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 |
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20212022
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_____________________to________
Commission File No. 001-39338
NUZEE, INC.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) |
1 4011401 Capital Avenue, Suite B, Plano, TX, 75074
(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:
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.00001 par value | NUZE | The NASDAQ Stock Market LLC |
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 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). 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, 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 | ||||
Non-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 [X] ☒
As of May 12, 2021,2022, the registrant had 17,820,390 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, 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” 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 | |
● | the impact to our business from the COVID-19 global | |
● | the evolving coffee preferences of coffee consumers in North | |
● | the size and growth of the markets for our products and co-packing services; | |
● |
| |
our ability to compete with companies producing similar | ||
● | our expectation that our existing capital resources will be sufficient to fund our operations for
| |
● | our ability to successfully achieve the anticipated results of strategic transactions, including our acquisition of substantially all of the assets of Dripkit (as defined below); | |
● | our expectation regarding our future co-packing revenues; | |
● | our ability to develop innovative new products and expand our co-packing services to other products that are complementary to our current single serve coffee product offerings; | |
● | our reliance on third-party roasters to roast coffee beans necessary to manufacture our products and 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; | |
● | the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; | |
● | our ability to develop and maintain our corporate infrastructure, including our internal control over financial reporting; | |
● | ||
● | our financial performance. |
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 December 28, 202022, 2021, 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.Statements
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2021 | September 30, 2020 | March 31, 2022 | September 30, 2021 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 15,035,026 | $ | 4,398,545 | $ | 8,211,703 | $ | 10,815,954 | ||||||||
Accounts receivable, net | 261,132 | 195,610 | 646,886 | 555,238 | ||||||||||||
Inventories, net | 241,291 | 245,370 | 631,284 | 573,464 | ||||||||||||
Prepaid expenses and other current assets | 130,185 | 645,375 | 1,012,441 | 482,288 | ||||||||||||
Total current assets | 15,667,634 | 5,484,900 | 10,502,314 | 12,426,944 | ||||||||||||
Property and equipment, net | 881,975 | 1,668,348 | 672,645 | 674,024 | ||||||||||||
Other assets: | ||||||||||||||||
Right-of-use asset - operating lease | 521,983 | 652,197 | 850,414 | 386,587 | ||||||||||||
Right-of-use asset - finance lease | - | 105,825 | ||||||||||||||
Investments | 179,339 | 183,314 | ||||||||||||||
Investment | 173,129 | 175,425 | ||||||||||||||
Goodwill | 531,412 | - | ||||||||||||||
Intangible assets, net | 323,389 | - | ||||||||||||||
Other assets | 81,926 | 80,559 | 105,349 | 79,822 | ||||||||||||
Total other assets | 783,248 | 1,021,895 | 1,983,693 | 641,834 | ||||||||||||
Total assets | $ | 17,332,857 | $ | 8,175,143 | $ | 13,158,652 | $ | 13,742,802 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 42,249 | $ | 49,778 | $ | 839,121 | $ | 342,790 | ||||||||
Current portion of long-term loan payable | 57,815 | 56,072 | 19,519 | 43,618 | ||||||||||||
Current portion of lease liability - operating lease | 227,979 | 263,678 | 349,825 | 150,931 | ||||||||||||
Current portion of lease liability - finance lease | 26,123 | 21,598 | 29,665 | 27,833 | ||||||||||||
Accrued expenses | 699,575 | 703,069 | 177,089 | 274,009 | ||||||||||||
Deferred income | 47,516 | 34,000 | 289,031 | 175,822 | ||||||||||||
Other current liabilities | 321,687 | 104,525 | 45,922 | 138,631 | ||||||||||||
Advances received on sale of equity securities | 300,000 | - | ||||||||||||||
Total current liabilities | 1,422,944 | 1,232,720 | 2,050,172 | 1,153,634 | ||||||||||||
Non-current liabilities: | ||||||||||||||||
Lease liability - operating lease, net of current portion | 303,601 | 395,713 | 515,608 | 247,656 | ||||||||||||
Lease liability - finance lease, net of current portion | 63,418 | 78,400 | 36,865 | 50,567 | ||||||||||||
Loan payable - long term, net of current portion | 29,131 | 56,845 | 8,748 | 12,696 | ||||||||||||
Other noncurrent liabilities | 22,437 | 21,707 | 77,429 | 65,802 | ||||||||||||
418,587 | 552,665 | |||||||||||||||
Total non-current liabilities | 638,650 | 376,721 | ||||||||||||||
Total liabilities | 1,841,531 | 1,785,385 | $ | 2,688,822 | $ | 1,530,355 | ||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock; 100,000,000 shares authorized, $0.00001 par value; 17,820,390 and 14,570,105 shares issued | 178 | 146 | ||||||||||||||
Common stock; | shares authorized, $ par value; and shares issued and outstanding as of March 31, 2022, and September 30, 2021, respectively$ | 185 | $ | 178 | ||||||||||||
Additional paid in capital | 61,549,965 | 40,472,229 | 69,098,937 | 64,839,254 | ||||||||||||
Accumulated deficit | (46,254,458 | ) | (34,272,778 | ) | (58,852,708 | ) | (52,824,808 | ) | ||||||||
Accumulated other comprehensive income | 195,641 | 190,161 | 223,416 | 197,823 | ||||||||||||
Total stockholders’ equity | 15,491,326 | 6,389,758 | 10,469,830 | 12,212,447 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 17,332,857 | $ | 8,175,143 | $ | 13,158,652 | $ | 13,742,802 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31 ,2021 | Three Months Ended March 31 ,2020 | Six Months Ended March 31 ,2021 | Six Months Ended March 31 ,2020 | |||||||||||||
Revenues | $ | 414,064 | $ | 393,392 | $ | 932,051 | $ | 939,600 | ||||||||
Cost of sales | 423,113 | 496,692 | 939,397 | 919,865 | ||||||||||||
Gross Profit (Loss) | (9,049 | ) | (103,300 | ) | (7,346 | ) | 19,735 | |||||||||
Operating expenses | 6,111,759 | 2,413,632 | 12,015,585 | 5,963,465 | ||||||||||||
Loss from operations | (6,120,808 | ) | (2,516,932 | ) | (12,022,931 | ) | (5,943,730 | ) | ||||||||
Loss from investment in unconsolidated affiliate | (1,919 | ) | - | (3,975 | ) | - | ||||||||||
Other income | 41,093 | 1,134 | 53,714 | 2,981 | ||||||||||||
Other expense | (244 | ) | (15 | ) | (813 | ) | (2,599 | ) | ||||||||
Interest expense | (3,730 | ) | (5,407 | ) | (7,675 | ) | (10,125 | ) | ||||||||
Net loss | (6,085,608 | ) | (2,521,220 | ) | (11,981,680 | ) | (5,953,473 | ) | ||||||||
Net income (loss) attributable to noncontrolling interest | - | (30,969 | ) | - | (41,990 | ) | ||||||||||
Net loss attributable to NuZee, Inc. | $ | (6,085,608 | ) | $ | (2,490,251 | ) | $ | (11,981,680 | ) | $ | (5,911,483 | ) | ||||
Basic and diluted loss per common share | $ | (0.40 | ) | $ | (0.18 | ) | $ | (0.80 | ) | $ | (0.43 | ) | ||||
Basic and diluted weighted average number of common stock outstanding | 15,260,986 | 13,729,104 | 14,998,201 | 13,714,223 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the three months eneded | NuZee, Inc. | Noncontrolling Interests | Total | |||||||||||||||||||||
March 31 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||
Net loss | $ | (6,085,608 | ) | $ | (2,490,251 | ) | $ | - | $ | (30,969 | ) | $ | (6,085,608 | ) | $ | (2,521,220 | ) | |||||||
Foreign currency translation | 3,824 | (96,949 | ) | - | 75,196 | 3,824 | (21,753 | ) | ||||||||||||||||
Total other comprehensive income (loss), net of tax | 3,824 | (96,949 | ) | - | 75,196 | 3,824 | (21,753 | ) | ||||||||||||||||
Comprehensive income (loss) | $ | (6,081,784 | ) | $ | (2,587,200 | ) | $ | - | $ | 44,227 | $ | (6,081,784 | ) | $ | (2,542,973 | ) |
For the six months eneded | NuZee, Inc. | Noncontrolling Interests | Total | |||||||||||||||||||||
March 31 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||
Net loss | $ | (11,981,680 | ) | $ | (5,911,483 | ) | $ | - | $ | (41,990 | ) | $ | (11,981,680 | ) | $ | (5,953,473 | ) | |||||||
Foreign currency translation | 5,480 | (69,719 | ) | - | 80,838 | 5,480 | 11,119 | |||||||||||||||||
Total other comprehensive income (loss), net of tax | 5,480 | (69,719 | ) | - | 80,838 | 5,480 | 11,119 | |||||||||||||||||
Comprehensive income (loss) | $ | (11,976,200 | ) | $ | (5,981,202 | ) | $ | - | $ | 38,848 | $ | (11,976,200 | ) | $ | (5,942,354 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements
Consolidated Statements of Stockholders’ Equity
(unaudited)
Accumulated | ||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
Balance September 30, 2020 | 14,570,105 | $ | 146 | $ | 40,472,229 | $ | (34,272,778 | ) | $ | 190,161 | $ | 6,389,758 | ||||||||||||
Equity securities issued for cash | 324,959 | 3 | 2,683,977 | - | - | 2,683,980 | ||||||||||||||||||
Stock option expense | - | - | 4,507,298 | - | - | 4,507,298 | ||||||||||||||||||
Exercise of stock options | 6,000 | - | 9,180 | - | - | 9,180 | ||||||||||||||||||
Other comprehensive gain | - | - | - | - | 1,656 | 1,656 | ||||||||||||||||||
Net loss | - | - | - | (5,896,072 | ) | - | (5,896,072 | ) | ||||||||||||||||
Balance December 31, 2020 | 14,901,064 | $ | 149 | $ | 47,672,684 | $ | (40,168,850 | ) | $ | 191,817 | $ | 7,695,800 | ||||||||||||
Equity securities issued for cash | 2,782,111 | 28 | 11,017,276 | - | - | 11,017,304 | ||||||||||||||||||
Common stock issued for compensation | 137,215 | 1 | 870,999 | - | - | 871,000 | ||||||||||||||||||
Stock option expense | - | - | 1,989,006 | - | - | 1,989,006 | ||||||||||||||||||
Other comprehensive gain | - | - | - | - | 3,824 | 3,824 | ||||||||||||||||||
Net loss | - | - | - | (6,085,608 | ) | - | (6,085,608 | ) | ||||||||||||||||
Balance March 31, 2021 | 17,820,390 | $ | 178 | $ | 61,549,965 | $ | (46,254,458 | ) | $ | 195,641 | $ | 15,491,326 |
NuZee , Inc.
