067   

 

 

 

 

 

Non-current liabilities:

 

 

 

 

Loans payable - long term, net of current portion

 

263,974   

 

88,063   

Other noncurrent liabilities

 

-   

 

6,317   

 

 

263,974   

 

94,380   

 

 

 

 

 

Total liabilities

 

984,330   

 

570,447   

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

Common stock; 100,000,000 shares authorized, $0.00001 par value;

 

 

 

 

40,762,740 and 39,583,773 shares issued

 

408   

 

396   

Additional paid in capital

 

31,034,953   

 

14,957,227   

Accumulated deficit

 

(26,043,919)  

 

(12,607,722)  

Accumulated other comprehensive loss

 

(66,002)  

 

(30,967)  

Total NuZee, Inc. shareholders' equity

 

4,925,440   

 

2,318,934   

Noncontrolling interest

 

146,746   

 

93,131   

Total stockholders' equity

 

5,072,186   

 

2,412,065   

 

 

 

 

 

Total liabilities and stockholders' equity

 

6,056,516   

 

2,982,512   

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


5


 

NuZee, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

                                                                                                                          

 

Three Months Ended
 June 30 ,2019

 

Three Months Ended
 June 30,2018

 

Nine Months Ended
 June 30 ,2019

 

Nine Months Ended
 June 30 ,2018

Revenues

 

585,202   

 

271,317   

 

1,304,566   

 

1,018,849   

Cost of sales

 

469,045   

 

173,088   

 

923,903   

 

699,497   

Gross Profit

 

116,157   

 

98,229   

 

380,663   

 

319,352   

 

 

 

 

 

 

 

 

 

Operating expenses

 

9,514,003   

 

731,827   

 

13,668,299   

 

2,330,605   

Loss from operations

 

(9,397,846)  

 

(633,598)  

 

(13,287,636)  

 

(2,011,253)  

 

 

 

 

 

 

 

 

 

Other income

 

10,158   

 

7   

 

14,424   

 

9,058   

Equity in loss of unconsolidated affiliate

 

-   

 

-   

 

-   

 

(10,733)  

Other expense

 

(4,768)  

 

(5,751)  

 

(140,805)  

 

(5,754)  

Interest expense

 

(1,471)  

 

(521)  

 

(2,679)  

 

(2,000)  

Net loss

 

(9,393,927)  

 

(639,863)  

 

(13,416,696)  

 

(2,020,682)  

Net income (loss) attributable to noncontrolling interest

 

12,576   

 

(6,124)  

 

19,501   

 

5,030   

Net loss attributable to NuZee, Inc.

 

($9,406,503)  

 

$ (633,739)  

 

($13,436,197)  

 

$ (2,025,712)  

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$ (0.23)  

 

$ (0.02)  

 

($0.34)  

 

$ (0.06)  

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average number of common stock outstanding

 

40,237,622   

 

37,330,769   

 

40,059,015   

 

36,305,238   

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


6


 

NuZee, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

 

 

 

 

Noncontrolling

 

 

 

                                                                        

 

NuZee, Inc.

 

Interests

 

Total

For the three months ended June 30

 

          2019          

          2018          

 

          2019          

          2018          

 

          2019          

          2018          

Net income (loss)

 

$ (9,406,503)  

$ (633,739)  

 

12,576   

$ (6,124)  

 

$ (9,393,927)  

$ (639,863)  

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(43,416)  

(12,786)  

 

(18,607)  

(3,364)  

 

(62,023)  

(16,150)  

Total other comprehensive loss, net of tax

 

(43,416)  

(12,786)  

 

(18,607)  

(3,364)  

 

(62,023)  

(16,150)  

Comprehensive loss

 

$ (9,449,919)  

$ (646,525)  

 

$ (6,031)  

$ (9,488)  

 

$ (9,455,950)  

$ (656,013)  

 

 

 

 

 

 

Noncontrolling

 

 

 

                                                                        

 

NuZee, Inc.

