As filed with the Securities and Exchange Commission on November 12, 2019

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM S-1/A-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

HAVANA FURNISHINGS INC.

(Name of small business issuer in its charter)

Nevada

5900

38-3849791

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

NuZee, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada

5900

38-3849791

(State or jurisdictionOther Jurisdiction of incorporation
Incorporation or organization)Organization)

(Primary Standard Industrial


Industrial Classification

Code Number)

(I.R.S. Employer
Identification Number)

Edificio Ultramar Plaza.

National Registered Agents Inc. of NV

Apt. #4A 47th Street

1000 East Williams Street,1700 Capital Avenue, Suite 204100

Plano, Texas 75074
(760) 295-2408

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Masateru Higashida
Chief Executive Officer
NuZee, Inc.
1700 Capital Avenue, Suite 100

Plano, Texas 75074
(760) 295-2408

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

Panama City, PanamaAlan A. Lanis, Jr.
Polsinelli PC
2049 Century Park East, Suite 2900
Los Angeles, California 90067
(310) 556-1801

Carson City, Nevada 89701

(507) 269-1315

(800) 550-6724Ralph V. De Martino

(Address and telephone number of registrant'sCavas S. Pavri

(Name, address and telephoneF. Alec Orudjev

executive office)Schiff Hardin LLP

number of agent for service)901 K Street NW, Suite 700

Washington, DC 20001

(202) 724-6846


Copies to:
Approximate date of commencement of proposed sale to the public

SD Mitchell & Associates, PLC

1410 Washington Drive

Stafford, Virginia 22554

(248) 515-6035

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:: As soon as practicable after the effective date of this Registration Statement becomes effective.

Statement.

If any of the securities being registered on the Formthis form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [ X ]

box.þ

If this Formform is filed to register additional common stocksecurities for an offering underpursuant to Rule 462(b) of the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed under Rule 462(c) of the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Formform is a post-effective amendment filed underpursuant to Rule 462(d) of462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

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”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer☐        Accelerated filerþ        Non-accelerated filer☐        Smaller reporting companyþ        Emerging growth company

[   ]

Accelerated filer

[   ]

Non-accelerated filer

[   ]

Smaller reporting company

[X]

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 7(a)(2)(B) of the Securities Act.


CALCULATION OF REGISTRATION FEE

Title Of Each Class Of Securities To Be Registered

Amount to be
registered(1)

 

Proposed maximum
offering
price per share

 

Proposed maximum
aggregate offering price(2)

 

 

Amount Of
Registration Fee(3)

Common Stock, par value $0.00001 per share

 

 

$      

 

$11,500,000

 

 

$1,493

Underwriters’ warrants(4)

--

 

--

 

--

 

 

--

Common stock underlying underwriters’ warrants (4)

 

 

$      

 

$575,000

 

 

$75

Total

 

 

$      

 

$12,075,000

 

 

$1,568

(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares being registered hereunder include such indeterminate number of shares of common stock as may be issuable with respect to the shares being registered hereunder as a result of stock splits, stock dividends or similar transactions.

Securities to be Registered

Amount To Be Registered

Offering Price Per Share[1] 

Aggregate Offering Price

Registration Fee[2] 

Common Stock:

4,000,000

$

0.015

$

60,000

$

6.97

[1] This amount has been calculated based upon Rule 457 and(2) Estimated solely for the purpose of calculating the amount is only for purposes of determining the registration fee in accordance with Rule 457(o), and includes the actual amount received byoffering price of shares of common stock that the underwriters have the right to purchase to cover over-allotments, if any.

(3) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

(4) We have agreed to issue, upon the closing of this offering, warrants to The Benchmark Company, LLC entitling it to purchase a selling shareholdernumber of shares of common stock equal to 5.0% of the aggregate shares of common stock sold in this offering. The exercise price of the warrants will be based upon fluctuating market prices onceequal to the securitiespublic offering price of the common stock offered hereby. The warrants are quotedexercisable commencing six months after the closing date of the offering and will expire five years after the effective date of this registration statement.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the OTC Bulletin Board.

[2] Calculated underregistrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 6(b)8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as .0001161000 of the aggregate offering price.Commission, acting pursuant to said Section 8(a), may determine.



The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED NOVEMBER 12, 2019

PRELIMINARY PROSPECTUS

Shares

 

REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON DATES AS THE COMMISSION, ACTING UNDER SAID SECTION 8(a), MAY DETERMINE.

 

Common Stock

 

2


Prospectus

HAVANA FURNISHINGS INC.

Shares of Common Stock

2,000,000 Minimum - 4,000,000 Maximum

            There has been no public market for the common stock. In the event that we sell at least the minimum number of shares in this offering, of which there is no assurance, we intend to have the shares of common stock quoted on the Bulletin Board operated by the Financial Industry Regulatory Authority. In order to be listed on the Bulletin Board, we must secure a market maker who will file a Form 211 with FINRA on our behalf, of which there is no assurance that we will ever be able to secure a market maker to perform this task. There is no assurance that the shares will ever be quoted on the Bulletin Board.

            This offering will begin on the effective date of this registration statement.  That date is set forth below as “The date of this prospectus is____________” and will terminate 270 days later on__________, 2012, or on the date the maximum number of shares are sold, which ever date is earlier.

We are offering                   up to a total of 4,000,000 shares of the common stock, inpar value $0.00001 per share, of NuZee, Inc., a direct public offering; 2,000,000 shares minimum, 4,000,000 shares maximum, without any involvement of underwriters or broker-dealers.Nevada corporation. The offering price is fixed at $0.015$        per share and will remain fixed at $0.015 per share throughout the offering.  Funds fromshare.