Consolidated Statements of Stockholders’ Equity
(unaudited)
Accumulated | ||||||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||||||
Common stock | paid-in | Accumulated | Noncontrolling | comprehensive | ||||||||||||||||||||||||
Shares | Amount | capital | deficit | interest | income (loss) | Total | ||||||||||||||||||||||
Balance September 30, 2019 | 13,617,366 | $ | 137 | $ | 28,898,344 | $ | (24,795,687 | ) | $ | 102,903 | $ | (90,635 | ) | $ | 4,115,062 | |||||||||||||
Equity securities issued for cash | 111,738 | 1 | 1,994,522 | - | - | - | 1,994,523 | |||||||||||||||||||||
Stock option expense | - | - | 2,220,861 | - | - | - | 2,220,861 | |||||||||||||||||||||
Other comprehensive gain | - | - | - | - | 5,642 | 27,230 | 32,872 | |||||||||||||||||||||
Net loss | - | - | - | (3,421,232 | ) | (11,021 | ) | - | (3,432,253 | ) | ||||||||||||||||||
Balance December 31, 2019 | 13,729,104 | $ | 138 | $ | 33,113,727 | $ | (28,216,919 | ) | $ | 97,524 | $ | (63,405 | ) | $ | 4,931,065 | |||||||||||||
Stock option expense | - | - | 962,490 | - | - | - | 962,490 | |||||||||||||||||||||
Other comprehensive gain / (loss) | - | - | - | - | 75,196 | (96,949 | ) | (21,753 | ) | |||||||||||||||||||
Net loss | - | - | - | (2,490,251 | ) | (30,969 | ) | - | (2,521,220 | ) | ||||||||||||||||||
Balance March 31, 2020 | 13,729,104 | $ | 138 | $ | 34,076,217 | $ | (30,707,170 | ) | $ | 141,751 | $ | (160,354 | ) | $ | 3,350,582 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 |
CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(UNAUDITED)
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | |||||||||||||
Revenues, net | $ | 715,073 | $ | 414,064 | $ | 1,734,326 | $ | 932,051 | ||||||||
Cost of sales | 714,092 | 423,113 | 1,717,974 | 939,397 | ||||||||||||
Gross profit | 981 | (9,049 | ) | 16,352 | (7,346 | ) | ||||||||||
Operating expenses | 3,196,479 | 6,077,548 | 6,007,668 | 11,937,411 | ||||||||||||
Loss from operations | (3,195,498 | ) | (6,086,597 | ) | (5,991,316 | ) | (11,944,757 | ) | ||||||||
Loss from investment in unconsolidated affiliate | (1,139 | ) | (1,919 | ) | (2,296 | ) | (3,975 | ) | ||||||||
Other income | 42,461 | 41,093 | 85,218 | 53,714 | ||||||||||||
Other expense | (67,106 | ) | (34,455 | ) | (114,528 | ) | (78,987 | ) | ||||||||
Interest expense, net | (2,415 | ) | (3,730 | ) | (4,978 | ) | (7,675 | ) | ||||||||
Net loss | $ | (3,223,697 | ) | $ | (6,085,608 | ) | $ | (6,027,900 | ) | $ | (11,981,680 | ) | ||||
Basic and diluted loss per common share | $ | (0.18 | ) | $ | (0.40 | ) | $ | (0.33 | ) | $ | (0.80 | ) | ||||
Basic and diluted weighted average number of common stock outstanding | 18,300,531 | 15,260,986 | 18,154,879 | 14,998,201 |
Six Months Ended March 31, 2021 | Six Months Ended March 31, 2020 | |||||||
Operating activities: | ||||||||
Net loss | $ | (11,981,680 | ) | $ | (5,953,473 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used by operating activities: | ||||||||
Depreciation and Amortization | 161,911 | 209,386 | ||||||
Noncash lease expense | 142,664 | 55,189 | ||||||
Stock option expense | 6,496,304 | 3,183,351 | ||||||
Property and equipment impairment | 840,391 | - | ||||||
Common stock issued for compensation | 871,000 | - | ||||||
Sales allowance | (2,003 | ) | - | |||||
Write-off of deferred offering costs | 477,605 | - | ||||||
Loss from investment in unconsolidated affiliate | 3,975 | - | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (63,519 | ) | 211,383 | |||||
Accounts receivable - Related party | - | (130 | ) | |||||
Inventories | 4,079 | 203,428 | ||||||
Prepaid expense and other current assets | 50,448 | (32,094 | ) | |||||
Other current assets - Related party | - | 460 | ||||||
Other asset | (1,367 | ) | (24,552 | ) | ||||
Accounts payable | (7,529 | ) | (141,891 | ) | ||||
Deferred income | 13,516 | - | ||||||
Other non-current liabilities | 730 | 6,999 | ||||||
Operating lease liabilities | (127,811 | ) | (45,210 | ) | ||||
Other current liabilities | 217,162 | - | ||||||
Finance lease liabilities | - | (9,209 | ) | |||||
Other current liabilities - related party | - | (744 | ) | |||||
Accrued expense and other current liabilities | (16,357 | ) | 101,355 | |||||
Net cash used in operating activities | (2,920,481 | ) | (2,235,752 | ) | ||||
Investing activities: | ||||||||
Cash paid for deferred offering cost | - | (403,554 | ) | |||||
Cash paid for purchase of fixed assets, net | (122,554 | ) | (16,306 | ) | ||||
Net cash used in investing activities | (122,554 | ) | (419,860 | ) | ||||
Financing activities: | ||||||||
Proceeds from exercise of options | 9,180 | - | ||||||
Repayment of loans | (25,971 | ) | (52,453 | ) | ||||
Repayment of finance lease | (10,457 | ) | - | |||||
Stock issuance costs | (669,433 | ) | - | |||||
Proceeds from issuance of equity securities | 14,370,717 | 1,994,523 | ||||||
Net cash provided by financing activities | 13,674,036 | 1,942,070 | ||||||
Effect of foreign exchange on cash and cash equivalents | 5,480 | 11,119 | ||||||
Net change in cash | 10,636,481 | (702,423 | ) | |||||
Cash, beginning of period | 4,398,545 | 1,326,040 | ||||||
Cash, end of period | $ | 15,035,026 | $ | 623,617 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 7,792 | $ | 1,774 | ||||
Cash paid for taxes | $ | 1,050 | $ | 800 | ||||
Non-cash transactions | ||||||||
Recognition of right-of-use asset and lease liability upon adoption of ASU 2016-02 | $ | - | $ | 517,263 | ||||
Finance lease of equipment to pay off accounts payable | $ | - | $ | 124,540 | ||||
Recognition of right-of-use asset and lease liability during the period | $ | - | $ | 115,603 |
The accompanying notes are an integral part of these unaudited consolidated financial statementsstatements.
5 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the three months ended March 31 | 2022 | 2021 | ||||||
NuZee, Inc. | ||||||||
For the three months ended March 31 | 2022 | 2021 | ||||||
Net loss | $ | (3,223,697 | ) | $ | (6,085,608 | ) | ||
Foreign currency translation | (7,095 | ) | 3,824 | |||||
Total other comprehensive (loss) income, net of tax | (7,095 | ) | 3,824 | |||||
Comprehensive loss | $ | (3,230,792 | ) | $ | (6,081,784 | ) |
For the six months ended March 31 | 2022 | 2021 | ||||||
NuZee, Inc. | ||||||||
For the six months ended March 31 | 2022 | 2021 | ||||||
Net loss | $ | (6,027,900 | ) | $ | (11,981,680 | ) | ||
Foreign currency translation | 25,593 | 5,480 | ||||||
Total other comprehensive income, net of tax | 25,593 | 5,480 | ||||||
Total other comprehensive (loss) income, net of tax | 25,593 | 5,480 | ||||||
Comprehensive loss | $ | (6,002,307 | ) | $ | (11,976,200 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
Balance September 30, 2021 | 17,820,390 | $ | 178 | $ | 64,839,254 | $ | (52,824,808 | ) | $ | 197,823 | $ | 12,212,447 | ||||||||||||
Exercise of warrants | 384,447 | 4 | 1,721,014 | - | - | 1,721,018 | ||||||||||||||||||
Stock option expense | - | - | 1,124,187 | - | - | 1,124,187 | ||||||||||||||||||
Other comprehensive gain | - | - | - | - | 32,688 | 32,688 | ||||||||||||||||||
Net loss | - | - | - | (2,804,203 | ) | - | (2,804,203 | ) | ||||||||||||||||
Balance December 31, 2021 | 18,204,837 | $ | 182 | $ | 67,684,455 | $ | (55,629,011 | ) | $ | 230,511 | $ | 12,286,137 | ||||||||||||
Warrant issuance costs | - | - | (18,422 | ) | - | - | (18,422 | ) | ||||||||||||||||
Common stock issued for cash, ATM offering | 42,448 | - | 88,426 | - | - | 88,426 | ||||||||||||||||||
Common stock issued for Dripkit acquisition | 178,681 | 2 | 386,842 | - | - | 386,844 | ||||||||||||||||||
Stock option expense | - | - | 935,447 | - | - | 935,447 | ||||||||||||||||||
Exercise of stock options | 14,000 | - | 12,600 | - | - | 12,600 | ||||||||||||||||||
Restricted stock award issuance | 117,920 | 1 | 9,589 | - | - | 9,590 | ||||||||||||||||||
Other comprehensive loss | - | - | - | - | (7,095 | ) | (7,095 | ) | ||||||||||||||||
Net loss | - | - | - | (3,223,697 | ) | - | (3,223,697 | ) | ||||||||||||||||
Balance March 31, 2022 | 18,557,886 | 185 | $ | 69,098,937 | $ | (58,852,708 | ) | $ | 223,416 | $ | 10,469,830 |
Accumulated | ||||||||||||||||||||||||
Common stock | Additional paid-in | Accumulated | other comprehensive | |||||||||||||||||||||
Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
Balance September 30, 2020 | 14,570,105 | $ | 146 | $ | 40,472,229 | $ | (34,272,778 | ) | $ | 190,161 | $ | 6,389,758 | ||||||||||||
Equity securities issued for cash | 324,959 | 3 | 2,683,977 | 2,683,980 | ||||||||||||||||||||
Stock option expense | - | - | 4,507,298 | - | - | 4,507,298 | ||||||||||||||||||
Exercise of stock options | 6,000 | - | 9,180 | - | - | 9,180 | ||||||||||||||||||
Other comprehensive gain | - | - | - | - | 1,656 | 1,656 | ||||||||||||||||||
Net loss | - | - | - | (5,896,072 | ) | - | (5,896,072 | ) | ||||||||||||||||
Balance December 31, 2020 | 14,901,064 | $ | 149 | $ | 47,672,684 | $ | (40,168,850 | ) | $ | 191,817 | $ | 7,695,800 | ||||||||||||
- | ||||||||||||||||||||||||
Equity securities issued for cash | 2,782,111 | 28 | 11,017,276 | - | - | 11,017,304 | ||||||||||||||||||
Restricted stock award issuance | 137,215 | 1 | 870,999 | 871,000 | ||||||||||||||||||||
Stock option expense | - | - | 1,989,006 | - | - | 1,989,006 | ||||||||||||||||||
Other comprehensive gain | - | - | - | - | 3,824 | 3,824 | ||||||||||||||||||
Net loss | - | - | - | (6,085,608 | ) | (6,085,608 | ) | |||||||||||||||||
Balance March 31, 2021 | 17,820,390 | 178 | $ | 61,549,965 | $ | (46,254,458 | ) | $ | 195,641 | $ | 15,491,326 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended | Six Months Ended | |||||||
March 31, 2022 | March 31, 2021 | |||||||
Operating activities: | ||||||||
Net loss | $ | (6,027,900 | ) | $ | (11,981,680 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and Amortization | 166,161 | 161,911 | ||||||
Noncash lease expense | 94,544 | 142,664 | ||||||
Stock option expense | 2,059,634 | 6,496,304 | ||||||
Restricted stock award compensation | 9,590 | 871,000 | ||||||
Property and equipment impairment | - | 840,391 | ||||||
Sales allowance | - | (2,003 | ) | |||||
Loss on disposition of asset | 12,618 | - | ||||||
Write-off of deferred offering costs | - | 477,605 | ||||||
Loss from investment in unconsolidated affiliate | 2,296 | 3,975 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (91,648 | ) | (63,519 | ) | ||||
Inventories | (48,156 | ) | 4,079 | |||||
Prepaid expenses and other current assets | (432,286 | ) | 50,448 | |||||
Other assets | (25,527 | ) | (1,367 | ) | ||||
Accounts payable | 398,464 | (7,529 | ) | |||||
Deferred income | 113,209 | 13,516 | ||||||
Lease liability – operating lease | (91,525 | ) | (127,811 | ) | ||||
Accrued expenses and other current liabilities | (305,129 | ) | 200,805 | |||||
Other non-current liabilities | 11,627 | 730 | ||||||
Net cash used in operating activities | (4,154,028 | ) | (2,920,481 | ) | ||||
Investing activities: | ||||||||
Purchase of equipment | (165,689 | ) | (122,554 | ) | ||||
Acquisition of Dripkit | (373,832 | ) | - | |||||
Net cash used in investing activities | (539,521 | ) | (122,554 | ) | ||||
Financing activities: | ||||||||
Proceeds from issuance of common stock, exercise of options | 12,600 | 9,180 | ||||||
Repayment of loans | (28,047 | ) | (25,971 | ) | ||||
Repayment of finance lease | (11,870 | ) | (10,457 | ) | ||||
Stock issuance costs | - | (669,433 | ) | |||||
Proceeds from issuance of common stock, ATM offering | 88,426 | - | ||||||
Proceeds from issuance of common stock, exercise of warrants, net of issuance costs | 1,702,596 | 14,370,717 | ||||||
Advances received on sale of equity securities | 300,000 | - | ||||||
Net cash provided by financing activities | 2,063,705 | 13,674,036 | ||||||
Effect of foreign exchange on cash | 25,593 | 5,480 | ||||||
Net change in cash | (2,604,251 | ) | 10,636,481 | |||||
Cash, beginning of period | 10,815,954 | 4,398,545 | ||||||
Cash, end of period | $ | 8,211,703 | $ | 15,035,026 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 5,390 | $ | 7,792 | ||||
Cash paid for taxes | $ | - | $ | 1,050 | ||||
Non-cash transactions: | ||||||||
ROU assets and liabilities added during the period | $ | 558,371 | $ | - | ||||
Common stock issued in acquisition of Dripkit | $ | 386,844 | $ | - | ||||
Stock issuance costs accrued | $ | 97,867 | $ | - |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8 |
NuZee, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 20212022
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, 20202021 as filed with the SEC on December 28, 2020.22, 2021. 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 reportAnnual Report on Form 10-K for the year ended September 30, 2021, 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. We reclassified lease expenses associated with subleased property from operating expenses to other expenses totaling $78,174 for the six months ended March 31, 2021 and $34,211 for the three months ended March 31, 2021. We also reclassified $18,000 of capitalized software costs included in Property and Equipment, net at September 30, 2021 to Other assets. These reclassifications had no effect on the previously reported net loss.