 

Interests

 

Total

For the nine months ended June 30

 

          2019          

          2018          

 

          2019          

          2018          

 

          2019          

          2018          

Net income (loss)

 

$ (13,436,197)  

$ (2,025,712)  

 

19,501   

5,030   

 

$ (13,416,696)  

$ (2,020,682)  

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(35,035)  

(3,081)  

 

34,114   

796   

 

(921)  

(2,285)  

Total other comprehensive income (loss), net of tax

 

(35,035)  

(3,081)  

 

34,114   

796   

 

(921)  

(2,285)  

Comprehensive income (loss)

 

$ (13,471,232)  

$ (2,028,793)  

 

53,615   

5,826   

 

$ (13,417,617)  

$ (2,022,967)  

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


7


 

NuZee , Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

other

 

 

 

 

Common stock

 

paid-in

 

Accumulated

 

Noncontrolling

 

comprehensive

 

 

 

 

Shares

 

Amount

 

capital

 

deficit

 

interest

 

income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2018

 

39,583,773   

 

396   

 

14,957,227   

 

$ (12,607,722)  

 

93,131   

 

$ (30,967)  

 

2,412,065   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

350,673   

 

3   

 

1,494,802   

 

-   

 

-   

 

-   

 

1,494,805   

Common stock issued to settle payables

 

15,354   

 

-   

 

107,478   

 

-   

 

-   

 

-   

 

107,478   

Stock option expense

 

-   

 

-   

 

1,789,751   

 

-   

 

-   

 

-   

 

1,789,751   

NuZee foreign currency gain (loss)

 

-   

 

-   

 

-   

 

-   

 

4,855   

 

11,328   

 

16,183   

Net loss for the period

 

-   

 

-   

 

-   

 

(2,576,692)  

 

(11,714)  

 

-   

 

(2,588,406)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2018

 

39,949,800   

 

399   

 

18,349,258   

 

(15,184,414)  

 

86,272   

 

(19,639)  

 

3,231,876   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

41,610   

 

-   

 

228,204   

 

-   

 

-   

 

-   

 

228,204   

Stock issuance costs

 

 

 

 

 

(27,628)  

 

-   

 

-   

 

-   

 

(27,628)  

Common stock issued for services

 

150,000   

 

2   

 

37,498   

 

-   

 

-   

 

-   

 

37,500   

Common stock issued to settle payables

 

2,530   

 

-   

 

16,445   

 

-   

 

-   

 

-   

 

16,445   

Stock option expense

 

-   

 

-   

 

481,742   

 

-   

 

-   

 

-   

 

481,742   

NuZee foreign currency gain (loss)

 

-   

 

-   

 

-   

 

-   

 

47,866   

 

(2,947)  

 

44,919   

Net income (loss) for the period

 

-   

 

-   

 

-   

 

(1,453,002)  

 

18,639   

 

-   

 

(1,434,363)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2019

 

40,143,940   

 

401   

 

19,085,519   

 

(16,637,416)  

 

152,777   

 

(22,586)  

 

2,578,695   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

618,800   

 

7   

 

3,612,176   

 

-   

 

-   

 

-   

 

3,612,183   

Stock option expense

 

-   

 

-   

 

8,337,258   

 

-   

 

-   

 

-   

 

8,337,258   

NuZee foreign currency gain (loss)

 

-   

 

-   

 

-   

 

-   

 

(18,607)  

 

(43,416)  

 

(62,023)  

Net income (loss) for the period

 

-   

 

-   

 

-   

 

(9,406,503)  

 

12,576   

 

-   

 

(9,393,927)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019

 

40,762,740   

 

408   

 

31,034,953   

 

$ (26,043,919)  

 

146,746   

 

$ (66,002)  

 

5,072,186   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

other

 

 

 

 

Common stock

 

paid-in

 

Accumulated

 

Noncontrolling

 

comprehensive

 

 

 

 

Shares

 

Amount

 

capital

 

deficit

 

interest

 

income

 

Total

                                                                                        

 

                       

 

                       

 

                       

 

                       

 

                       

 

                       

 

                       

Balance September 30, 2017

 

34,720,538   

 

347   

 

9,718,648   

 

$ (9,030,551)  

 

92,857   

 

$ (20,680)  

 

760,621   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription receivable from issuance of common stock

 

300,000   

 

3   

 

152,997   

 

-   

 

-   

 

-   

 

153,000   

Common shares issued for cash

 

998,254   

 

10   

 

509,100   

 

-   

 

-   

 