Prior to this offering, will be placed inthere has been no established public market for our common stock. We intend to apply to list our common stock on a separate bank account at Bank of America, 701 Brickell Avenue, Miami, Florida 33131;national securities exchange under the telephone number is 305-347-5007.  There is no escrow, trust or similar account in which your subscription will be deposited.  The bank account is merely a separate non-interest bearing savings account under our control wheresymbol “NUZE.” While we have segregated your funds.  As a result, creditors could attachbelieve that upon the funds.  Only Haisam Hamie, our sole officer and director will have access to the account. You will not have the right to withdraw your funds during the offering. You will only receive your funds back if we do not raise the minimum amountcompletion of the offering within 270 days.  The fundscontemplated by this prospectus, we will meet the standards for listing on a national securities exchange, we cannot guarantee that we will be maintainedsuccessful in the separate bank until we receivelisting our common stock on a minimum of $30,000 at which timenational securities exchange. However, we will remove those funds and use the same as set forth in the Use of Proceeds section ofnot complete this prospectus.  In the event that 2,000,000 sharesoffering unless we are not sold within 270 days, all money received by us will be promptly returned to you without a deduction of any kind.   We define “promptly” as a period of up to three business days.  We will return your funds to you in the form of a cashier’s check sent via Federal Express on the 271st day.  Sold securities are deemed securities which have been paid for with collected funds prior to expiration of 270 days.  Collected funds are deemed funds that have been paid by the drawee bank.

            There are no minimum purchase requirements.

so listed. Our common stock is currently listed on the OTCQB Marketplace (the “OTCQB”) under the symbol “NUZE.”

We have assumed a public offering price of $11.00 per share, the last reported sale price for our common stock as reported on the OTCQB on October 22, 2019 (which does not give effect to the reverse stock split described below due to the absence of sale price data following the effectiveness of the reverse stock split). The actual public offering price per share will be sold by Haisam Hamie,determined between us and the underwriters at the time of pricing and may be at a discount to the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.

We completed a l-for-3 reverse stock split on October 28, 2019, which became effective on November 12, 2019. All share and per share information in this prospectus (except the last reported sale price for our sole officercommon stock) has been retroactively adjusted to give effect to the reverse stock split, including the financial statements and director. Mr. Hamie will not receive any commissions or proceeds from the offering for selling shares on our behalf.notes thereto.

 

            We are an “emerging growth company” under the federal securities laws. Investing in our common stock involves risks.a high degree of risk. See "Risk Factors" starting at‘‘Risk Factors’’ beginning on page 8.13 of this prospectus for information you should consider before buying shares of our common stock.

 

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Our auditors have issued a going concern opinion. We have not generated any revenues and no revenues are anticipated until we complete the development of our website, source out purveyors for our products and secure clients to buy our products. Accordingly, there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. We believe the technical aspects of our website will be sufficiently developed to use for our operations 90 days from the completion of our offering. Accordingly, we must raise cash from sources other than operations. Our only other source for cash at this time is investments by others in our company. We must raise cash to implement our project and begin our operations. We will not begin operations until we raise money from this offering.

All of the estimated expenses of the offering have been paid out of the funds received by the initial investment of our sole officer and director for the purchase of our restricted common stock. The expected net proceeds to us if the minimum and maximum shares are sold are as follows:

Offering Price

Expenses

Proceeds to Us

Per Share - Minimum

$

0.015

 

$

0.00

 

$

0.015

Per Share - Maximum

$

0.015

 

$

0.00

 

$

0.015

Minimum

$

30,000

 

$

0.00

 

$

30,000

Maximum

$

60,000

 

$

0.00

 

$

60,000

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined ifpassed upon the accuracy or adequacy of this prospectusprospectus. Any representation to the contrary is truthful or complete. It is illegal to tell you otherwise.a criminal offense.

Per share

     Total      

Price to the public

$

$

Underwriting discounts and commissions(1)

$

$

Proceeds to us (before expenses)

$

$

____________

 

Subject(1)      Does not include a non-accountable expense allowance equal to Completion:The date1% of the gross proceeds of this offering, payable to the underwriters, or the reimbursement of certain expenses of the underwriters. See “Underwriting” beginning on page 78 of this prospectus is ____________________.for additional information regarding total underwriter compensation.

 

We have granted a 45-day option to the underwriters to purchase up to an additional            shares of common stock solely to cover overallotments, if any, at the public offering price, less underwriting discounts and commissions.

 

Delivery of the shares offered hereby will be made on or about           , 2019.

Sole Book-Running Manager

The Benchmark Company

 

Prospectus dated                          , 2019




4


TABLE OF CONTENTS

 

5


SUMMARY OF OUR OFFERING

Our business

            We are a start-up (development stage) company. We are a company without revenues or operations. Upon commencing operations, we will develop a website that will offer to the public restaurant and bar furnishings and accessories from Asia to retail customers in Panama at wholesale prices.  We have not generated any revenues as our business is currently not operational and we have not begun to implement our business plan except for the reservation of our domain   name (www.havanafurnishings.com) and the development of a business plan. We believe that we will be able to begin operations and operate for the next 12 months if we raise the minimum amount from this offering.

            Our principal executive office is located at 122BEdificio Ultramar Plaza. Apt. #4A 47th Street

Panama City, Panama. Our telephone number is (507) 269-1315 and our registered agent for service of process is the National Registered Agents Inc. of NV, located at 1000 East William Street, Suite 204, Carson City, Nevada 89701. Our fiscal year end is July 31.

The offering

            Following is a brief summary of this offering:

Securities being offered

Minimum 2,000,000 to maximum 4,000,000 shares of common stock, par value $0.00001.72

Offering price per share, fixedLEGAL MATTERS

$0.01577

Offering period

EXPERTS

The shares are being offered for a period not to exceed 270 days.77

Net proceeds to us

WHERE YOU CAN FIND MORE INFORMATION

$30,000 assuming the minimum number of shares is sold.

$60,000 assuming the maximum number of shares is sold.77

Use of proceeds

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

We will use the proceeds to pay for administrative expenses, the implementation of our business plan, and working capital.