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 and its former majority owned subsidiary (which was sold as of September 28, 2020, as described below), which has a fiscal year end of September 30.subsidiaries. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.
On September 28, 2020, the Company entered into a Stock Transfer Agreement with Eguchi Holdings Co., Ltd. (“EHCL”), pursuant to which the Company sold to EHCL for an aggregate sale price of approximately $34,000 all of its equity interests in its former majority-owned subsidiary, NuZee JAPAN Co., Ltd. (“NuZee JP”), representing 70% of the outstanding equity interests of NuZee JP.
The Company has two wholly owned international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”).
9 |
Stock Split
On October 28, 2019, we completedFebruary 25, 2022 (the “Closing Date”), the Company acquired substantially all the assets and certain specified liabilities (the “Acquisition”) of Dripkit, Inc., a l-for-3 reverse stock split, which became effectiveDelaware corporation (“Dripkit”), pursuant to the Asset Purchase Agreement, dated as of February 21, 2022 (the “Asset Purchase Agreement”), by and among the Company, Dripkit, and Dripkit’s existing investors (the “Stock Recipients”) who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the Acquisition was $860,000, plus the assumption of certain assumed liabilities, subject to certain adjustments and holdbacks as provided in the Asset Purchase Agreement. Dripkit is engaged in the business of manufacturing and sales of a single serve pour over coffee format that has a large-size single serve pour over pack that sits on November 12, 2019. All sharetop of the cup. Dripkit will operate as a new Dripkit Coffee business division that is wholly owned by NuZee, Inc. The Company analyzed the Acquisition under ASC 805 and per share informationconcluded that it should be accounted for as a business combination. The Acquisition has been included in thesethe Company’s financial statements and notes thereto give effect tofrom the reverse stock split.date of the Acquisition.
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 March 31, 20212022, and March 31, 2020,2021, the total number of common stock equivalents was 7,435,702 and 1,705,000, , respectively, comprised of stock options and warrants as of March 31, 20212022 and entirely of stock options as of March 31, 2020.2021. The Company incurred a net loss for the three and six months ended March 31, 20212022, and 2020,2021, respectively, and therefore basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.
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 raising capital.the commercialization and manufacture of its single serve coffee products. The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues.
As of March 31, 2021,2022, the Company had cash of $15,035,026.$8,211,703. However, the Company has not attained profitable operations since inception.
Major Customers
In the six months ended March 31, 20212022 and 2020,2021, revenue was primarily derived from major customers disclosed below.
SCHEDULE OF REVENUE BY MAJOR CUSTOMERS
Six months ended March 31, 2022:
Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||
Customer WP | $ | 520,208 | 30 | % | $ | 190,978 | 30 | % | ||||||||
Customer CU | $ | 252,137 | 15 | % | $ | 189,768 | 29 | % |
Six months ended March 31, 2021:
C ustomer Name | Sales Amount | % of Total Revenue Accounts | Receivable Amount | % of Total Accounts Receivable | ||||||||||||||||||||||||||||
Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||||||||||||||||||
Customer WP | $ | 261,799 | 28 | % | $ | 111,975 | 43 | % | $ | 261,799 | 28 | % | $ | 111,975 | 43 | % |
10 |
Lease
Six months ended March 31, 2020:
C ustomer Name | Sales Amount | % of Total Revenue Accounts | Receivable Amount | % of Total Accounts Receivable | ||||||||||||
Customer K | $ | 284,099 | 30 | % | $ | 206,905 | 63 | % | ||||||||
Customer WP | $ | 247,520 | 26 | % | $ | 115,471 | 35 | % | ||||||||
Customer J | $ | 151,925 | 16 | % | $ | 21,302 | 6 | % |
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 doesperforms a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. The Company has one significanta long-term operating lease for office and manufacturing space in Plano, Texas. The leased property in Plano, Texas, has a remaining lease term through June of 2024. The lease has an option to extend beyond the stated termination date, but exercise of this option is not probable. The Company did not apply the recognition requirements of ASC 842 to operating leases with a remaining lease term of 12 months or less.
The impact of ASU No. 2016-02 (“Leases (Topic 842)” onDuring our consolidated balance sheet beginning October 1, 2020, through the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases are as follows:
October 1, 2020 | ||||
ROU Asset | $ | 652,197 | ||
Lease Liability | $ | 659,391 |
During the prior year analysis of leases in the six months ended March 31, 2022, we determined to renew the office and manufacturing space in Vista, CA throughCalifornia which was scheduled to expire on January 31, 2022, which was previously scheduled to be vacated at June 30, 2020. Additionally,2023, through March 31, 2025. The lease has a monthly base rent of $8,451, plus common area expenses. Along with the Koreanextension, we leased an additional 1,796 square feet that will have a monthly base rent of $2,514 through March 31, 2025. We extended our sub-leased property in Vista, California, through January 31, 2023. The lease has a monthly rent of $2,111 andhas been calculated as a ROU Asset co-terminus with the direct-leased property. The Seoul, Korea office and manufacturing space lease was extended through June 2022 and there is an apartment lease was signedleased through June 2022. Additionally, the Company leased a new larger office and manufacturing space in Seoul, Korea beginning November 15, 2021, through November 15, 2023. The lease has a monthly expense of $7,040. Accordingly, we have added ROU assets and lease liabilities related to those leases at June 30, 2020.March 31, 2022.
The direct-leased property in Vista, California has a remaining lease term through January of 2022. The leased properties in both Korea and Vista, California have options to extend beyond the stated termination date, but exercise of these options are not probable. The sub-leased property in Vista, California, is leased month-to-month and has been calculated as a ROU Asset co-terminus with the direct-leased property.
In September 2020, we entered into an 18-month sublease effective October 1, 2020 reducing our space and term in Plano, Texas. Accordingly, this lease has been added to our right-of-use asset balance at September 30, 2020. This lease is for the Company’s principal executive office located at 1401 Capital Avenue, Suite B, Plano, Texas 75074.
Effective September 1, 2020, we converted our month-to-month sublease in Vista, California to a 17-month sublease ending January 31, 2022 which is co-terminus with our direct lease in Vista. The month-to-month sublease was recognized as a right-of-use asset in our June 30, 2020 analysis. The terms of the 17-month lease are similar to the terms used to value the right-of-use asset at June 30, 2020.
As of March 31, 2021,2022, our operating leases had a weighted average remaining lease term of 2.1 years and a weighted-average discount rate of 5%5%. Other information related to our operating leases is as follows:
SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE
ROU Asset – October 1, 2020 | $ | 652,197 | ||
Amortization during the period | (130,214 | ) | ||
ROU Asset –March 31, 2021 | $ | 521,983 | ||
Lease Liability – October 1, 2020 | $ | 659,391 | ||
Amortization during the period | (127,811 | ) | ||
Lease Liability – March 31, 2021 | $ | 531,580 |
ROU Asset – October 1, 2021 | $ | 386,587 | ||
ROU Asset added during the period | 558,371 | |||
Amortization during the period | (94,544 | ) | ||
ROU Asset –March 31, 2022 | $ | 850,414 | ||
Lease Liability – October 1, 2021 | $ | 398,587 | ||
Lease Liability added during the period | 558,371 | |||
Amortization during the period | (91,525 | ) | ||
Lease Liability – March 31, 2022 | $ | 865,433 | ||
Lease Liability – Short-Term | $ | 349,825 | ||
Lease Liability – Long-Term | 515,608 | |||
Lease Liability – Total | $ | 865,433 |
Lease Liability – Short-Term | $ | 227,979 | ||
Lease Liability – Long-Term | 303,601 | |||
Lease Liability – Total | $ | 531,580 |
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 March 31, 2021:2022:
Amounts due within 12twelve months of March 31,
SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES
2022 | $ | 255,678 | ||||||
2023 | 151,812 | $ | 373,017 | |||||
2024 | 128,928 | 343,295 | ||||||
2025 | 32,468 | 187,692 | ||||||
2026 | - | |||||||
Total Minimum Lease Payments | 568,886 | 904,004 | ||||||
Less Effect of Discounting | (37,306 | ) | (38,571 | ) | ||||
Present Value of Future Minimum Lease Payments | 531,580 | 865,433 | ||||||
Less Current Portion of Operating Lease Obligations | (227,979 | ) | ||||||
Long-Term Operating Lease Obligations | $ | 303,601 | ||||||
Less Current Portion of Operating Lease Liabilities | 349,825 | |||||||
Long-Term Operating Lease Liabilities | $ | 515,608 |
11 |
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 $2,987$2,987 per month for the next 60 months.through July 2024. As part of this agreement, Alliance Funding Group provided our equipment supplier with $124,540$124,500 for the purchase of this equipment. This transaction was accounted for as a financing lease. As of March 31, 2021,2022, our financing lease had a remaining lease term of 3.252.2 years and a discount rate of 12.75%12.75%. The interest expense on finance lease liabilities for the six months ended March 31, 2022 was $4,686.
During the year ended September 30, 2021, we recorded an impairment to fully write off the related equipment as it was $6,100.deemed no longer useful for our operations.
The following summarizes ROU assets under finance leases at March 31, 2021:
ROU asset-finance lease at September 30, 2020 | $ | 105,825 | ||
Impairment | (105,825 | ) | ||
ROU asset-finance lease at March 31, 2021 | $ | - |
The table below summarizes future minimum finance lease payments at March 31, 20212022 for the 12twelve months ended March 31:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES
2022 | $ | 33,113 | $ | 33,113 | ||||
2023 | 33,113 | 33,113 | ||||||
2024 | 33,113 | 11,037 | ||||||
2025 | 11,038 | - | ||||||
2026 | - | - | ||||||
Total Minimum Lease Payments | 110,377 | 77,263 | ||||||
Amount representing interest | (20,836 | ) | (10,733 | ) | ||||
Present Value of Minimum Lease Payments | 89,541 | 66,530 | ||||||
Current Portion of Finance Lease Obligations | (26,123 | ) | 29,665 | |||||
Finance Lease Obligations, Less Current Portion | $ | 63,418 | $ | 36,865 |
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 six months ended March 31, 2022 and 2021 was $123,373 and 2020$89,876 respectively. Rent expense included in other expense for the six months ended March 31, 2022 and 2021 was $168,050 $99,209 and $168,620,$78,174, respectively.
Cash and non cashnon-cash activities associated with the leases for the six months ended March 31, 20212022 are as follows:
SCHEDULE OF CASH AND NON-CASH ACTIVITIES OF LEASES
Operating cash outflows from operating leases: | $ | 143,234 | $ | 123,217 | ||||
Operating cash outflows from finance lease: | $ | 6,100 | $ | 4,686 | ||||
Financing cash outflows from finance lease: | $ | 10,457 | $ | 11,870 |
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. InDuring the six months ended March 31, 2021,2022, we received revenuerecognized sublease income of $53,647$85,062 pursuant to the sublease which is included in Other income on our consolidated statement of operations.financial statements. Future minimum lease payments to be received under that sublease as of March 31, 2021,2022, for each of the 12twelve months ended March 31:31 are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE
2022 | $ | 121,492 | ||||||
2023 | 125,104 | $ | 125,104 | |||||
2024 | 128,881 | 128,881 | ||||||
2025 | 32,459 | 32,458 | ||||||
2026 | — | - | ||||||
2027 | - | |||||||
Total | 407,936 | $ | 286,443 |
Advances Received on Sale of Equity Securities
As of March 31, 2022, the Company recorded advances received from investors on sales of equity securities of $300,000 as a current liability. See Note 8—Subsequent Events, Exempt Offering Pursuant to Regulation S—Sales of Equity Securities, to the Unaudited Consolidated Financial Statements.
12 |
Loans
On April 1, 2019, NuZeewe purchased a delivery van from Ford Motor Credit for $41,627.$41,627. The Company paid $3,500$3,500 as a down payment and financed $38,127$38,127 for 60 months at a rate of 2.9%2.9%. The loan is secured by the van. The outstanding balance on the loan at March 31, 20212022 and September 30, 2020,2021 amounted to $24,192$16,581 and $27,916,$20,146, respectively.