-   

 

509,110   

Stock option expense

 

-   

 

-   

 

133,486   

 

-   

 

-   

 

-   

 

133,486   

Other comprehensive loss

 

-   

 

-   

 

-   

 

-   

 

(87)  

 

(203)  

 

(290)  

Net loss for the period

 

-   

 

-   

 

-   

 

(637,500)  

 

(6,056)  

 

-   

 

(643,556)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2017

 

36,018,792   

 

360   

 

10,514,231   

 

(9,668,051)  

 

86,714   

 

(20,883)  

 

912,371   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-   

Common shares issued for cash

 

1,103,529   

 

11   

 

1,082,189   

 

-   

 

-   

 

-   

 

1,082,200   

Stock option expense

 

-   

 

-   

 

116,023   

 

-   

 

-   

 

-   

 

116,023   

Other comprehensive gain

 

-   

 

-   

 

-   

 

-   

 

4,247   

 

9,908   

 

14,155   

Net income (loss) for the period

 

-   

 

-   

 

-   

 

(754,473)  

 

17,210   

 

-   

 

(737,263)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2018

 

37,122,321   

 

371   

 

11,712,443   

 

$ (10,422,524)  

 

108,171   

 

$ (10,975)  

 

1,387,486   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

728,852   

 

7   

 

784,345   

 

-   

 

-   

 

-   

 

784,352   

Stock option expense

 

-   

 

-   

 

117,199   

 

-   

 

-   

 

-   

 

117,199   

Other comprehensive loss

 

-   

 

-   

 

-   

 

-   

 

(3,364)  

 

(12,786)  

 

(16,150)  

Net loss for the period

 

-   

 

-   

 

-   

 

(633,739)  

 

(6,124)  

 

-   

 

(639,863)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2018

 

37,851,173   

 

378   

 

12,613,987   

 

$ (11,056,263)  

 

98,683   

 

$ (23,761)  

 

1,633,024   

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


8


 

NuZee, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

                                                                                                          

 

Nine Months Ended

June 30, 2019

 

Nine Months Ended

June 30, 2018

 

 

 

 

 

Operating activities:

 

 

 

 

Net loss

 

$ (13,416,696)  

 

$ (2,020,682)  

Adjustments to reconcile net loss to net cash

 

 

 

 

used by operating activities:

 

 

 

 

Depreciation and Amortization

 

165,752   

 

103,587   

Option expense

 

10,608,751   

 

366,708   

Inventory impairment

 

27,983   

 

20,048   

Allowance for sales return

 

22,510   

 

4,438   

Loss on sale of assets

 

6,096   

 

-   

Loss on settlement of payable

 

91,684   

 

-   

Equity in loss of unconsolidated affiliate

 

-   

 

10,733   

Common stock issued for services

 

37,500   

 

-   

Change in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(235,860)  

 

1,020   

Accounts receivable - Related party

 

105   

 

11,985   

Inventories

 

(182,962)  

 

(119,119)  

Prepaid expense and other current assets

 

(144,934)  

 

(195,166)  

Other current assets - Related party

 

(681)  

 

29,871   

Other asset

 

(649)  

 

-   

Accounts payable

 

116,005   

 

35,474   

Deferred revenue

 

-   

 

(72,750)  

Other liabilities

 

(6,317)  

 

-   

Other current liabilities - related party

 

(1,714)  

 

1,768   

Accrued expense and other current liabilities

 

(36,142)  

 

(6,235)  

Net cash used by operating activities

 

(2,949,569)  

 

(1,828,320)  

 

 

 

 

 

Investing activities:

 

 

 

 

Purchase of equipment

 

(1,243,933)  

 

(391,855)  

Proceeds from sales of equipment

 

23,600   

 

-   

Net cash used in investing activities

 

(1,220,333)  

 

(391,855)  

 

 

 

 

 

Financing activities:

 

 

 

 

Proceeds from issuance of loan - Related party

 

-   

 

341,000   

Repayment of loans - Related party

 

-   

 

(341,200)  

Repayment of loans

 

(32,580)  

 

(34,571)  

Borrowing of loans

 

147,081   

 

-   

Payments on capital lease

 

-   

 

(2,683)  

Stock issuance cost

 