Number of shares outstanding before

the offering

4,000,000

Number of shares outstanding after the

offering if all of the shares are sold

8,000,000F-1

6


Selected financial data

            The following audited financial information summarizes the more complete historical financial information derived from our audited financial statements found at the end of this prospectus.

 

 

As of January 31, 2012

(Unaudited)

 

As of July 31, 2011

(Audited)

 

Balance Sheet   

 

 

 

 

 

Total Assets 

$

1,937

8,000

 

Total Liabilities 

$

5,880

1,000

 

Stockholders’ Equity (Loss)

$

(3,943)

7,000

 

 

 

 

 

Period from  

 

 

 

For The

 

July 15, 2011  

 

 

 

Six Months Ended

 

(date of inception)  

 

 

 

January 31, 2012

 

to July 31, 2011 

 

 

 

(Unaudited)

 

(Audited)

 

Income Statement   

 

 

 

 

 

Revenue 

$

-

-

 

Total Expenses 

$

10,943

8,000

 

Net Loss

$

(10,943)

(8,000)

 

Blank Check Issue

            We are not a blank check corporation. Section 7(b)(3) of the Securities Act of 1933, as amended defines the term “blank check company” to mean, any development stage company that is issuing a penny stock that, “(A) has no specific plan or purpose, or (B) has indicated that its business plan is to merge with an unidentified company or companies.” We have a specific plan and purpose. Our business purpose is to offer unique furniture and accessories from Europe and Asia to retail customers at wholesale prices by ordering online. In Securities Act Release No. 6932 which adopted rules relating to blank check offerings, the Securities and Exchange Commission stated in II DISCUSSION OF THE RULES, A.Scope of Rule 419, that, “Rule 419 does not apply to . . . start-up companies with specific business plans . . . even if operations have not commenced at the time of the offering.” Further, we have not indicated in any manner whatsoever, that we plan to merge with an unidentified company or companies, nor do we have any plans to merge with an unidentified company or companies.

            We have no plans or intentions to be acquired or to merge with an operating company, nor does our stockholder, have plans to enter into a change of control or similar transaction or to change our management.

7


RISK FACTORS

            Please consider the following risk factors before deciding to invest in our common stock.

Risks associated with HAVANA FURNISHINGS INC.

1.BECAUSE OUR AUDITORS HAVE ISSUED A GOING CONCERN OPINION AND BECAUSE OUR SOLE OFFICER AND DIRECTOR WILL NOT LOAN ANY ADDITIONAL MONEY TO US, WE HAVE TO COMPLETE THIS OFFERING TO COMMENCE OPERATIONS. IF WE DO NOT COMPLETE THIS OFFERING, WE WILL NOT START OUR OPERATIONS.

Our auditors have issued a going concern opinion. This means that there is substantial doubt that we will be an ongoing business for the next twelve months. As of the date of this prospectus we have not commenced operations. Because our sole officer and director is unwilling to loan or advance any additional capital to us, except to prepare and file reports with the SEC, we will have to complete this offering in order to commence operations.

2.WE LACK AN OPERATING HISTORY AND HAVE LOSSES THAT WE EXPECT TO CONTINUE INTO THE FUTURE. THERE IS NO ASSURANCE OUR FUTURE OPERATIONS WILL RESULT IN PROFITABLE REVENUES. IF WE CANNOT GENERATE SUFFICIENT REVENUES TO OPERATE PROFITABLY, WE MAY SUSPEND OR CEASE OPERATIONS.

 

We were incorporated on July 15, 2011 and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have not started our proposed business operations or realized any revenues.prepared. We haveand the underwriters take no operating history upon which an evaluation of our future success or failureresponsibility for, and can be made. We have incurred losses of $18,943 as of January 31, 2012. Our ability to achieve and maintain profitability and positive cash flow is dependent upon:

*

completion of our public offering

*

establishing our website

*

source out purveyors for our products and secure clients to buy our products

*

our ability to attract clients who purchase our products

*

our ability to generate revenues through the sale of our products


Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses and not generating revenues. We cannot guarantee that we will be successful in generating revenues in the future. Failure to generate revenues will cause us to suspend or cease operations.

3.WE DO NOT HAVE ANY CLIENTS AND WE CANNOT GUARANTEE WE WILL EVER HAVE ANY. EVEN IF WE OBTAIN CLIENTS, THERE IS NO ASSURANCE THAT WE WILL MAKE A PROFIT.

We do not have any clients. Even if we obtain clients, there is no guarantee that we will generate a profit. If we cannot generate a profit, we will have to suspend or cease operations.

8


4.WE ARE SOLELY DEPENDENT UPON THE FUNDS TO BE RAISED IN THE FUTURE TO START OUR BUSINESS, THE PROCEEDS OF WHICH MAY BE INSUFFICIENT TO ACHIEVE REVENUES. WE MAY NEED TO OBTAIN ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE.  

We have not started our business. We need the proceeds from this offering to start our operations. If the minimum of $30,000 is raised, this amount will enable us, after paying the expenses, to begin operations. It will also enable us to initiate development on our website, begin the gathering of information for our database, and initiate the development of our marketing program. We may need additional funds to complete further development of our business plan to achieve a sustainable sales level where ongoing operations can be funded out of revenues. There isprovide no assurance that any additional financing will be available or if available, on terms that will be acceptableas to us.

5.WE WILL BE DEPENDENT ON SUPPLIERS FOR THE SUPPLY OF OUR PRODUCTS, MAKING US VULNERABLE TO SUPPLY PROBLEMS AND PRICE FLUCTUATIONS, WHICH COULD CAUSE US TO FAIL TO MEET THE DEMANDS OF OUR CUSTOMERS AND COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS TO THE EXTENT WE WERE UNABLE TO FIND REPLACEMENT SUPPLIERS

            We will be depending on suppliers from China and Europe, of which we have yet to identify or secure any agreements with, to provide us with products that we will resell on our website once operational. These suppliers, when contracted, will provide us with the products that we will offer for sale on our retail website. In addition, they will provide the Company with drop shipping services to fulfill any orders we may receive from our retail site. If we fail to negotiate acceptable terms and are not able to formalize strategic alliances with the suppliers, we may have to suspend or cease operations until alternative supply arrangements are secured which could, in the short term, adversely affect our financial results.