On February 15, 2019, NuZee KR entered into equipment financing for production equipment with ShinHanShin Han Bank for $60,563. On$60,563. In June 28, 2019, NuZee KR purchased additional equipment and increased the loan with ShinHanShin Han Bank by $86,518. The loan is secured by our production equipment at NuZee KR.$86,518. The financing bearshas a term of 36 months at a rate of 4.33% per annum.4.33%. Principal payments began in July of 2019. The outstanding balance on this loan at March 31, 20212022 and September 30, 2020,2021 amounted to $62,754$11,686 and $85,001,$35,898, respectively.
The remaining loan payments required for the next five remaining fiscal years are as follows:
SCHEDULE OF LOAN PAYMENTS
Ford Motor Credit | ShinHan Bank | Total | ||||||||||
2021 (April – September 2021) | $ | 3,777 | $ | 39,746 | ||||||||
2022 (October 2021 – March 2022) | 3,832 | 10,460 | ||||||||||
Total Current Portion | $ | 7,609 | $ | 50,206 | $ | 57,815 |
Ford Motor Credit | ShinHan Bank | Total | ||||||||||
2022 (Apr 2022 - Sep 2022) | $ | 3,888 | 4,619 | |||||||||
2023 (Oct 2022 - Mar 2023) | 3,945 | 7,067 | ||||||||||
Total Current Portion | $ | 7,833 | 11,686 | 19,519 | ||||||||
2023 (Apr 2023 - Sep 2023) | $ | 8,748 | - | |||||||||
Total Long-Term Portion | $ | 8,748 | - | 8,748 | ||||||||
Grand Total | $ | 16,581 | 11,686 | 28,267 |
2022 (April – September 2022) | $ | 3,888 | $ | 12,548 | ||||||||
2023 | 7,947 | - | ||||||||||
2024 | 4,748 | - | ||||||||||
2025 | - | - | ||||||||||
Total LT Portion | $ | 16,583 | $ | 12,548 | $ | 29,131 | ||||||
Grand Total | $ | 24,192 | $ | 62,754 | $ | 86,946 |
Revenue Recognition
We determine revenue recognition throughIn May 2014, the following steps in accordance with FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers”,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 wethe 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:
Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.basis. The adoption of Topic 606 did not have a material impact on our consolidated financial statements.
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 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 adjustments comprising accumulatedrecorded to other comprehensive income (loss)gain amounted to $5,480$25,593 and $(69,719)$5,480 for the six months ended March 31, 2022 and 2021, and 2020, 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 March 31, 20212022 and September 30, 2020,2021, the carrying value of inventory of $241,291was $631,284 and $245,370 respectively, reflected on the consolidated balance sheets is net of this adjustment.$573,464, respectively.
March 31, 2021 | September 30, 2020 | |||||||
Raw materials | $ | 189,514 | $ | 176,231 | ||||
Finished goods | 51,777 | 69,139 | ||||||
Less – Inventory reserve | - | - | ||||||
Total | $ | 241,291 | $ | 245,370 |
13 |
SCHEDULE OF INVENTORY
March 31, 2022 | September 30, 2021 | |||||||
Raw materials | $ | 573,733 | $ | 552,621 | ||||
Finished goods | 57,551 | 20,843 | ||||||
Less – Inventory reserve | - | - | ||||||
Total | $ | 631,284 | $ | 573,464 |
Joint Venture
On January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (50%(50%) and NuZee, Inc. (50%the Company (50%) forming NuZee LATIN AMERICA (NLA), S.A. de C.V. NLA was formed pursuant to the laws of Mexico, with corporate domicile in Mazatlan, Mexico. As part of the capitalization of NLA, NuZeethe Company contributed two co-packing machines to the joint venture. These machines had an aggregate carrying cost of $313,012. NuZee$313,012. The Company received $110,000$110,000 in cash for this contribution and recorded an investment in NLA of $160,000$160,000 and a loss of $43,012$43,012 on the contribution of the machines to NLA.
The Company accounts for NLA using the equity method of accounting since the management of day to dayday-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 and our partner appoints the Chairman of the joint Board.board of directors of NLA. As of March 31, 2021,2022, the only activity in NLA was the contribution of two machines as described above and other start up related activities. $3,975$2,296 and $3,975 of a loss was recognized under the equity method of accounting during the six months ended March 31, 2021.2022 and March 31, 2021, respectively.
2. GEOGRAPHIC CONCENTRATION
The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis. The Company is organized in three geographical segments. The Company co-packs product for customers and produces and sells its products directly in North America and Korea. The Company has a minimally staffed office in Japan that provides support for import and export of product and materials between the U.S. and Japan, as well as investor relations operations in Japan as a majority ofsupport to our shareholders are based in Japan. InInformation about the Company’s geographic operations for the six months ended March of31, 2022 and 2021 are as follows:
Geographic Concentration
SCHEDULE OF GEOGRAPHIC OPERATIONS
Six Months Ended | Six Months Ended | |||||||
March 31, 2022 | March 31, 2021 | |||||||
Net Revenue: | ||||||||
North America | $ | 1,401,285 | $ | 658,338 | ||||
South Korea | 333,041 | 273,713 | ||||||
Net Revenue | $ | 1,734,326 | $ | 932,051 |
Property and equipment, net: | As of March 31, 2022 | As of September 30, 2021 | ||||||
North America | $ | 411,733 | $ | 517,966 | ||||
South Korea | 257,969 | 154,562 | ||||||
Japan | 2,943 | 1,496 | ||||||
Property and equipment, net | $ | 672,645 | $ | 674,024 |
3. RELATED PARTY TRANSACTIONS
For the six months ended March 31, 2022 and March 31, 2021, respectively, the Company wrote off $840,391had sales of $0 and $15,998 of materials to NLA.
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4. BUSINESS COMBINATIONS
As described in Note 1, on February 25, 2022, the Company acquired substantially all the assets in North Americaand certain specified liabilities of Dripkit pursuant to the Asset Purchase Agreement, dated as these assets were deemedof February 21, 2022, by and among the Company, Dripkit, and Dripkit’s existing investors who executed joinders to be no longer usefulthe Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the currentAcquisition was $860,000, plus the assumption of certain assumed liabilities, including a $13,000 bridge loan and approximately $3,176 of payables, subject to certain adjustments and holdbacks as provided in the Asset Purchase Agreement resulting in an acquisition accounting purchase price of $876,176. The Company analyzed the Acquisition under ASC 805 and concluded that it should be accounted for as a business operations. $105,825combination.
Pursuant to the terms of the impairmentAsset Purchase Agreement, on the Closing Date, the cash portion of the purchase price was reduced by the following amounts: (a) $22,000, in satisfaction of a bridge loan made from the Company to Dripkit in February 2022 to provide Dripkit with operational financing prior to the Closing Date, (b) $35,500, as an indemnity holdback for the purpose of satisfying any indemnification claims made by the Company pursuant to the Asset Purchase Agreement, and (c) $40,000, as a cash bulk sales holdback (the “Cash Bulk Sales Holdback Amount”). In addition, on the Closing Date, the Company held back $40,000 worth of stock consideration as the Stock Bulk Sales Holdback Amount (together with the Cash Bulk Sales Holdback Amount, the “Bulk Sales Holdback Amount”). The Bulk Sales Holdback Amount was used to satisfy sales and use taxes owed by Dripkit to the State of New York as of the Closing Date, and amounts remaining after offsetting the cost of such sales and use taxes were distributed to Dripkit (in the case of the Cash Bulk Sales Holdback Amount) and delivered to the Stock Recipients (in the case of the Stock Bulk Sales Holdback Amount) in the third quarter of fiscal year 2022 pursuant to the terms of the Asset Purchase Agreement, as further described in Note 8-Subsequent Events.
On the Closing Date, after adjustments and holdbacks under the Asset Purchase Agreement, the Company paid the aggregate purchase price as follows: (i) cash paid by the Company to Dripkit was $257,000, and (ii) the Company issued to the Stock Recipients an aggregate of shares of the Company’s common stock. The Company repaid the entire outstanding principal amount of Dripkit’s Small Business Association Economic Injury Disaster Loan in the amount of $78,656. In addition, the Company recorded a liability on its balance sheet in Accounts Payable of $115,500 related to potential future amounts due related to the ROU asset Bulk Sales Holdback of $80,000 and $734,566 wasthe indemnity holdback of $35,500.
The assets of Dripkit were acquired for purposes of supplementing our current product offerings and Dripkit will operate as a new Dripkit Coffee business division that is wholly-owned by NuZee, Inc.
The following table presents the allocation of the aggregate purchase price paid by the Company for the Acquisition of $860,000, plus the assumption of certain assumed liabilities, including a $13,000 bridge loan and approximately $3,176 of payables, resulting in an acquisition accounting purchase price of $876,176, to propertythe assets acquired for the acquisition of Dripkit:
SCHEDULE OF ALLOCATION OF AGGREGATE PURCHASE PRICE
March 31, 2022 | ||||
Total purchase price | $ | 876,176 | ||
Assets acquired: | ||||
Inventory | $ | 9,664 | ||
Property and equipment | 5,100 | |||
Identifiable intangible assets | 330,000 | |||
Total assets acquired | $ | 344,764 | ||
Estimated fair value of net assets acquired | $ | 344,764 | ||
Goodwill | $ | 531,412 |
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Identified Intangibles and equipment. This write off is included in operating expensesGoodwill
The Company identified tradename and customer relationships intangible assets. The tradename and customer relationships intangible assets will be amortized on oura straight-line basis over their respective estimated useful lives. The goodwill recognized results from such factors as an assembled workforce and management’s industry know-how. See Note 5-Goodwill and Intangible Assets for additional information on identified intangible assets and goodwill.
The six months ended March 31, 2022 includes the operations of Dripkit for the period from February 25, 2022, the date of acquisition, to March 31, 2022. The consolidated statement of operations for the three and six months ended March 31, 2022 includes revenue of approximately $2,481, respectively, and a net loss of $13,121, including amortization expense, of approximately $6,611 in both periods contributed by Dripkit.
In the six months ended March 31, 2022, the Company incurred $261,561 of transaction costs related to the Acquisition.
Unaudited Pro forma Financial Information
The following unaudited proforma financial information presents the combined results of operations of the Company and gives effect to the Dripkit Acquisition for the three and six months ended March 31, 2022 and 2021, as if the Acquisition had occurred as of the beginning of the first period presented instead of on February 25, 2022.
The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Acquisition had been completed on October 1, 2021, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.
The proforma financial information for the Company and Dripkit is as follows:
Three and six months ended March 31, 2022:
SCHEDULE OF UNAUDITED PRO FORMA FINANCIAL INFORMATION
Description | 2022 | 2021 | 2022 | 2021 | ||||||||||||
For the March 31, | For the six months ended March 31, | |||||||||||||||
Description | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenues | $ | 772,165 | $ | 511,591 | $ | 1,811,693 | $ | 1,155,526 | ||||||||
Net loss | $ | 3,025,896 | $ | 6,159,019 | $ | 5,866,279 | $ | 12,132,852 |
For purposes of the pro forma disclosures above, the primary adjustments for the three months and six months ended March 31, 2021. These assets are co-packing equipment that have limited capabilities compared with other equipment2022 include the Company is currently utilizing. Since we have yet to utilize this equipment since it was delivered, we have determined their usefulness to our future operations is limited. Information about the Company’s geographic operations are as follows:elimination of transaction costs of approximately $244,622 and $261,561, respectively.
5. GOODWILL AND INTANGIBLE ASSETS
Geographic Concentrations
Six Months Ended | Six Months Ended | |||||||
March 31, 2021 | March 31, 2020 | |||||||
Net Revenue: | ||||||||
North America | $ | 658,338 | $ | 636,687 | ||||
Japan | - | 234,014 | ||||||
South Korea | 273,713 | 68,899 | ||||||
$ | 932,051 | $ | 939,600 |
Property and equipment, net: | As of March 31, 2021 | As of September 30, 2020 | ||||||
North America | $ | 616,868 | $ | 1,422,575 | ||||
Japan | 2,577 | 2,813 | ||||||
South Korea | 262,530 | 242,960 | ||||||
$ | 881,975 | $ | 1,668,348 |
3. RELATED PARTY TRANSACTIONS
ForChanges in goodwill for the six months ended March 31, 2021, we sold $15,9982022, consists of materials to NLA.the following:
SCHEDULE OF CHANGES IN GOODWILL
March 31, 2022 | ||||
Balance at September 30, 2021 | $ | - | ||
Dripkit acquisition | 531,412 | |||
Balance at March 31, 2022 | $ | 531,412 |
4. ISSUANCEAs of March 31, 2022, the Company’s intangible assets consisted of the following:
SCHEDULE OF EQUITY SECURITIESINTANGIBLE ASSETS
Amortization Period (Years) | March 31, 2022 | |||||||||||||||
Gross | Accumulated Amortization | Net | ||||||||||||||
Tradenames | 5 | $ | 230,000 | $ | 3,833 | $ | 226,167 | |||||||||
Customer relationships | 3 | 100,000 | 2,778 | 97,222 | ||||||||||||
Balance at March 31, 2022 | $ | 330,000 | $ | 6,611 | $ | 323,389 |
DuringAmortization expense was $6,611 for the six months ended March 31, 2021,2022.