(27,628)  

 

-   

Proceeds from issuance of common stock

 

5,335,192   

 

2,528,662   

Net cash provided by financing activities

 

5,422,065   

 

2,491,208   

 

 

 

 

 

Effect of foreign exchange on cash and cash equivalents

 

2,601   

 

(2,792)  

 

 

 

 

 

Net change in cash

 

1,254,764   

 

268,241   

 

 

 

 

 

Cash, beginning of period

 

1,806,666   

 

347,327   

Cash, end of period

 

3,061,430   

 

615,568   

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

Cash paid for interest

 

183   

 

1,082   

Cash paid for taxes

 

-   

 

800   

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

Stock issued to settle payables

 

32,239   

 

-   

Equipment purchased through debt

 

38,127   

 

-   

Equipment purchased on credit

 

218,140   

 

-   

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


9


 

NuZee, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

June 30, 2019

 

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, 2018 as filed with the SEC. 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 have been omitted.

 

Reclassification

 

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net loss. Reclassification adjustments are amounts reclassified to other expense that were recognized in operating expense in the previous period.

 

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 majority owned subsidiary, which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

 

NuZee JAPAN Co., Ltd (“NuZee JP”), NuZee Korea Ltd (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”) are wholly owned subsidiaries of the Company.

 

Earnings per Share

 

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 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. The Company incurred a net loss for the three months and nine months ended June 30, 2019 and 2018, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

 

Going Concern and Capital Resources

 

Since its inception on July 15, 2011, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues.

 

As of June 30, 2019, the Company had cash of $3,061,430. The Company has not attained profitable operations since inception.

The accompanying consolidated financial statements have been prepared in accordance with GAAP, which contemplates continuation of the Company as a going concern. The Company has had limited revenues, recurring losses, an accumulated deficit and is dependent on its majority shareholder to provide additional funding for operating expenses. These items raise substantial doubt as to the Company's ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon management's ability to develop profitable operations, continued contributions from the Company's executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company's products and business.

 

Major Customers

 

In the nine months ended June 30, 2019 and 2018, revenue was primarily from major customers disclosed below.

 


10


Nine months ended June 30, 2019:

 

 

 

 

Customer Name

 

Sales Amount

 

% of Total Revenue

Customer A

 

333,971   

 

26 %

Customer B

 

254,765   

 

20 %

Customer C

 

153,167   

 

12 %

Customer D

 

109,618   

 

8 %

 

 

 

 

 

Nine months ended June 30, 2018:

 

 

 

 

Customer Name

 

SalesAmount   

 

%ofTotalRevenue   

Customer A

 

590,304   

 

58 %

Customer B

 

77,750   

 

8 %

 

Lease

 

The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the Company as lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to the lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line basis over the lease term.

 

NuZee JAPAN Co., Ltd is the lessee of certain equipment under a capital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $8,988 as of June 30, 2019. The capital lease liability is included in other current liabilities on the consolidated balance sheets.

 

Future minimum lease payments under capital lease obligations as of June 30, 2019 for each of the remaining fiscal years are as follows:

 

2019

 

$1,498

2020

 

$5,992

2021

 

$1,498

Total Minimum Lease Payments

 

$8,988

 

On April 23, 2019, we entered into the "Third Amendment to Lease" with our current landlord in Vista California. Under the terms of this lease we added 2,134 square feet to our facility. After this expansion, we will have 5,643 square feet spaced leased by the landlord with an additional 1,108 square feet subleased from another tenant (total 6,751 square feet). All of this space will co-terminate on May 31, 2020. The additional space will increase our monthly rent by approximately $2,347.

 

On May 7, 2019, we entered into a lease of 16,603 square-foot facility in Plano, Texas. The lease begins on June 1, 2019 and expires on June 30, 2024, and the base rent begins at $9,616 per month and increases periodically reaching $10,823 per month in the final year of the lease. The base rent does not include the Company's share of operating expenses which are currently $3,348 per month and could increase up to 10% per year. This facility will become our future single serve pour over co-packing hub.

 

The Company leases office space with terms ranging from month to month to 61 months. Rent expense included in general and administrative expense for the nine months ended June 30, 2019 and 2018 was $99,526 and $107,706, respectively.