6.BECAUSE OUR PROFIT MARGIN WILL DEPEND SOLELY ON THE PRICE WE PURCHASE THE PRODUCT FROM OUR SUPPLIERS FOR, IT WILL BE DIFFICULT TO DETERMINE HOW MUCH INVENTORY WE WILL NEED TO SELL IN ORDER TO BECOME PROFITABLE. IF WE CANNOT GENERATE SUFFICIENT REVENUES TO OPERATE PROFITABLY, WE MAY SUSPEND OR CEASE OPERATIONS.  

Because our profit margin will depend solely on the price we purchase the product from our suppliers for, it will be difficult to determine how much inventory we will need to sell in order to become profitable. Profitability will be difficult to determine and will be dependent upon prices we are able to negotiate with suppliers. If we fail to negotiate acceptable terms for products and are not able to formalize strategic alliances with the suppliers, we may have to suspend or cease operations until alternative supply arrangements are secured.

7.BECAUSE WE ARE SMALL AND HAVE MINIMAL CAPITAL, WE MUST LIMIT MARKETING OF OUR PRODUCTS TO POTENTIAL KNOWN CLIENTS. AS A RESULT, WE MAY NOT BE ABLE TO ATTRACT ENOUGH CLIENTS TO OPERATE PROFITABLY. IF WE DO NOT MAKE A PROFIT, WE MAY HAVE TO SUSPEND OR CEASE OPERATIONS.  

9


Because we are small and do not have much capital, we must limit marketing our products. The sale of our products via our website is how we will initially generate revenues. Because we will be limiting our marketing activities, we may not be able to attract enough clients to buy our products to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.

8. AS AN “EMERGING GROWTH COMPANY” UNDER THE JUMPSTART OUR BUSINESS STARTUPS ACT, WE ARE PERMITTED TO RELY ON EXEMPTIONS FROM CERTAIN DISCLOSURE REQUIREMENTS.

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We will remain an emerging growth company for up to five full fiscal years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any July 31 before that time, we would cease to be an emerging growth company as of the following January 31, or if our annual revenues exceed $1 billion, we would cease to be an emerging growth company the following fiscal year, or if we issue more than $1 billion in non-convertible debt in a three-year period, we would cease to be an emerging growth company immediately.

10


9. IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MIGHT BE UNABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR PREVENT FRAUD; IN THAT CASE, OUR STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH WOULD HARM OUR BUSINESS AND COULD NEGATIVELY IMPACT THE PRICE OF OUR STOCK.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We are not currently required to comply with the Securities and Exchange Commission, or SEC, rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Upon becoming a public company, we will be required to disclose changes made in our internal control procedures on a quarterly basis. In addition, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the year following our first annual report required to be filed with the SEC. However, as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

The process of implementing our internal controls and complying with Section 404 will be expensive and time consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude, and our independent registered public accounting firm concurs, if applicable, that our internal control over financial reporting provides reasonable assurance regarding the reliability of, financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reportingany other information that others may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 of the Sarbanes-Oxley Act could subject us to a variety of administrative sanctions, including SEC action, ineligibility for short form resale registration, the suspension or delisting of our common stock from The NASDAQ Global Market and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.

10.BECAUSE OUR SOLE OFFICER AND DIRECTOR WILL ONLY BE DEVOTING LIMITED TIME TO OUR OPERATIONS, OUR OPERATIONS MAY BE SPORADIC WHICH MAY RESULT IN PERIODIC INTERRUPTIONS OR SUSPENSIONS OF OPERATIONS. THIS ACTIVITY COULD PREVENT US FROM ATTRACTING CLIENTS AND RESULT IN A LACK OF REVENUES THAT MAY CAUSE US TO SUSPEND OR CEASE OPERATIONS.

11


Our sole officer and director will only be devoting limited time to our operations. He will be devoting approximately 6 hours per week or 15% of his time to our operations. Because our sole officer and director will only be devoting limited time to our operations, our operations may be sporadic and occur at times which are convenient to our sole officer and director. As a result, operations may be periodically interrupted or suspended which could result in a lack of revenues and a possible cessation of operations.

11.BECAUSE WE HAVE ONLY ONE OFFICER AND DIRECTOR WHO IS RESPONSIBLE FOR OUR MANAGERIAL AND ORGANIZATIONAL STRUCTURE, IN THE FUTURE, THERE MAY NOT BE EFFECTIVE DISCLOSURE AND ACCOUNTING CONTROLS TO COMPLY WITH APPLICABLE LAWS AND REGULATIONS WHICH COULD RESULT IN FINES, PENALTIES AND ASSESSMENTS AGAINST US.

We have only one officer and director, Mr. Haisam Hamie. He has no formal training in financial accounting and management, however, he is responsible for our managerial and organizational structure which will include assessment and preparation of our disclosure controls and procedures and internal controls over financial reporting under the Sarbanes Oxley Act of 2002. While Mr. Haisam Hamie has no formal training in financial accounting matters, he has been reviewing the financial statements that have been prepared by Executive Consulting Services, our bookkeeper, and are included in this prospectus. Executive Consulting Services (ECS) is our bookkeeper and EDGAR filing agent. ECS is not responsible for setting company policies. When our disclosure controls and procedures and internal controls over financial reporting under the Sarbanes Oxley Act of 2002 referred to above are implemented, he will be responsible for the administration of them. If he does not have sufficient expertise, he may be incapable of creating and implementing the controls which may subject us to sanctions and fines by the SEC which ultimately could cause you to lose your investment.