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6. ISSUANCE OF EQUITY SECURITIES
Exercise of Warrants
In the Company sold (i) 72,955six months ended March 31, 2022, we issued shares of common stock related to Triton Funds LPexercises of 2021 Warrants (as defined below), including shares of common stock issued upon exercise of 380,447 Series A Warrants (as defined below) and shares of common stock issued upon exercise of 8,000 Series B Warrants (as defined below). In connection with such exercises, in a registered public offering forthe six months ended March 31, 2022, we received aggregate net proceeds of $534,494$1,702,596.
ATM Offering
On December 28, 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Maxim Group LLC, as agent (the “Agent”), pursuant to a Common Stock Purchase Agreement datedwhich we may offer and sell, from time to time, shares of our common stock through the Agent in “at-the-market-offerings”, as defined in Rule 415 under the Securities Act, having an aggregate offering price of October 26, 2020 and a prospectus supplementup to $20,000,000, subject to any applicable limits when using Form S-3 (the “ATM Offering”). Pursuant to the Company’s effectiveEquity Distribution Agreement, we will pay the Agent a commission rate, in cash, equal to 3.0% of the aggregate gross proceeds from each sale of shares of our common stock under the Equity Distribution Agreement. The offer and sale of shares of our common stock will be made pursuant to a shelf registration statement on Form S-3 (Registrationand the related prospectus (File No. 333-248531), initially filed by us with the SEC on September 1, 2020, and (ii) 256,338 shares of common stock at $9.14 per share for aggregate net proceeds of $2,149,486 pursuant to Securities Act registration exemptionsdeclared effective by the SEC on October 2, 2020, under Regulation S and/or Section 4(a)(2) of the Securities Act. We are not obligated to make any sales of shares of our common stock under the Equity Distribution Agreement. In addition, as further described below, during the six months ended March 31, 2021, the Company2022, we issued and sold pursuant to an Underwriting Agreement dated as of March 19, 2021 and a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-248531) (i) 2,777,777 units (“Units”) in an underwritten registered public offering for aggregate net proceeds of $11,017,304 which includes the proceeds from the underwriter’s full exercise of their overallotment option with respect to the warrant component of the Units, as further described below, with each Unit consisting of (a) one share shares of our common stock (b) one Series A warrant (each, a “Series A Warrant” and collectively,under the “Series A Warrants”)Equity Distribution Agreement, raising net proceeds of $88,426. In connection with such sales, we paid compensation to purchase one sharethe Agent in the amount of our common stock with an initial exercise price$ .
Grant of $4.50 per whole share, and (c) one Series B warrant (each, a “Series B Warrant” and collectively,Restricted Stock Awards to the “Series B Warrants” and together with the Series A Warrants, the “Warrants”) to purchase one-half share of our common stock with an initial exercise price of $5.85 per whole share, and (ii) 416,666 Series A Warrants and 416,666 Series B Warrants, eachCompany’s Independent Board Members
On March 17, 2022, pursuant to the underwriter’s full exercise of their overallotment option with respect to such warrants. During the six months ended March 31, 2021, 6,000 shares were issued upon the exercise of stock options. As part of this exercise, the Company received $9,180 in proceeds.
On January 11, 2021,Company’s non-employee director compensation policy, the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) granted to Shanoop Kothari, the Company’s Chief Financial Officer, in connection with the Committee’s determination of Mr. Kothari’s annual compensation, an award of 152,215 restricted shares (the “Restricted Shares”) of the Company’s common stock underto each of the Company’s five independent directors pursuant to the NuZee, Inc. 20192013 Stock Incentive Plan.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 follows: (i) 50,739 Restricted Shares vested immediately (35,739 net shares were issued to Mr. Kothari followinga director of the forfeiture of 15,000 vested shares to cover taxes); (ii) 50,739 Restricted Shares will vest on March 31, 2021; and (iii) 50,737 Restricted Shares vest on March 31, 2022.
On March 11, 2021, we terminated our At Market Issuance Sales Agreement, dated September 1, 2020 (the “ATM Agreement”), with B. Riley Securities, Inc. (f/k/a/ B. Riley FBR, Inc.) andCompany. The Benchmark Company LLC (collectively, the “Agents”), pursuant to which we could from time to time offer and sell up to an aggregate of $50.0 million of shares of ourrecognized common stock through the Agents in “at-the-market-offerings”, as defined in Rule 415 under the Securities Actcompensation expense of 1933, as amended (the “Securities Act”). We did not sell any shares of common stock under the ATM Agreement. The Company’s consolidated statement of cash flows $for the six months ended March 31, 2021 includes stock issuance expenses of $477,605 in connection with the terminated ATM Agreement.2022 related to these Restricted Shares.
5. 7. STOCK OPTIONS AND WARRANTS
Options
During the six months ended March 31, 2021,2022, the Company issued 15,000granted no new stock options, to independent contractors and 1,141,615had of stock options to independent Board members. The right to exercise these options shall vest and become exercisable over a period of 3 years for independent contractors and for independent board members, 1/3 of options vested immediately with the balance over a period of 2 years. The exercise price ranged from $5.10 - $16.79 per share. The options will expire ten years from the grant date, unless terminated earlier as provided by the option agreements.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model using the assumptions noted as follows: expected volatility was based on the Company’s historical stock performance. The expected term of options granted was determined using the contractual term. The risk-free rate is calculated using the U.S. Treasury yield curve and is based on the expected term of the option.
The Black-Scholes option pricing model was used with the following weighted average assumptions for options granted during the six months ended March 31, 2021:
For the six months ended March 31, 2021, 167,495 optionsthat were forfeited because of the termination of employment, and conclusion of Board appointment. For the six months ended March 31, 2021, 6,000issued shares were issued upon the exercise of outstanding stock options.
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SUMMARY OF STOCK OPTION ACTIVITY
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding at September 30, 2020 | 1,620,667 | $ | 5.74 | 7.3 | $ | 19,112,118 | ||||||||||||||||||||||||||
Outstanding at September 30, 2021 | 4,511,691 | $ | 4.73 | $ | 452,206 | |||||||||||||||||||||||||||
Granted | 1,156,615 | 8.24 | - | - | ||||||||||||||||||||||||||||
Exercised | (6,000 | ) | 1.53 | (14,000 | ) | 0.90 | ||||||||||||||||||||||||||
Expired | - | - | - | - | ||||||||||||||||||||||||||||
Forfeited | (167,495 | ) | 13.49 | (203,166 | ) | 13.75 | ||||||||||||||||||||||||||
Outstanding at March 31, 2021 | 2,603,787 | $ | 6.06 | 8.0 | $ | 1,606,693 | ||||||||||||||||||||||||||
Exercisable at March 31, 2021 | 1,386,726 | $ | 6.50 | 8.0 | $ | 953,361 | ||||||||||||||||||||||||||
Outstanding at March 31, 2022 | 4,294,525 | $ | 4.32 | $ | 397,300 | |||||||||||||||||||||||||||
Exercisable at March 31, 2022 | 1,809,800 | $ | 4.91 | $ | 321,900 |
The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expensesexpense of $6,496,304$2,059,634 for the six months ended March 31, 2021.2022. Unamortized option expense as of March 31, 2021,2022, for all options outstanding amounted to $5,257,928.$2,667,796. These costs are expected to be recognized over a weighted-weighted average period of 1.4 years. The Company recognized stock option expensesexpense of $3,183,351$6,496,304 for the six months ended March 31, 2020.2021.
SUMMARY OF UNVESTED SHARES
Nonvested options
Number of nonvested shares | Weighted average grant date fair value | Number of Nonvested Options | Weighted Average Grant Date Fair Value | |||||||||||||
Nonvested shares at September 30, 2020 | 762,917 | $ | 10.60 | |||||||||||||
Nonvested options at September 30, 2021 | 2,870,799 | $ | 5.02 | |||||||||||||
Granted | 1,156,615 | 8.24 | - | - | ||||||||||||
Forfeited | (131,662 | ) | 11.85 | (36,500 | ) | 3.89 | ||||||||||
Vested | (570,809 | ) | 8.13 | (349,574 | ) | 5.95 | ||||||||||
Nonvested shares at March 31, 2021 | 1,217,061 | 9.38 | ||||||||||||||
Nonvested options at March 31, 2022 | 2,484,725 | $ | 4.90 |
15
Warrants
On June 23, 2020, as part of our agreement with Benchmark Company, LLC, the underwriter of the Company’s June 2020 registered public offering of common stock, we issued 40,250 warrants to purchase our common stock at an exercise price of $9.00$9.00 a share. These warrants arebecame exercisable on December 23, 2020 and expire on June 18, 2025.2025.
On March 19, 2021, we entered into an underwriting agreement in connection with our registered public offering (the “Offering”) of (i) “Units”“2021 Units”), at a price to the public of $4.50$4.50 per 2021 Unit, with each 2021 Unit consisting of (a) one share of our common stock, (b) one Series A Warrant, and (c) one Series B Warrant (together with the Series A Warrants, the “2021 Warrants”), and (ii) 416,666 Series A Warrants and 416,666 Series B Warrants, each pursuant to the underwriter’s full exercise of their overallotment option with respect to such warrants.warrants. units (the
Each Series A Warrant entitles the registered holder to purchase one share of our common stock at an exercise price of $4.50$4.50 per share. Each Series B Warrant entitles the registered holder thereof to purchase one-half of a share of our common stock at an exercise price of $5.85$5.85 per whole share. These warrantsThe 2021 Warrants have a term of 5 years.
The Series A and Series B Warrant holders are obligated to pay the exercise price in cash upon exercise of the 2021 Warrants unless we fail to maintain a current prospectus relating to the common stock issuable upon the exercise of the 2021 Warrants (in which case, the 2021 Warrants may only be exercised via a “cashless” exercise provision).
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The following table summarizes warrant activity for the six months ended March 31, 2021:2022:
SCHEDULE OF WARRANT ACTIVITY
Number of Shares Issuable Upon Exercise of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | 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, 2020 | 40,250 | $ | 9.00 | 4.7 | $ | 321,598 | ||||||||||||||||||||||||||
Outstanding at September 30, 2021 | 4,831,915 | $ | 4.98 | $ | - | |||||||||||||||||||||||||||
Issued | 4,791,665 | 4.95 | 5.0 | - | - | - | ||||||||||||||||||||||||||
Exercised | - | - | (384,447 | ) | 4.51 | |||||||||||||||||||||||||||
Expired | - | - | - | - | ||||||||||||||||||||||||||||
Outstanding March 31, 2021 | 4,831,915 | $ | 4.98 | 5.0 | - | |||||||||||||||||||||||||||
Exercisable at March 31, 2021 | 4,831,915 | $ | 4.98 | 5.0 | $ | - | ||||||||||||||||||||||||||
Outstanding at March 31, 2022 | 4,447,468 | $ | 5.02 | - | ||||||||||||||||||||||||||||
Exercisable at March 31, 2022 | 4,447,468 | $ | 5.02 | $ | - |
6.In the six months ended March 31, 2022, we issued 380,447 Series A Warrants and shares of common stock issued upon exercise of 8,000 Series B Warrants. In connection with such exercises, in the six months ended March 31, 2022, we received aggregate net proceeds of $1,702,596. shares of common stock related to exercises of 2021 Warrants, including shares of common stock issued upon exercise of
8. SUBSEQUENT EVENTEVENTS
Exempt Offering Pursuant to Regulation S—Sales of Equity Securities
On April 22, 2021, the Compensation Committee (the “Committee”)13, 2022, pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Company’s BoardSecurities Act, the Company sold units (the “2022 Units”), at a price of Directors granted$ per 2022 Unit and an aggregate purchase price of approximately $1.77 million, with each 2022 Unit consisting of (a) one share of our common stock and (b) one warrant (the “2022 Warrants”) to Tracy Ging,purchase one whole share of our common stock with an initial exercise price of $2.00 per share. The 2022 Warrants have a term of 5 years.