 

2019

 

 

$80,709

2020

 

 

$234,908

2021

 

 

$159,923

2022

 

 

$163,516

2023

 

 

$167,216

2024

 

 

$127,539

Total Minimum Lease Payments

$933,811

 

Loans

 

On June 30, 2016, NuZee JP entered into a loan agreement with Tono Shinyo Kinko Bank. The Company borrowed the sum of approximately $145,758 to be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The loan is unsecured and guaranteed by a director. The outstanding balance on the loan at June 30, 2019 amounted to $55,605. On January 27, 2017, NuZee JP entered into a loan agreement with Nihon Seiaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The outstanding balance on the loan at June 30, 2019 amounted to $48,814. During the nine months ended June 30, 2019, the Company made principal repayments on outstanding loan balances totaling $32,580.

 

On April 1, 2019, NuZee purchased a delivery van from Ford Motor Credit for $41,627. The Company paid $3,500 as a down payment and financed $38,127 for 60 months at a rate of 2.9%. The loan is secured by the van. The outstanding balance on the loan at June 30, 2019 amounted to $36,942.

 

On February 15, 2019 NuZee KR entered into equipment financing for production equipment with ShinHan Bank for $60,563. In June 28, 2019 NuZee KR purchased additional equipment and increased the loan with ShinHan Bank by $86,518. The financing has a term of 36 months at a rate


11


of 4.33%. Principal payments began in July of 2019. The outstanding balance on this loan at June 30, 2019 amounts to $147,081.

 

The loan payments required for the next five years are as follows:

 

 

Tono Shinyo Kinko Bank

Nihon Seisaku Kouko

 

 

Ford Motor Credit

ShinHan Bank

 

 

 

 

 

 

 

2019

6,951   

4,699   

 

 

1,746   

11,702   

2020

27,802   

18,793   

 

 

7,286   

47,797   

2021

20,852   

18,794   

 

 

7,500   

49,420   

2022

-   

6,528   

 

 

7,720   

38,162   

2023

-   

-   

 

 

7,947   

-   

2024

-   

-   

 

 

4,743   

-   

Total Loan Payment

55,605   

48,814   

 

 

36,942   

147,081   

 

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 does not have a material impact on our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations.

 

Foreign Currency Translation

 

The financial position and results of operations of each of the Company's foreign subsidiary 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 adjustments comprising accumulated other comprehensive loss amounted to ($66,002) and ($30,967) as of June 30, 2019 and September 30, 2018, respectively.

 

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.

 

Inventories

 

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, 2019 and September 30, 2018, the carrying value of inventory of $289,856 and $134,877 respectively, reflected on the consolidated balance sheets is net of this adjustment.

 

 

 

June 30, 2019

 

September 30, 2018

Raw materials

 

35,505   

 

30,200   

Finished goods

 

254,351   

 

104,677   

Total

 

289,856   

 

134,877   

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued ASU 2018-07 which simplifies several aspects of the accounting for non-employee transactions by stipulating that the existing accounting guidance for share-based payments to employees (accounted for under ASC Topic 718, "Compensation-Stock Compensation") will also apply to non-employee share-based transactions (accounted for under ASC Topic 505, "Equity"). ASU 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this ASU on its consolidated financial statements.

 

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 core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the consolidated


12


balance sheet.   The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.  The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted.  In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.  The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification accounting, to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. The amendments are effective for fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU No. 2017-09 on October 1, 2018, and this adoption did not have an impact on the Company's financial statements.

 

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.  The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments.  As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period.  The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

 

 

2. GEOGRAPHIC CONCENTRATION

 

The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis.

 

Information about the Company’s geographic operations are as follows:

 

Geographic Concentrations

 

 

 

 

 

 

 

                                                      

Nine Months Ended

June 30, 2019

 

Nine Months Ended

June 30, 2018

Net Revenue:

 

 

 

North America

715,702   

 

368,321   

Japan

549,431   

 

650,528   

South Korea

39,433   

 

-   

 

1,304,566   

 

1,018,849   

 

 

 

 

Property and equipment, net:

June 30, 2019   

 

September 30, 2018   

North America

1,543,862   

 

508,711   

Japan

7,875   

 

7,864   

South Korea

436,014   

 

157,818   

 

1,987,751   

 

674,393   

 

 

3. RELATED PARTY TRANSACTIONS

 

Sales, Purchases and Operating Expenses

 

For the nine months ended June 30, 2019 and 2018, NuZee JP sold their products to Eguchi Holdings Co., Ltd (“EHCL”), and the sales to them totaled approximately $3,174 and $3,198 respectively. The corresponding accounts receivable balance from EHCL was $117 and $222 as of June 30, 2019 and September 30, 2018, respectively.