12.IF HAISAM HAMIE, OUR PRESIDENT AND SOLE DIRECTOR, SHOULD RESIGN OR DIE, WE WILL NOT HAVE A CHIEF EXECUTIVE OFFICER WHICH COULD RESULT IN OUR OPERATIONS BEING SUSPENDED OR CEASING ENTIRELY. IF THAT SHOULD OCCUR, YOU COULD LOSE YOUR INVESTMENT.

Haisam Hamie is our sole officer and director.provide you. We are extremely dependent upon him to conduct our operations. If he should resign or die we will not have a chief executive officer. If that should occur, until we find another person to act as our chief executive officer, our operations could be suspended. In that event it is possible you could lose your entire investment.

13.A PERMANENT LOSS OF DATA OR A PERMANENT LOSS OF SERVICE ON THE INTERNET WILL HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND WILL CAUSE US TO CEASE DOING BUSINESS.

Our future operations will depend entirely on the Internet. If we permanently lose data or permanently lose Internet service for any reason, be it technical failure or criminal acts, we will have to cease operations and you will lose your investment.

12


14. U.S. FEDERAL REGULATIONS REQUIRE THAT ANY COMPUTER SOFTWARE USED WITHIN THE UNITED STATES CONTAIN A 128-BIT ENCODING ENCRYPTION, WHILE ANY COMPUTER SOFTWARE EXPORTED TO A FOREIGN COUNTRY CONTAIN A 40-BIT ENCODING ENCRYPTION.

U.S. federal regulations require that any computer software used within the United States contain a 128-bit encoding encryption, while any computer software exported to a foreign country contain a 40-bit encoding encryption. There is uncertainty as to whether the 128-bit encoding encryption required by the U.S. is sufficient security for transactions occurring over the Internet. Accordingly, there is a danger that any financial (credit card) transaction via the Internet will not be a secure transaction. Accordingly, risks such as the loss of data or loss of service on the Internet from technical failure or criminal acts are now being considered in the system specifications and in the security precautions in the development of the website. Although we will be using a 128-bit encoding encryption for our website transactions, there is no assurance that such security precautions will be successful, if they are not, we will have to cease operations and you will lose your investment.

15. WE DO NOT MAINTAIN ANY INSURANCE AND DO NOT INTEND TO MAINTAIN INSURANCE IN THE FUTURE. BECAUSE WE DO NOT HAVE ANY INSURANCE, IF WE ARE MADE A PARTY OF A PRODUCTS LIABILITY ACTION, WE MAY NOT HAVE SUFFICIENT FUNDS TO DEFEND THE LITIGATION.

We do not maintain any insurance and do not intend to maintain insurance in the future. Because we do not have any insurance, if we are made a party of a products liability action, we may not have sufficient funds to defend the litigation. If that occurs a judgment could be rendered against us, which could cause us to cease operations. If that happens, you will lose your investment.

RISKS ASSOCIATED WITH THIS OFFERING:

16. BECAUSE WE DO NOT HAVE AN ESCROW OR TRUST ACCOUNT FOR YOUR SUBSCRIPTION, IF WE FILE FOR BANKRUPTCY PROTECTION OR ARE FORCED INTO BANKRUPTCY, OR A CREDITOR OBTAINS A JUDGMENT AGAINST US AND ATTACHES THE SUBSCRIPTION OR OUR SOLE OFFICER AND DIRECTOR MISAPPROPRIATES THE FUNDS FOR HIS OWN USE, YOU WILL LOSE YOUR INVESTMENT.

Your funds will not be placed in an escrow or trust account. Accordingly, if we file for bankruptcy protection or a petition for involuntary bankruptcy is filed by creditors against us, your funds will become part of the bankruptcy estate and administered according to the bankruptcy laws. If a creditor sues us and obtains a judgment against us, the creditor could garnish the bank account and take possession of the subscription funds. As such, it is possible that a creditor could attach your subscription which could preclude or delay the return of money to you. Further, our sole officer and director will have the power to appropriate the money we raise. As such, he could withdraw the funds without your knowledge for his own use. If that happens, you will lose your investment.

17.BECAUSE THERE IS NO PUBLIC TRADING MARKET FOR OUR COMMON STOCK, YOU MAY NOT BE ABLE TO RESELL YOUR STOCK.  

13


There is currently no public trading market for our common stock. Therefore there is no central place, such as stock exchange or electronic trading system, to resell your shares.Our company has not applied for its common stock to be quoted on any exchange or electronic trading system and may never do so.If you do want to resell your shares, you will have to locate a buyer and negotiate your own sale.

18.BECAUSE WE MAY ISSUE ADDITIONAL SHARES OF COMMON OR PREFERRED STOCK, YOUR INVESTMENT COULD BE SUBJECT TO SUBSTANTIAL DILUTION.

We anticipate that any additional funding will be in the form of equity financing from the sale of our common or preferred stock. In the future, if we sell more common or preferred stock, your investment could be subject to dilution. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us.

19.Since our headquarters are located in Panama and our assets and key personnel are located in Panama, you may not be able to enforce any judgment which has been awarded in a United States court of law against the Company, the Company’s assets, key personnel or experts, or employees of the Company.

            While we are organized under the laws of Nevada, our headquarters, assets, and sole officer and director are located outside the United States.  As a result, it may be impossible for you to affect service of process within the United States upon us or these persons or to enforce against us or these persons any judgments in civil and commercial matters, including judgments awarded under United States federal securities laws.  In addition, a Panama court may not permit you to bring an original action against the Company in Panama or to enforce in Panama a judgment of a United States court based upon civil liability provisions of United States federal securities laws.

20.BECAUSE THE SEC IMPOSES ADDITIONAL SALES PRACTICE REQUIREMENTS ON BROKERS WHO DEAL IN SHARES THAT ARE PENNY STOCKS, SOME BROKERS MAY BE UNWILLING TO TRADE THEM. THIS MEANS THAT YOU MAY HAVE DIFFICULTY RESELLING YOUR SHARES AND THIS MAY CAUSE THE PRICE OF THE SHARES TO DECLINE.