Dripkit Acquisition—Distribution of Bulk Sales Holdback Amount Pursuant to Asset Purchase Agreement
On May 2, 2022, pursuant to the terms of the Asset Purchase Agreement, the Bulk Sales Holdback Amount was used to satisfy sales and use taxes owed by Dripkit to the State of New York as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the amounts remaining after offsetting the cost of these sales and use taxes were distributed as follows: (i) $39,237 was distributed to Dripkit on May 9, 2022, in connection with the appointmentCash Bulk Sales Holdback Amount, and (ii) shares of Ms. Gingcommon stock were issued to the Board, an award of options to purchase 228,323 shares of our common stock at an exercise price of $3.03. Fifty percent of the options (114,162) vestedStock Recipients on April 22, 2021. The remainder of the options vest in installments of 57,081 on April 22,25, 2022, and 57,080 on April 22, 2023.
On May 3, 2021, the Committee granted to Tomoko Toyota, in connection with the appointmentStock Bulk Sales Holdback Amount. See Note 4—Business Combinations for additional information regarding the Bulk Sales Holdback Amount and the Asset Purchase Agreement.
Issuance of Ms. Toyota asOptions to New Employee
On April 1, 2022, the Company’s new Chief Marketing Officer, awardsCompany issued a total of (i) nonqualified stock options to purchase 30,000 sharesa new employee, including performance-based options, which represents the maximum number of our common stock at an exercise priceperformance-based options that may be earned if all performance milestones are achieved for the applicable performance periods, and time-based options. These options shall vest and become exercisable either (i) in the case of $3.13, which vesttime-based options, as to one third1/3 on each anniversary of the grant date, andor (ii) options to purchase 120,000 sharesin the case of our common stock at an exercise price of $3.13, which vest over a three year period commencing October 1, 2021performance-based options, based on the Company’s Dripkit Coffee business division’s achievement of variouscertain performance targets tied to adjusted gross sales inmilestones established by the Compensation Committee for each of fiscal year 2022,in the fiscal yearyears ending September 30, 2022, 2023, and fiscal year 2024.
On May 10, 2021, the Committee granted to Jose Ramirez, in connection with the appointment of Mr. Ramirez as the Company’s new Chief Sales Officer and Chief Supply Chain Officer, awards of (i) options to purchase 30,000 shares of our common stock at an exercise price of $2.91, which vest as to one third on each anniversary of the grant date, and (ii) options to purchase 150,000 shares of our common stock at an exercise price of $2.91, which vest over a three year period commencing on May 10, 2021 based on the Company’s achievement of various performance targets tied to adjusted gross sales in the period from May 10, 2021 through September 30, 2021 and each of fiscal year 2022, fiscal year 2023 and fiscal year 2024.
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19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a specialty coffee company and, we believe, thea leading co-packer of single serve pour over coffee in the United States, as well as a preeminent co-packer of tea-bag style coffee. In addition to our portfolio of innovative single serve pour over and tea-bag style coffee products, we have recently 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., a Delaware corporation (“Dripkit”), as further described below. Our new, premium DRIPKIT pour over format features a large-size single serve pour over pack that sits on top of the cup and delivers what we believe to be a barista-quality coffee experience to coffee drinkers in the United States. Our mission is to leverage our position as a co-packer at the forefront of the North American single serve pour over coffee market to revolutionize the way single serve coffee is enjoyed in the United States. 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 ofthat has the dual capacity to pack both single serve pour over coffee productsand tea-bag style coffee within the North American market. We intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve pour over coffee market in North America. We target existing high-margin companies and are paid per-package based on the number of single serve pour over coffee products produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for almost every single serve pour over coffee product our co-packing customers sell in the North American market.and Korean markets. While we financially benefit from the success of our manufacturingco-packing customers through the sales of their respective single serve pour over coffee products, we are also able to avoid the risks associated with owning and managing the product and its related inventory.
Our primary focus is the developmentWe have also developed and sell NuZee branded single serve coffee products, including our flagship Coffee Blenders line of both single serve pour over coffee and tea-bag style coffee, which we believe offers consumers some of the best coffee available in a single serve application in the North American market targeting the individual consumer for use at home and office or other settings that would benefit from single serve pour over products, and positioning ourselves as the leading commercial-scale co-packer of single serve pour over coffee products. world.
We may also consider co-packaging other products that are complementary to single serve pour over drip coffeeour current product offerings and provide us with a deeper access to our customers, such as tea bag coffee.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, reduce manufacturing costs, expand into new markets, and further penetrate the markets in which we currently operate.
Since 2016, we have been primarily focused on single serve pour over coffee production. Over this time, we have developed expertise in the operation of our sophisticated packing equipment and the related production of theour single serve pour over productcoffee products at both our Vista, California facility and at our production operations in Seoul, Korea. We plan to carry over this expertise toIn addition, our Plano, Texas manufacturing facility which serves as our new single serve pour over co-packing hub and corporate headquarters to capture the location’s logistical advantages and lower cost structure.in Plano, Texas is also operational. We have also expanded our co-packing expertise to tea bag style coffee products, which we believe are gaining traction in the United States.
Dripkit Transaction
On February 25, 2022 (the “Closing Date”), the Company acquired substantially all of the assets and commercial arrangementscertain specified liabilities of Dripkit (the “Acquisition”) pursuant to the Asset Purchase Agreement, dated as of February 21, 2022 (the “Asset Purchase Agreement”), by and among the Company, Dripkit, and Dripkit’s existing investors (the “Stock Recipients”) who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the Acquisition was $860,000, plus the assumption of certain assumed liabilities, subject to certain adjustments and holdbacks as provided in the Asset Purchase Agreement.
On the Closing Date, after adjustments and holdbacks under the Asset Purchase Agreement, the Company paid the aggregate purchase price as follows: (i) cash paid by the Company to Dripkit was $257,000, and (ii) the Company issued to the Stock Recipients an aggregate of 178,681 shares of the Company’s common stock. In addition, the Company repaid the entire outstanding principal amount of Dripkit’s Small Business Association Economic Injury Disaster Loan in the amount of $78,656.
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For additional information regarding the Acquisition and the Asset Purchase Agreement, see Note 4—Business Combinations to the Unaudited Consolidated Financial Statements.
Dripkit will operate as a new Dripkit Coffee business division that is wholly owned by NuZee, Inc. On the Closing Date, the Company entered into an employment agreement for a term of two years with Ilana Kruger, the holder of approximately 71% of the capital stock of Dripkit, pursuant to which we plan to manufacture coffee blended with water-soluble THC-free cannabidiol (“CBD”) isolate powder. We intend to offer both THC-free CBD isolate powder and THC-free broad-spectrum options pursuant toMs. Kruger will serve as Chief Executive Officer of the agreements and to other CBD brands and co-packing customers. We intend to segregate the products containing CBD from conventional coffee for production and packing on separate product machines.new Dripkit Coffee business division.
In November 2020, we announced a strategic partnership with Farmer Brothers Co. (“FBC”) pursuant to which we may (but are not required to) place up to 50 co-packing machines in Farmer Brothers SQF-certified facility in Northlake, Texas. FBC intends to use the co-packing machines for the exclusive purpose of manufacturing certain of our products for us, our customers and certain of FBC’s customers. By pairing Farmer Brothers manufacturing and distribution capability with NuZee’s technical expertise and products with historic demand in Asia, the partnership is expected to accelerate the scale-up in the U.S. and efficient delivery of our products to coffee companies and branded businesses.
Impact of the COVID-19 Pandemic
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. In the six months ended March 31, 2021,2022, as a result of the COVID-19 pandemic and responses to the outbreak, certain of our customers slowed or delayed purchases of our co-packing services or pour oversingle serve coffee products, and we also believe that potential sales of our pour oversingle serve coffee products to new or potential customers in the hospitality industry were adversely impacted. In addition, weWe have also experienced delays in the submission and approval of custom artwork and packaging as well as the shipment to us of coffee for co-packing. In addition, we incurred lost production time due to employee absences. We do not believe, however, that these delays and disruptions had a significant effect on our business or results of operations to date.date, and in some cases, we have been able to mitigate these adverse effects in part by sourcing coffee and other supplies from alternative suppliers in the United States. The COVID-19 crisis may have an adverse impact on our business and financial results going forward that we are not currently able to fully determine or quantify. The COVID-19 crisis may adversely affect the ability of our customers to pay for goods delivered on a timely basis, or at all. Any increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.
Geographic Concentration
Our operations are primarily split between two geographic areas: North America and Asia.
For the three months ended March 31, 2021,2022, net revenues attributable to our operations in North America totaled $251,850$583,944 compared to $256,101$251,850 of net revenues attributable to our operations in North America for the three months ended March 31, 2020.2021. For the six months ended March 31, 2021,2022, net revenues attributable to our operations in North America totaled $658,338$1,401,285 compared to $636,687$658,338 of net revenues attributable to our operations in North America for the six months ended March 31, 2020.2021. Additionally, as of March 31, 2021, $616,8682022, $411,733 of our Propertyproperty and equipment, net was attributable to our North American operations, compared to $1,422,575$517,966 attributable to our North American operations as of September 30, 2020. In March 2021, the Company wrote off $840,391 of assets in North America as these assets were deemed to be no longer useful for the current business operations. $105,825 of the impairment was related to the ROU asset and $734,566 was to property and equipment. This write off is included in operating expenses on our consolidated statement of operations for the three months ended March 31, 2021. These assets are co-packing equipment that have limited capabilities compared with other equipment the Company is currently utilizing. Since we have yet to utilize this equipment since it was delivered, we have determined their usefulness to our future operations is limited.
For the three months ended March 31, 2021,2022, net revenues attributable to our operations in Asia totaled $162,214$131,129 compared to $137,291$162,214 of net revenues attributable to our operations in Asia during the three months ended March 31, 2020.2021. For the six months ended March 31, 2021,2022, net revenues attributable to our operations in Asia totaled $273,714$333,041 compared to $302,913$273,714 of net revenues attributable to our operations in Asia during the threesix months ended March 31, 2020.2021. Additionally, as of March 31, 2021, $265,1072022, $260,912 of our Propertyproperty and equipment, net was attributable to our Asian operations, compared to $245,773$156,058 attributable to our Asian operations as of September 30, 2020.2021.
Results of Operations
Our results of operations for the three and six months ended March 31, 2022 includes the operations of Dripkit for the period from February 25, 2022, the date of the Acquisition, to March 31, 2022.
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Comparison of three months ended March 31, 20212022 and 2020:2021:
Revenue
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Revenue | $ | 414,064 | $ | 393,392 | $ | 20,672 | 5 | % |
Three months ended March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Revenue | $ | 715,073 | $ | 414,064 | $ | 301,009 | 73 | % | ||||||||
For the three months ended March 31, 2021,2022, our revenue increased by $20,672,$301,009, or approximately 5%73%, compared with the three months ended March 31, 2020.2021. This increase was primarily related to increased co-packing revenue partially offset byto existing and new customers. In the impact from the salethird and fourth quarters of NuZee JP to Eguchi Holdings Co., Ltd. (“EHCL”) on September 28, 2020 as the results forfiscal year 2021, we expanded our U.S. sales and support operations, which resulted in increased orders and increased co-packing opportunities in the three months ended March 31, 2020 include revenues from NuZee JP while the results for the three months ended March 31, 2021 do not.2022.
Cost of sales and gross margin
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Cost of sales | $ | 423,113 | $ | 496,692 | $ | (73,579 | ) | (15 | )% | |||||||
Gross profit | $ | (9,049 | ) | $ | (103,300 | ) | $ | 94,251 | (91 | )% | ||||||
Gross profit % | (2 | )% | (26 | )% |
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Cost of sales | $ | 714,092 | $ | 423,113 | $ | 290,979 | 69 | % | ||||||||
Gross profit (loss) | 981 | $ | (9,049 | ) | $ | 10,030 | (111 | )% | ||||||||
Gross profit (loss) % | 0 | % | (2 | )% |
For the three months ended March 31, 2021,2022, we incurredgenerated a total gross lossprofit of ($9,049),$981 from sales of our products and co-packing services, compared to a total gross loss of ($103,300)9,049) for the three months ended March 31, 2020.2021. The gross margin rate was 0% for the three months ended March 31, 2022, and (2)% for the three months ended March 31, 2021,2021. This increase in gross profit was driven primarily by greater scale in our manufacturing operations due to increased production during the current quarter versus the same period in the prior year, combined with increased sales offset by increased materials and (26%)labor costs.