 

EHCL leased an employee to NuZee JP with no fee during the nine months ended June 30, 2019.

 


13


NuZee Investment leased an employee to Contlus, Inc. (“Contlus”). Contlus is the Company’s related party as the Company holds 50% of Contlus’s issued shares. Contlus has payable balance of $34,568 as of June 30, 2019.

 

Rent

 

During October 2016, NuZee JP entered into a rental agreement of an office space with NuZee Co., Ltd.   The Company pays $1,169 per month for the office on the last day of each month on behalf of NuZee JP. There is no set expiration date on the agreement.

 

During September 2016, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company pays $1,213 per month for the office and the warehouse on the last day of each month. The term of this agreement is 3 years and the Company expects it will be automatically renewed. At June 30, 2019, the payable balance under this lease was $1,068.

 

During February 2015, the Company entered into a rental agreement of a warehouse with Eguchi Steel Co.,Ltd (“ESCL”). The Company pays $449 per month for the warehouse on the last day of each month. There is no set expiration date on the agreement. ESCL is the Company’s related party as they are controlled by Katsuyoshi Eguchi who is a director and the minority owner of NuZee JP.

 

4. COMMON STOCK

 

During the nine months ended June 30, 2019, the Company sold 1,011,083 shares of common stock at a weighted average price of $5.28 per share, for an aggregate purchase price of $5,335,192, as well as incurred $27,628 in stock issuance costs. The proceeds will be used for general corporate purposes. 78,608 shares out of the 1,011,083 shares were sold to Nuzee Co., Ltd for total purchase price of $459,855.

 

During the nine months ended June 30, 2019, the Company issued 17,884 shares of common stock to settle payables amounting to $32,239. The Company recognized a loss on settlement of payables of $91,684 for the nine months ended June 30, 2019.

 

During the nine months ended June 30, 2019, the Company issued 150,000 shares of common stock to satisfy a previously committed service obligation of $37,500.

 

 

5.  STOCK OPTIONS

 

The following table summarizes stock option activity for nine months ended June 30, 2019:

 

 

 

 

 

Weighted

 

Weighted

 

 

 

 

 

 

Average

 

Average

 

 

 

 

Number of

 

Exercise

 

Remaining

 

Aggregate

                                                            

 

     Shares     

 

     Price     

 

Contractual Life (years)

 

Intrinsic Value

Outstanding at September 30, 2018

 

3,942,000   

 

0.78   

 

8.9   

 

4,407,160   

Granted

 

1,420,000   

 

6.39   

 

 

 

 

Exercised

 

-   

 

-   

 

 

 

 

Expired

 

-   

 

-   

 

 

 

 

Forfeited

 

-   

 

-   

 

 

 

 

Outstanding at June 30, 2019

 

5,362,000   

 

2.30   

 

8.6   

 

95,077,360   

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2019

 

732,000   

 

0.64   

 

7.9   

 

14,168,160   

 

The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expenses of $10,608,751 for nine months ended June 30, 2019. Unamortized option expense as of June 30, 2019, for all options outstanding amounted to approximately $19,273,719. These costs are expected to be recognized over a weighted-average period of 1.7 years. The Company recognized stock option expenses of $366,708 for nine months ended June 30, 2018.

 

A summary of the status of the Company’s nonvested options as of June 30, 2019, is presented below:

 

Nonvested options

 

 

 

 

 

 

 

Number of

                                                                       

 

Nonvested Shares

Nonvested shares at September 30, 2018

3,310,000   

Granted

 

1,420,000   

Exercised

 

-   

Forfeited

 

-   

Vested

 

(100,000)  

Nonvested shares at June 30, 2019

 

4,630,000   


14


6. SUBSEQUENT EVENT

 

In July 2019, we sold 102,996 shares for $5.85 per share for an aggregate purchase price of $602,530 in private offerings pursuant to Regulation S, Regulation D or Section 4(a)(2) under the Securities Act.