Our shares would be classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 and the rules promulgated thereunder which impose additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement prior to making a sale for you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent you from reselling your shares and may cause the price of the shares to decline.

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USE OF PROCEEDS

            Our offering is being made on a self-underwritten $30,000 minimum, $60,000 maximum basis. The table below sets forth the use of proceeds if $30,000, $45,000 or $60,000 of the offering is sold.

$30,000

$45,000

$60,000

Gross proceeds

Offering expenses

Net proceeds

$

$

$

30,000

0

30,000

$

$

$

45,000
0
45,000

$

$

$

60,000

0

60,000

            The net proceeds will be used as follows:

Legal and Professional fees

Website development

Database

Marketing and advertising

Establishing an office

Salaries

Filing Fees with Local Regulatory Agencies

Travel

Working capital

$

$

$

$

$

$

$

$

$

5,000

5,000

2,000

2,000

1,000

0

1,500

5,000

8,500

$

$

$

$

$

$

$

$

$

5,000
5,000
2,500
5,000
2,500
0

1,500

10,000

13,500

$

$

$

$

$

$

$

$

$

5,000

7,000

5,000

5,000

3,000

10,000

1,500

10,000

13,500

            All of the estimated expenses of the offering have been paid out of the funds received by the initial investment of our sole officer and director for the purchase of our restricted common stock.

            We believe that if we raise the minimum amount from our public offering we will be able to remain in compliance with our reporting requirements for the next twelve months and begin operations. Legal fees are for the review of our periodic reports; accounting fees are estimated for three reviews of our financial statements and an audit. Consulting fees are for a consultant to prepare our periodic reports and advise us on compliance matters and the transfer agent fees consist of establishing initial set-up fees and the printing of the corporate share certificates.

            We will be able to begin operations with the minimum funds described above.  By raising additional amounts, we will have the ability to develop a more sophisticated website; a stronger marketing and advertising campaign; and, provide for additional working capital.

            We will spend between $5,000 and $7,000 for the preparation of our website which includes the cost of content creation and links to and from our website. The more funds that are able to be allocated to the creation of our website will provide for a more sophisticated site with additional tabs, pages and enhanced features. Additionally, more funds will allow for regular updates to be done by our hosting provider.

            We intend to develop and maintain a database of suppliers and customers. The estimated cost to develop and maintain the database is between $2,000 and $5,000.

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 Marketing and advertising will be focused on promoting our products to the public.  We also intend to print sales material for distribution in newspapers and magazines. The cost of developing the campaign is estimated to cost between $2,000 and $5,000If we raise the minimum, we will plan to concentrate more on advertising through newspapers, flyers, and other physical printed mediums. We will allocate more funds to online advertising as well as printed material if the maximum dollar amount is raised in the offering. See “Marketing” subsection of the Business section for a detailed description of our marketing and advertising outline.

We intend to use the president’s home initially as our office on a rent free basis. If we raise only the minimum, we will purchase a computer and set up communication lines in Mr. Hamies’ home to facilitate sales from his home office. If we raise the maximum in our offering we will establish an outside physical office.

As a foreign corporation conducting business in Panama, we must file the following documents at the Public Registry Office:

  1. A notarized Spanish translation of the Articles of Incorporation;
  2. Board of Directors minutes authorizing the Panamanian registration;
  3. Copies of the most recent financial statements;
  4. A certificate from a Panamanian Consul confirming that the Company is organized according to the law of its place of incorporation; and
  5. Notification of the transfer of capital to the Panamanian operation.

Regardless of if we raise the minimum or the maximum is raised in our offering we will spend $1,500 from the proceeds of the offering to file the aforementioned documents with the Public Registry Office of Panama so we are ablesell, and seeking offers to comply with the regulations of the country in which we are operating in.

            Working capital is the cost related to operating our office.  It is comprised of expenses for rent, telephone service, mail, stationary, accounting, acquisition of office equipment and supplies, expenses of filing reports with the SEC, travel, and general working capital.  

DETERMINATION OF OFFERING PRICE

            The price of the shares we are offering was arbitrarily determined in order for us to raise up to a total of $60,000 in this offering. The offering price bears no relationship whatsoever to our assets, earnings, book value or other criteria of value. Among the factors considered were:

*

our lack of operating history

*

the proceeds to be raised by the offering

*

the amount of capital to be contributed by purchasers in this offering in proportion to the amount of stock to be retained by our existing stockholder, and

*

our relative cash requirements.

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DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES

            Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly as a result of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of the lower book value of the shares held by our existing stockholder.

             As of January 31, 2012 the net tangible book value of ourbuy, shares of common stock was approximately $(4,000) or approximately $(0.001) per share based upon 4,000,000 shares outstanding. 

If 4,000,000 (100%) of the Shares Are Sold:

            Upon completion of this offering,only in the event all of the sharesjurisdictions where offers and sales are sold, the net tangible book value of the 8,000,000 shares (4,000,000 shares outstanding prior to this offering plus 4,000,000 shares from this offering) to be outstanding will be $56,000 (current net tangible book value of approximately $(4,000) plus the net proceeds from this offering of $60,000) or approximately $0.007 per share.permitted. The net tangible book value of the shares held by our existing stockholder will be increased by $0.008 per share to $0.007 per share without any additional investment on his part. You will not incur any dilution but rather experience a gain of $0.008 from $(0.001) per share to $0.007 per share.

            After completion of this offering, if 4,000,000 shares are sold, you will own approximately 50.00% of the total number of shares then outstanding for which you will have made cash investment of $60,000, or $0.015 per share. Our existing stockholder will own approximately 50.00% of the total number of shares then outstanding, for which he has made contributions of cash totaling $15,000 or approximately $0.004 per share.