Operating Expenses
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Operating Expenses | $ | 3,196,479 | $ | 6,077,548 | $ | (2,881,069 | ) | (47 | )% |
For the three months ended March 31, 2022, the Company’s operating expenses totaled $3,196,479 compared to $6,077,548 for the three months ended March 31, 2020.2021, representing a 47% decrease. This decrease is primarily attributable to a decrease in stock-based compensation expense, offset by an increase in margin was driven primarily by increased efficiencies resulting from additional experience in co-packing during the current year period compared to the prior year period. Inoperating expenses associated with greater staffing levels, marketing activities and administrative costs. Lease expenses associated with subleased property of $34,211 for the three months ended March 31, 2020, the Company incurred increased costs as it continued2021 were reclassified from operating expenses to scale up its co-packing operations as well as a loss incurred on the close-out of certain inventory items for a particular customer.other expense.
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Operating Expenses
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Revenue | $ | 6,111,759 | $ | 2,413,632 | $ | 3,698,127 | 153 | % |
Net Loss
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Net Loss | $ | 3,223,697 | $ | 6,085,608 | $ | (2,861,911 | ) | (47 | )% |
For the three months ended March 31, 2021, the Company’s operating expenses totaled $6,111,759 compared to $2,413,6322022, we generated a net loss of $3,223,697 versus $6,085,608 for the three months ended March 31, 2020, representing a 153% increase.2021. This increasedecrease in net loss is primarily attributable to an increase inlower stock-based compensation expense, the impairment of certain property and equipment as well as increasedoffset by an increase in operating expenses associated with greater staffing levels.levels, marketing activities and administrative costs.
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Net Loss
Three months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Net Loss attributable to NuZee, Inc. | $ | 6,085,608 | $ | 2,490,251 | $ | 3,595,357 | 144 | % |
For the three months ended March 31, 2021, we generated net losses attributable to NuZee, Inc. of $6,085,608 versus $2,490,251 for the three months ended March 31, 2020. This increase in net losses is primarily attributable to higher stock compensation expense and operating expenses.
Comparison of six months ended March 31, 20212022 and 2020:2021:
Revenue
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Revenue. | $ | 932,051 | $ | 939,600 | $ | (7,549 | ) | (1 | )% |
Six months ended March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Revenue | $ | 1,734,326 | $ | 932,051 | $ | 802,275 | 86 | % |
For the six months ended March 31, 2021,2022, our revenue decreasedincreased by $7,549,$802,275, or approximately 1%,86% compared with the six months ended March 31, 2020.2021. This decreaseincrease was primarily related to increased co-packing revenue to existing and new customers. In the impact from the salethird and fourth quarters of NuZee JP to EHCL on September 28, 2020, as the results forfiscal year 2021, we expanded our U.S. sales and support operations, which resulted in increased orders and increased co-packing opportunities in the six months ended March 31, 2020 include revenues from NuZee JP while the results for the six months ended March 31, 2021 do not. Such decrease was partially offset by increased co-packing revenues.2022.
Cost of sales and gross margin
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Cost of sales | $ | 939,397 | $ | 919,865 | $ | 19,532 | 2 | % | ||||||||
Gross profit | $ | (7,346 | ) | $ | 19,735 | $ | (27,081 | ) | (137 | )% | ||||||
Gross profit % | (1 | )% | 2 | % |
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Cost of sales | $ | 1,717,974 | $ | 939,397 | $ | 778,577 | 83 | % | ||||||||
Gross profit (loss) | 16,352 | $ | (7,346 | ) | $ | 23,698 | (323 | )% | ||||||||
Gross profit (loss)% | 1 | % | (1 | )% |
For the six months ended March 31, 2021,2022, we incurredgenerated a total gross lossprofit of ($7,346),$16,352, from sales of our products and co-packing services, compared to a total gross profitloss of $19,735($7,346) for the six months ended March 31, 2020.2021. The gross margin rate was 1% for the six months ended March 31, 2022, and (1)% for the six months ended March 31, 2021,2021. This increase in gross profit was driven primarily by greater scale in our manufacturing operations due to increased production during the current six month period versus the same period in the prior year, combined with increased sales offset by increased materials and 2%labor costs.
Operating Expenses
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Operating Expenses | $ | 6,007,668 | $ | 11,937,411 | $ | (5,929,743 | ) | (50 | )% |
For the six months ended March 31, 2022, the Company’s operating expenses totaled $6,007,668 compared to $11,937,411 for the six months ended March 31, 2020.2021, representing a 50% decrease. This decrease is primarily attributable to a decrease in margin was drivenstock-based compensation expense, offset by an increase in operating expenses associated with greater staffing levels, marketing activities and administrative costs. Lease expenses associated with subleased property of $78,174 for the customer mix in the current period versus the prior period last year.six months ended March 31, 2021 were reclassified from operating expenses to other expense.
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Operating ExpensesNet Loss
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Operating Expenses. | $ | 12,015,585 | $ | 5,963,465 | $ | 6,052,120 | 101 | % |
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2022 | 2021 | Dollars | % | |||||||||||||
Net Loss | $ | 6,027,900 | $ | 11,981,680 | $ | (5,953,780 | ) | (50 | )% |
For the six months ended March 31, 2021, the Company’s operating expenses totaled $12,015,585 compared to $5,963,4652022, we generated a net loss of $6,027,900 versus $11,981,680 for the six months ended March 31, 2020, representing a 101% increase.2021. This increasedecrease in net loss is primarily attributable to an increase inlower stock-based compensation expense, as well as increasedoffset by an increase in operating expenses associated with greater staffing levels.levels, marketing activities and administrative costs.
Net Loss
Six months ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2021 | 2020 | Dollars | % | |||||||||||||
Net Loss attributable to NuZee, Inc. | $ | 11,981,680 | $ | 5,911,483 | $ | 6,070,197 | 103 | % |
For the six months ended March 31, 2021, we generated net losses attributable to NuZee, Inc. of $11,981,680 versus $5,911,483 for the six months ended March 31, 2020. This increase in net losses is primarily attributable to higher stock compensation expense and operating expenses.
Liquidity and Capital Resources
Since our inception in 2011, we have incurred significant losses, and as of March 31, 2021,2022, we had an accumulated deficit of approximately $46$58.9 million. We have not yet achieved profitability and anticipate that we will continue to incur significant sales and marketing expenses prior to recording sufficient revenue from our operations to offset these expenses. WeIn the United States, we expect to incur additional losses as a resultbecause of the costs associated with operating as an exchange-listed public company incompany. We are unable to predict the future. extent of any future losses or when we will become profitable, if at all.
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To date, we have funded our operations primarily with proceeds from equity offerings.
registered public offerings and private placements of shares of our common stock. Our principal use of cash is to fund our operations, which includes the commercialization of our pour oversingle serve coffee products, the continuation of efforts to improve our products, administrative support of our operations and other working capital requirements.
As of March 31, 2022, we had a cash balance of $8,211,703. We believe that our cash and cash equivalents will be sufficient to fund our planned operations and capital expenditure requirements for at least twelve months from May 5, 2022. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable. As a result, we could deplete our available capital resources sooner than we currently expect, and a reduction in consumer demand for, or revenues from the sale of, our single serve coffee products could further constrain our cash resources. We have based these estimates on assumptions that may prove to be wrong, and our operating projections, including our projected revenues from sales of our single serve coffee products, may change as a result of many factors currently unknown to us.
On December 28, 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Maxim Group LLC (“Maxim”), as agent (the “Agent”), pursuant to which we may offer and sell, from time to time, shares of our common stock through the Agent in “at-the-market-offerings”, as defined in Rule 415 under the Securities Act, having an aggregate offering price of up to $20,000,000, subject to any applicable limits when using Form S-3 (the “ATM Offering”). For additional information regarding the Equity Distribution Agreement, including the amount of net proceeds raised in the six months ended March 31, 2022, see “—Summary of Cash Flows—Financing Activities” and Note 6—Issuance of Equity Securities to the Unaudited Consolidated Financial Statements.
Subsequent to March 31, 2022, on April 13, 2022, pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Securities Act, we sold 884,778 units (the “2022 Units”), at a price of $2.00 per 2022 Unit and an aggregate purchase price of approximately $1.77 million, with each 2022 Unit consisting of (a) one share of our common stock and (b) one warrant (the “2022 Warrants”) to purchase one whole share of our common stock with an initial exercise price of $2.00 per share. Holders may exercise their 2022 Warrants on a “cashless” basis pursuant to a formula set forth in the form of 2022 Warrant. For additional information regarding the 2022 Warrants, see Note 8—Subsequent Events to the Unaudited Consolidated Financial Statements.
In the future, we expect to seek to raise additional capital through public or private equity offerings, such as through sales of our common stock under the Equity Distribution Agreement. We also may receive additional funds upon the exercise for cash of outstanding warrants, if and when exercised at the election of the warrant holders, including the Series A warrants (the “Series A Warrants”) and Series B warrants (the “Series B Warrants” and, collectively with the Series A Warrants, the “2021 Warrants”) that were sold by us in March 2021 in an underwritten registered public offering. For additional information regarding the 2021 Warrants, see Note 7—Stock Options and Warrants to the Unaudited Consolidated Financial Statements.
In the long term, we expect we will need to raise additional funds to support our operating activities, and such funding may not be available to us on acceptable terms, or at all. The timing and amount of funds that we will need to raise will depend on a number of factors, including our ability to generate a sufficient amount of revenues from the sale of our single serve coffee products to fund our business operations and the timing and amount of funds received upon the exercise for cash of outstanding warrants by the warrant holders. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. WeUntil we can generate a sufficient amount of revenue, we may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.
Contractual Obligations
Our significant contractual cash requirements as of March 31, 2022, primarily include payments for operating and finance lease liabilities and principal and interest on loans. Additionally, we may incur purchase obligations in the ordinary course of business that are enforceable and legally binding and enter into enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities to be purchased and fixed or estimated prices to be paid at the time of settlement. As of March 31, 2021,2022, we had a cash balancepayments for lease and loan obligations of $15,035,026.approximately $960,230, of which $399,009 are payable within 12 months as of March 31, 2022. We had no purchase obligations as of March 31, 2022
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Summary of Cash Flows
Six Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Cash used in operating activities | $ | (4,154,028 | ) | $ | (2,920,481 | ) | ||
Cash used in investing activities | $ | (539,521 | ) | $ | (122,554 | ) | ||
Cash provided by financing activities | $ | 2,063,705 | $ | 13,674,036 | ||||
Effect of foreign exchange on cash | $ | 25,593 | $ | 5,480 | ||||
Net change in cash | $ | (2,604,251 | ) | $ | 10,636,481 |
Six months ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Cash used in operating activities | $ | (2,920,481 | ) | $ | (2,235,752 | ) | ||
Cash used in investing activities | $ | (122,554 | ) | $ | (419,860 | ) | ||
Cash provided by financing activities | $ | 13,674,036 | $ | 1,942,070 | ||||
Effect of foreign exchange on cash | $ | 5,480 | $ | 11,119 | ||||
Net increase (decrease) in cash | $ | 10,636,481 | $ | (702,423 | ) |
Operating Activities
We used $2,920,481$4,154,028 and $2,235,752$2,920,481 of cash in operating activities during the six months ended March 31, 20212022, and 2020,2021, respectively, principally to fund our operating loss. Excluding the impact of stock compensation expense, the cash used in operating activities was $4,614,376 during the current fiscal year period versus $2,770,122 in the six months in the prior fiscal year. This increase was primarily attributable to the increase in operating expenses associated with greater staffing levels and professional services expenses over the current fiscal year period.operations.
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Investing Activities
We used $539,521 and $122,554 of cash versus used $419,860 of cash in investing activities during the six months ended March 31, 2022 and 2021, respectively. Cash used in the six months ended March 31, 2022 was for the acquisition of substantially all of the assets of Dripkit and 2020, respectively, principally to fund the purchase of equipment. Cash used in the six months ended March 31, 2021 was for the purchase of equipment.
Financing Activities
Historically, we have funded our operations primarily through the issuance of our common stock.equity securities.
Cash provided by financing activities increased toof $2,063,705 and $13,674,036 for the six months ended March 31, 2022 and 2021, from $1,942,070 forrespectively, is primarily related to proceeds received upon the exercise of outstanding 2021 Warrants by the 2021 Warrant holders, advances received on the sale of equity securities, and issuance of shares of our common stock under the Equity Distribution Agreement in the six months ended March 31, 2020. The increase in cash provided by financing activities is primarily related to the increase in proceeds from the2022, as further described below, and issuance of equity securities.securities in the six months ended March 31, 2021.
TerminationIn the six months ended March 31, 2022, we issued 384,447 shares of common stock related to exercises of 2021 Warrants, including 380,447 shares of common stock issued upon exercise of 380,447 Series A Warrants and 4,000 shares of common stock issued upon exercise of 8,000 Series B Warrants. In connection with such exercises, in the six months ended March 31, 2022, we received aggregate net proceeds of $1,702,596. For additional information regarding the Series A Warrants and Series B Warrants, see Note 7—Stock Options and Warrants to the Unaudited Consolidated Financial Statements.