15


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition.  The discussion should be read along with our financial statements and notes thereto.  This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance.  Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events.  You should not place undue certainty on these forward- looking statements.  These forward-looking statements are subject to certain risk s and uncertainties that could cause actual results to differ materially from our predictions.

 

Overview

 

We are a specialty coffee company and a leading U.S. single serve pour over coffee producer and co-packer. We also have single serve pour over coffee sales operations in Japan as well as manufacturing and sales operations in Korea. We own highly sophisticated packing equipment developed in Japan for pour over coffee production. We have certain exclusive agreements with equipment suppliers based in Japan that we believe significantly restrict our North American competitors access to this equipment or ability to grow. As such, we believe we are a leader in the pour over coffee market in North America.

 

Our co-packing customers include Gevalia ® Kaffe, a Kraft Heinz brand, Copper Cow Coffee, Alumbre Coffee, C&C Hawaii Coffee, Idyllwild Coffee and Virgin Islands Coffee.

 

Our operational approach has and will remain to develop and manufacture our products under strict guidelines for good manufacturing and food safety practices before releasing our products to the market.  We own our formulas.

 

By the end of the next calendar year, we are targeting that our pour over products will be 100% biodegradable or recyclable making them the most environmentally conscious single serve product in the market

 

Market Opportunity

 

As an emerging company in the functional beverage sector we are participating in a large growing market with historically growing sales. The functional beverage category is expected to reach $105 billion by 2021. Over 60% of US consumers drink coffee daily and roughly a third of consumers own a single serve cup machine, providing a large opportunity for our pour over single serve coffee products.

 

Results of Operations

 

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

 

Revenue. For the three months ended June 30, 2019, our revenue increased approximately 116% compared with the same time period in 2018. This increase is primarily related to the increase in U.S. co-packing revenue from large well-established companies partially offset by a shift away from K-Cup sales and lower sales from our Japanese subsidiary.

 

Gross Profit. For the three months ended June 30, 2019, we earned a total gross profit of $116,157 from sales of our products and co-packing services, compared to $98,229 for the same period of 2018.  The margin rate was 20% for the three months ended June 30, 2019, and 36% for the three months ended June 30, 2018. This decrease in margin is driven by lower margins from our Japanese subsidiary due to large co-packing orders during this period, partially offset by greater margins in the U.S.

 

Expenses. For the three months ended June 30, 2019, our Company’s operating expenses totaled $9,514,003 versus $731,827 for the same period in the prior year. This increase is primarily related to an increase in stock compensation expense and, to a lesser extent, an increase in employee costs, legal costs and the costs for consultants.

 

Net Loss.  For the three months ended June 30, 2019, we generated net losses of $9,406,503 versus $633,739 for the same period in the prior year. This loss was attributed primarily to an increase operating expenses due to greater stock compensation expenses and, to a lesser extent, higher employee and related costs, legal costs, costs for consultants and lower margin rates.

 

Nine Months Ended June 30, 2019 Compared to Nine Months Ended June 30, 2018

 

Revenue. For the nine months ended June 30, 2019, our revenue increased approximately 28% compared with the nine months ended June 30, 2018. This increase is primarily related to the increase in co-packing revenue from large well-established companies partially offset by a shift away from K-Cup sales and lower sales from our Japanese subsidiary.

 

Gross Profit. For the nine months ended June 30, 2019, we earned a total gross profit of $380,663 from sales of our products and co-packing services, compared to $319,352 for the nine months ended June 30, 2018.  The margin rate was 29% for the nine months ended June 30, 2019, and 31% for the nine months ended June 30, 2018. This decrease in margin is driven by greater costs and inefficiencies due to learning curve on initial large co-packing orders during this period compared to a more established K-Cup business in the same


16


period in the prior year.

 

Expenses. For the nine months ended June 30, 2019, our Company’s operating expenses totaled $13,668,299 versus $2,330,605 for the nine months ended June 30, 2018. This increase is primarily related to an increase in stock compensation expense and, to a lesser extent, an increase in employee costs, legal costs and the costs for consultants.