If 3,000,000 Shares Are Sold:

            Upon completion of this offering, in the event 3,000,000 shares are sold, the net tangible book value of the 7,000,000 shares (4,000,000 shares outstanding prior to this offering plus 3,000,000 shares from this offering) to be outstanding will be $41,000 (current net tangible book value of approximately $(4,000) plus the net proceeds from this offering of $45,000), or approximately $0.006 per share. The net tangible book value of the shares held by our existing stockholder will increase by $0.007 per share without any additional investment on his part. You will incur an immediate dilution from $0.015 per share to $0.006 per share.

            After completion of this offering, if 3,000,000 shares are sold, you will own approximately 42.86% of the total number of shares then outstanding for which you will have made cash investment of $45,000, or $0.015 per share. Our existing stockholder will own approximately 57.14% of the total number of shares then outstanding, for which he has made contributions of cash totaling $15,000 or approximately $0.004 per share.

17


If the Minimum Number of the Shares Are Sold:

            Upon completion of this offering, in the event 2,000,000 shares are sold, the net tangible book value of the 6,000,000 shares (4,000,000 shares outstanding prior to this offering plus 2,000,000 shares from this offering) to be outstanding will be $26,000 (current net tangible book value of approximately $(4,000) plus the net proceeds from this offering of $30,000), or approximately $0.004 per share. The net tangible book value of the shares held by our existing stockholder will increase by $0.005 per share. You will incur an immediate dilution from $0.015 per share to $0.004 per share.

            After completion of this offering, if 2,000,000 shares are sold, you will own approximately 33.33% of the total number of shares then outstanding for which you will have made cash investment of $30,000, or $0.015 per share. Our existing stockholder will own approximately 66.66% of the total number of shares then outstanding, for which he has made contributions of cash totaling $15,000 or approximately $0.004 per share.

            The following table compares the differences of your investment in our shares with the investment of our existing stockholder.

Existing Stockholder if all of the Shares are Sold:

Price per share

$

0.004

Net tangible book value per share before offering

$

(0.001)

Net tangible book value per share after offering

$

0.007

Increase to present stockholder in net tangible book value per share

 

 

after offering

$

0.004

Capital contributions

$

15,000

Number of shares outstanding before the offering

 

4,000,000

Number of shares after offering assuming the sale of the maximum

 

 

number of shares

 

8,000,000

Percentage of ownership after offering

 

50.00%

Purchasers of Sharesinformation contained in this Offering if all Shares Sold

Price per share

$

0.015

Dilution per share

$

0.008

Capital contributions

$

60,000

Number of shares after offering held by public investors

 

4,000,000

Percentage of capital contributions by existing stockholder

 

20%

Percentage of capital contributions by new investors

 

80%

Percentage of ownership after offering

 

50.00%

18


Purchasers of Shares in this Offering if 75% of Shares Sold

Price per share

$

0.015

Dilution per share

$

0.009

Capital contributions

$

45,000

Number of shares after offering held by public investors

 

3,000,000

Percentage of capital contributions by existing stockholder

 

25%

Percentage of capital contributions by new investors

 

75%

Percentage of ownership after offering

 

42.86%

Purchasers of Shares in this Offering if the Minimum Number of Shares Sold

Price per share

$

0.015

Dilution per share

  $  

0.011

Capital contributions

$

30,000

Percentage of capital contributions by existing stockholder

 

40%

Percentage of capital contributions by new investors

 

60%

Number of shares after offering held by public investors

 

2,000,000

Percentage of ownership after offering

 

33.33%

PLAN OF DISTRIBUTION; TERMS OF THE OFFERING

            Thereprospectus is currently no market for any of our shares, and we cannot give any assurance that the shares offered will ever have a market value. If or when, a secondary market develops, there is still no assurance that you will be able to resell your shares at the offered price should it develop. A public market for our securities may not be sustained even if developed in the future.

            We are offering 4,000,000 shares of common stock on a self-underwritten basis, 2,000,000 shares minimum, and 4,000,000 shares maximum basis. The offering price is fixed at $0.015 per share and will remain fixed at $0.015 throughout the offering. Funds from this offering will be placed in a separate bank account at Bank of America, 701 Brickell Avenue, Miami, Florida 33131; the telephone number is 305-347-5007. The funds will be maintained in the separate bank account until we receive a minimum of $30,000 at which time we will remove those funds and use the same as set forth in the Use of Proceeds section of this prospectus.  This account is not an escrow, trust or similar account.  It is merely a separate non-interest bearing savings account under our control where we have segregated your funds.   Your subscription will only be deposited in a separate bank account under our name.  As a result, if we are sued for any reason and a judgment is rendered against us, your subscription could be seized in a garnishment proceeding and you could lose your investment, even if we fail to raise the minimum amount in this offering.  Further, if we file a voluntary bankruptcy petition or our creditors file an involuntary bankruptcy petition, our assets will be seized by the bankruptcy trustee, including your subscription, and used to pay our creditors. If that happens, you will lose your investment, even if we fail to raise the minimum amount in this offering.  As a result, there is no assurance that your funds will be returned to you if the minimum offering is not reached.  Any funds received by us thereafter will immediately be used by us.

19


            If we do not receive the minimum amount of $30,000 within 270 days of the effective date of our registration statement, all funds will be promptly returned to you without interest and without a deduction of any kind. We will return your funds to you in the form of a cashier’s check sent Federal Express on the 271st day.  During the 270 day period, no funds will be returned to you. You will only receive a refund of your subscription if we do not raise a minimum of $30,000 within the 270 day period referred to above. There are no finders involved in our distribution. Officers, directors, affiliates or anyone involved in marketing the shares will not be allowed to purchase shares in the offering. You will not have the right to withdraw your funds during the offering. You will only have the right to have your funds returned if we do not raise the minimum amount of the offering or there would be a change in the material terms of the offering. The following are material terms that would allow you to be entitled to a refund of your money:

*

extension of the offering period beyond 270 days;

*

an extension of the date by which we must sell the minimum number of shares;

*

change in the use of proceeds;

*

change in the offering price;

*

change in the minimum sales requirement;

*

change to allow sales to affiliates in order to meet the minimum sales requirement;

*

change in the amount of proceeds necessary to release the proceeds held in the separate bank account.