ATM AgreementOffering
On March 11,December 28, 2021, we terminated our At Market Issuance Salesentered into the Equity Distribution Agreement dated September 1, 2020 (the “ATM Agreement”), with B. Riley Securities, Inc. (f/k/a/ B. Riley FBR, Inc.) and The Benchmark Company, LLC (collectively, the “Agents”),Maxim, as Agent, pursuant to which we couldmay offer and sell, from time to time, offer and sell up to an aggregate of $50.0 million of shares of our common stock through the AgentsAgent in “at-the-market-offerings”, as defined in Rule 415 under the Securities Act, having an aggregate offering price of 1933, as amended (the “Securities Act”).up to $20,000,000, subject to any applicable limits when using Form S-3. The offer and sale of shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus (File No. 333-248531) initially filed by us with the SEC on September 1, 2020, and declared effective by the SEC on October 2, 2020, under the Securities Act. We didare not sellobligated to make any sales of shares of our common stock under the ATMEquity Distribution Agreement. In the six months ended March 31, 2022, we issued and sold 42,448 shares of our common stock under the Equity Distribution Agreement, raising net proceeds of $88,426.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. See Note 1—Basis of Presentation and Summary of Significant Accounting Policies of the Notes to the Unaudited Consolidated Financial Statements for a summary of our accounting policies.
Except as described below, there were no significant and material changes in our critical accounting policies and use of estimates during the three and six months ended March 31, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on December 22, 2021.
Business Combinations
On February 25, 2022, we completed the acquisition of substantially all of the assets of Dripkit. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill acquired include but are not limited to future (i) expected cash flows from acquired customer relationships and trademarks, (ii) attrition, (iii) revenues, (iv) royalty rate, (v) operating profit and (vi) discount rate.
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
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is collected and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. In designing and evaluating our disclosure controls and procedures, management recognizes that no matter how well conceived and operated, disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
ThereDuring the quarter ended March 31, 2022, we completed the acquisition of substantially all of the assets of Dripkit. We are currently in the process of evaluating the impact of this acquisition on our system of internal control over financial reporting. We are also developing plans to integrate Dripkit’s processes and controls into our current state processes. Except for this current evaluation of Dripkit into our overall internal control over financial reporting program, there were no changes in our internal control over financial reporting during the three-month periodquarter ended March 31, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
On November 23, 2021, Next Vision, Inc. (the “Consultant”) filed a complaint against the Company in the Superior Court of California, County of San Diego Central Division (Case No. 37-2021-00049557-CU-BC-CTL) (the “Complaint”). The Complaint alleges that the Company’s delay in issuing shares of the Company’s common stock (the “Shares”) to the Consultant after receiving due notice from the Consultant of its intent to exercise vested stock options to acquire 70,000 Shares, as initially granted in 2018 (or, as adjusted to account for the Company’s reverse stock split effected on November 12, 2019, vested stock options to acquire 23,334 Shares) (the “Options”), which had previously been issued to the Consultant as compensation for consulting services provided in 2018, breached express and implied contractual obligations to the Consultant and resulted in the Company reporting an overstated amount of income on the IRS Form 1099-B that was issued to the Consultant for U.S. federal tax purposes. In addition, the Complaint alleges that the 23,334 Shares issued to the Consultant upon exercise of the Options improperly contained a six-month restriction on resale and that such restriction prevented the Consultant from selling the Shares at the desired time. The Complaint seeks equitable relief requiring the Company to issue an IRS Form 1099-NEC to reflect the correct amount of compensation. The Complaint also seeks compensatory damages, including to recover for alleged lost profits due to the alleged improper six-month restriction on resale for the Shares, as well as punitive damages, costs of suit, attorney’s fees, and interest. On January 20, 2022, the Company filed its general denial and answer in which it raised affirmative defenses and disputed the claims contained in the Complaint.
We believe the allegations set forth in the Complaint are without merit and intend 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.
Except as set forth below, there have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on December 28, 2020.22, 2021.
Our CBD strategy may not develop as planned dueA significant portion of our total outstanding shares of common stock are eligible to be sold into the market in the near future, including pursuant to Rule 144, which could cause the market price of our common stock to drop significantly, even if our business and regulatory factors.is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. We have co-packingalso registered all shares of common stock that are reserved for issuance under the NuZee, Inc. 2019 Stock Incentive Plan and commercial arrangementsall shares of common stock currently reserved for issuance under the NuZee, Inc. 2013 Stock Incentive Plan. As a result, these shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in our filings with the SEC. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop. We believe that a significant portion of our total outstanding shares of common stock may be sold in the public market without restriction by non-affiliates pursuant to Rule 144.
We have also entered into the Equity Distribution Agreement with Maxim, as Agent, pursuant to which we planmay offer and sell, from time to manufacture coffee blended with water-soluble THC-free CBD isolate powder. We intendtime, shares of our common stock through the Agent in “at-the-market-offerings”, as defined in Rule 415 under the Securities Act, having an aggregate offering price of up to offer both THC-free CBD isolate powder and THC-free broad-spectrum options pursuant to the agreement and to other CBD brands and co-packing customers. Our business strategy pertaining to our CBD-blended coffee products may not develop as planned due to many business and regulatory factors. For example, many companies are entering the CBD space and we expect that the competition for market share and acceptance of new products will be significant.
Our planned CBD coffee product line is$20,000,000, subject to varying, rapidly changing federal, state, and local laws, regulations, and rules, whichany applicable limits when using Form S-3. Sales of a substantial number of shares of common stock under the Equity Distribution Agreement, or the perception that those sales may occur, could adversely affect our results of operations and financial condition. In addition,cause the FDA currently asserts that CBD is not a lawful ingredient in foods and dietary supplements, which could subject certainmarket price of our operationscommon stock to regulatory enforcement.decline.
As discussed above, we plan to manufacture coffee blended with water-soluble THC-free CBD isolate powder. Products that contain CBD are subject to various state and federal laws regarding the production and sale of hemp-based products. Historically, the U.S. Drug Enforcement Administration (“DEA”) considered CBD to be a Schedule I controlled substance subject to the Controlled Substances Act (“CSA”) under the definition for “marijuana.” However, the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) removed “hemp” from the definition of “marijuana” in the CSA. “Hemp” is defined as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (“THC”) concentration of not more than 0.3 percent on a dry weight basis. As a result of the enactment of the 2018 Farm Bill, the CBD used in our coffee products will not be a Schedule 1 controlled substance if the Farm Bill conditions are satisfied (THC limit, for example). However, there is a risk that we could be subject to DEA enforcement action, including prosecution, if any of our coffee products are found to contain non FARM Bill compliant CBD.
In addition, although hemp and hemp-derived CBD are no longer controlled substances subject to regulation under the CSA, the FDA has stated that it is nonetheless unlawful under the Federal Food, Drug, and Cosmetic Act (“FDCA”) to market foods or dietary supplements containing CBD. Specifically, the FDCA prohibits the introduction or delivery for introduction into interstate commerce of any food or dietary supplement that contains an approved drug or a drug for which substantial clinical investigations have been instituted and made public, unless a statutory exemption applies. The FDA has stated its conclusion that this statutory prohibition applies and none of the exceptions has been met for CBD. Nevertheless, there are hundreds of CBD-containing foods and dietary supplements on the market. FDA has limited its enforcement actions to those products that bear disease/therapeutic claims.
The FDA has held public meetings and formed an internal working group to evaluate the potential pathways to market for CBD products, which could include seeking statutory changes from Congress or promulgating new regulations. If legislative action is necessary, such legislative changes could take years to finalize and may not include provisions that would enable us to produce, market and/or sell our CBD-blended coffee products, and FDA could similarly take years to promulgate new regulations. Additionally, while the agency’s enforcement focus to date has primarily been on CBD products that are associated with therapeutic claims, the agency has recently issued warning letters to companies marketing CBD products without such claims, and there is a risk that FDA could take enforcement action against our coffee products, our third-party supplier of THC-free CBD isolate powder, or those marketing similar products, which could limit or prevent us from marketing CBD-blended coffee products. While the FDA announced on March 5, 2020, that it is currently evaluating a risk-based enforcement policy for CBD to provide more clarity to industry and the public while the agency takes potential steps to establish a clear regulatory pathway, it remains unclear whether or when FDA will ultimately issue such an enforcement policy.
Moreover, local, state, federal, and international CBD, hemp and cannabis laws and regulations are rapidly changing and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance requirements or alteration of certain aspects of our CBD coffee business plan or activities in the event that our CBD-blended coffee products become subject to new restrictions, including limitation of marketing and promotion, or potential removal from the market altogether. In addition, if a regulatory authority determines, or if litigators such as class action lawyers allege, that we have not complied with the applicable regulatory requirements, our business, financial condition and results of operations may be materially adversely impacted, and we or our customers could be subject to enforcement actions or loss of business.
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We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our activities in the hemp and CBD industry. The constant evolution of laws and regulations may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our current business plan.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
DuringIn the three monthsquarter ended March 31, 2021,2022, we issued the following securities that were not registered under the Securities Act:
● | On February 25, 2022, in connection with the completion of our acquisition of substantially all of the assets of Dripkit pursuant to the Asset Purchase Agreement, we issued an aggregate of 178,681 shares of our common stock to the Stock Recipients. For additional information, see Note 4—Business Combinations to the Unaudited Consolidated Financial Statements and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Dripkit Transaction” herein. Each Stock Recipient was an accredited investor (as that term is defined in Regulation D under the Securities Act). | |
● | On February 8, 2022, we issued 14,000 shares of our common stock upon exercise of stock options previously issued to an advisor for certain legal services. In connection with such exercise, the Company received $12,600 in cash as payment of the aggregate exercise price. |
In issuing shares of our common stock in the transactions described above, the Company withheldrelied on the exemptions from the registration requirements of the Securities Act provided for in Regulation D and/or Section 4(a)(2) of the Securities Act.
Item 5. Other Information
Information Required by Item 407(c)(3) of Regulation S-K
As previously disclosed, on March 17, 2022, the Company’s Board of Directors (the “Board”) approved and adopted the Third Amended and Restated Bylaws of the Company (the “New Bylaws”). The following briefly describes provisions in the New Bylaws that made changes to the Company’s procedures by which stockholders may recommend nominees to the Board and submit stockholder proposals at annual meetings of stockholders:
1. Section 1.10(a) of the New Bylaws permits stockholders to submit proposals (including director nominations) at any annual meeting of stockholders if advance notice thereof has been timely delivered to, or mailed and received by, the secretary of the Company not less than 90 nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. However, if the annual meeting of stockholders is changed by more than 30 calendar days before or after such anniversary date, different timing provisions will apply as set forth in the New Bylaws.
2. Section 1.10(b) of the New Bylaws requires a stockholder’s notice of nomination of a person for election as a director to include, among other information, such stockholder’s name and address and the number and class of all shares beneficially owned by such stockholder, the name of the person to be nominated, the number and class of all shares of each class of stock of the Company common stockbeneficially owned by such person, and such person’s signed consent to satisfy employee minimum statutory tax withholding obligations payable uponserve as a director of the vesting of restricted stock pursuantCompany, if elected.
Pursuant to the termsNew Bylaws, if a stockholder wishes to submit a proposal (including a director nomination) at the 2023 annual meeting of stockholders otherwise than for inclusion in next year’s proxy materials, a stockholder must do so not later than December 17, 2022, nor earlier than the close of business on November 17, 2022. However, if the date of our 2023 annual meeting of stockholders is not held between February 15, 2023 and April 16, 2023, to be timely, notice by the stockholder must be received not later than the 10th day following the day on which notice of the applicable restricted stock award agreements, as follows:date of the 2023 annual meeting of stockholders was mailed or first publicly announced or disclosed, whichever occurs first.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
January 1 – January 31 | 15,000 | $ | 9.12 | — | — | |||||||||||
February 1 – February 28 | — | — | — | — | ||||||||||||
March 1 – March 31 | — | — | — | — | ||||||||||||
Total | 15,000 |
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† Indicates management contract or compensatory plan.
* Filed herewith.
** Furnished herewith.
*** Furnished herewith. PursuantThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
+ Certain schedules to Rule 406Tthis agreement have been omitted pursuant to Item 601 of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or partS-K. A copy 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 ofomitted schedule will be furnished supplementally to the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.Commission upon request.
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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: | May | NUZEE, INC. | |||
By: | /s/ Masateru Higashida | ||||
Masateru Higashida, Chief Executive Officer and President (Principal Executive Officer), Secretary, Treasurer, and Director | |||||
By: | /s/ | ||||
(Principal Financial Officer and Principal Accounting Officer) |
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