 

Net Loss.  For the nine months ended June 30, 2019, we generated net losses of $13,436,197 versus $2,025,712 for the nine months ended June 30, 2018. This loss was attributed primarily to an increase in operating expenses due to greater stock compensation expenses and, to a lesser extent, higher employee and related costs, legal costs, costs for consultants and lower margin rates.

 

Geographic Concentrations

 

Our operations are primarily split between two geographic areas: North America and Asia.

 

For the nine months ended June 30, 2019, net revenues attributable to our operations in North America totaled $715,702, compared to $368,321 of net revenues attributable to our operations in North America during the nine months ended June 30, 2018.

 

For the nine months ended June 30, 2019, net revenues attributable to our operations in Asia totaled $588,864, compared to $650,528 of net revenues attributable to our operations in Asia during the nine months ended June 30, 2018.

 

Liquidity and Capital Resources

 

As of June 30, 2019, we had a cash balance of $3,061,430 and $1,806,666 as of September 30, 2018; this increase was primarily due equity capital raised by the Company.

 

Accounts receivable were $357,982 at June 30, 2019 compared to $144,632 at September 30, 2018, representing an increase of $213,350 due to an increase in sales volumes in the period. Inventories as of June 30, 2019 increased about 115% since September 30, 2018, in preparation of known orders and ramp up in production at NuZee Korea.

 

Our auditor has indicated that there is substantial doubt about our ability to continue as a going concern due to our lack of significant revenues, recurring losses from operations, negative cash flow and if we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Our current cash balance as of June 30, 2019, is not sufficient to fund our operations for the next twelve months. Therefore, the Company intends to engage in additional financing through the sale of equity securities. Subsequent to June 30, 2019, we sold 102,996 shares for $5.85 per share for an aggregate purchase price of $602,530 in private offerings pursuant to Regulation S, Regulation D or Section 4(a)(2) under the Securities Act.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

Item 4.  Controls and Procedures

 

As of the end of the period covered by this Report, the Company’s management, including its principal executive officer and principal financial officer , evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, the principal executive officer and principal financial officer concluded that, as of the date of the evaluation, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure, and due to the material weaknesses in our internal control over financial reporting described in our annual report on Form 10-K for the year ended September 30, 2018, which have not yet been remediated. Management is responsible for implementing changes and improvements to internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses. We will not consider these material weaknesses fully remediated until management has tested those internal controls and found them to be operating effectively.


17


Changes in Internal Control Over Financial Reporting

 

Other than as described above, there have been no changes in our internal control over financial reporting during the three-month period ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


18


 

PART II.

 

Item 1. Legal Proceedings None.

 

Item 1A. Risk Factors

 

There have been no changes to our risk factors from those disclosed in our Form 10-K filed on February 11, 2019

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the quarter ended June 30, 2019, the Company sold 618,800 shares of common stock at $5.84 per share, for an aggregate purchase price of $3,612,183. The proceeds will be used for general corporate purposes.

 

In July of 2019, we sold 102,996 shares for $5.85 per share for a total of $602,530.

 

All the investors were non-U.S. persons (as that term is defined in Regulation S of the Securities Act, as amended) who purchased in transactions outside of the United States.  In issuing shares to those investors, we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act, as amended.

 

Item 3. Defaults Upon Senior Securities None.

 

Item 4.   Mine Safety Disclosures Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6.  Exhibits

 

EXHIBIT NO.

DESCRIPTION

10.1*

Multi-Tenant Industrial Triple Net Lease, dated May 9, 2019

 

between the Company and Icon Owner Pool I Texas LLC

31.1*

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as

 

adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as

 

adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18

 

U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

 

of 2002

32.2*

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as

 

adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101**

Interactive Data Files

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

*  Filed herewith

 

**  Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.


19


 

SIGNATURES

 

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

 

Date:

August 14, 2019

 

NUZEE, INC.

 

 

 

 

 

By:

/s/ Masateru Higashida

 

 

 

Masateru Higashida, Chief Executive Officer

(Principal Executive Officer)

 

 

By:

/s/ Shanoop Kothari

 

 

 

Shanoop Kothari, Chief Financial Officer

(Principal Financial Officer)


20