            If any of the foregoing events occur, we will file a post-effective amendment to this registration statement, including updated disclosure and financial statements where necessary, and we will return at least contemporaneously with the filing of the post-effective amendment, all investor proceeds. We do not, however, plan on changing any of the aforementioned material terms of this offering.

            We will sell the shares in this offering through Haisam Hamie, our sole officer and director.  He will receive no commission from the sale of any shares. He will not register as a broker-dealer under section 15 of the Securities Exchange Act of 1934 in reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer's securities and not be deemed to be a broker/dealer. The conditions are that:

            1.  The person is not statutorily disqualified, as that term is defined in Section 3(a)(39) of the Act, at the time of his participation; and,

            2.  The person is not compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities;

            3.  The person is not at the time of their participation, an associated person of a broker/dealer; and,

            4.  The person meets the conditions of Paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he (A) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the Issuer otherwise than in connection with transactions in securities; and (B) is not a broker or dealer, or an associated person of a broker or dealer, within the preceding twelve (12) months; and (C) do not participate in selling and offering of securities for any Issuer more than once every twelve (12) months other than in reliance on Paragraphs (a)(4)(i) or(a)(4)(iii).

20


            Haisam Hamie is not statutorily disqualified, is not being compensated, and is not associated with a broker/dealer. He is and will continue to be our sole officer and director at the end of the offering and has not been during the last twelve months and are currently not a broker/dealer or associated with a broker/dealer.  He will not participate in selling and offering securities for any issuer more than once every twelve months.

            Only after our registration statement is declared effective by the SEC, do we intend to advertise, through tombstones, and hold investment meetings in various states where the offering will be registered. We will not utilize the Internet to advertise our offering. Mr. Hamie will also distribute the prospectus to potential investors at the meetings, to business associates and to his friends and relatives who are interested in us and a possible investment in the offering. No shares purchased in this offering will be subject to any kind of lock-up agreement.

            Management and affiliates thereof will not purchase shares in this offering to reach the minimum. 

            We intend to sell the shares in this offering outside the United States to non-US residents. No shares of our common stock offered in this offering will be sold inside the United States of America.

Section 15(g) of the Exchange Act

            Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6 and Rule 15g-9 promulgated thereunder. They impose additional sales practice requirements on broker/dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $3,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses).  While Section 15(g) and Rules 15g-1 through 15g-6 apply to brokers-dealers, they do not apply to us.

            Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules.

            Rule 15g-2 declares unlawful broker/dealer transactions in penny stocks unless the broker/dealer has first provided to the customer a standardized disclosure document.

            Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny stock transaction unless the broker/dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.

            Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for a customer unless the broker/dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.

            Rule 15g-5 requires that a broker/dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales persons compensation.

21


            Rule 15g-6 requires broker/dealers selling penny stocks to provide their customers with monthly account statements.

            Rule 15g-9 requires broker/dealers to approve the transaction for the customer's account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of his rights and remedies in cases of fraud in penny stock transactions; and, the FINRA's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.  The application of the penny stock rules may affect your ability to resell your shares.

Regulation M

We are subject to Regulation M of the Securities Exchange Act of 1934. Regulation M governs activities of underwriters, issuers, selling security holders, and others in connection with offerings of securities. Regulation M prohibits distribution participants and their affiliated purchasers from bidding for or purchasing or attempting to induce any person to bid for or purchase the securities being distributed.

Offering Period and Expiration Date

            This offering will start on the date of this prospectus and continue for a period of up to 270 days.

Procedures for Subscribing

            If you decide to subscribe for any shares in this offering, you must

1.

2.

execute and deliver a subscription agreement

deliver a check or certified funds to us for acceptance or rejection.

            All checks for subscriptions must be made payable to HAVANA FURNISHINGS INC.

Right to Reject Subscriptions

            We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned immediately by us to the subscriber, without interest or deductions. Subscriptions for securities will be accepted or rejected within 48 hours after we receive them.

22


MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

            This section of the prospectus includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance.  Forward-looking statements are often identified by words like: “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project,” and similar expressions, or words which, by their nature, refer to future events.   You should not place undue certainty on these forward-looking statements, which applyaccurate only as of the date of this prospectus.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical resultsprospectus, regardless of the time of delivery of this prospectus or our predictions.of any sale of the common stock.

 

            We qualify as an “emerging growth company” underMARKET, INDUSTRY AND OTHER DATA

This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, filings of public companies in our industry and internal company surveys. These sources may include government and industry sources. Industry publications and surveys generally state that the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptionsinformation contained therein has been obtained from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.


We will remain an emerging growth company for up to five full fiscal years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any July 31 before that time, we would ceasesources believed to be an emerging growth company as of the following January 31, or if our annual revenues exceed $1 billion, we would cease to be an emerging growth company the following fiscal year, or if we issue more than $1 billion in non-convertible debt in a three-year period, we would cease to be an emerging growth company immediately.

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Our auditors have issued a going concern opinion. We have not generated any revenues and no revenues are anticipated until we complete the development of our website, source out purveyors of products to sell and secure clients to buy our products. Accordingly, there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. We believe the technical aspects of our website will be sufficiently developed to use for our operations 90 days from the completion of our offering. Accordingly, we must raise cash from sources other than operations. Our only other source for cash at this time is investments by others in our company. We must raise cash to implement our project and begin our operations. We will not begin operations until we raise money from this offering.

            To meet our need for cash we are attempting to raise money from this offering.   We cannot guarantee that once we begin operations we will stay in business after twelve months.  If we are unable to secure enough suppliers of products at suitably low pricing or enough customers willing to buy the products at higher than the price we have negotiated with our suppliers, we may quickly use up the proceeds from the minimum amount of money from this offering and will need to find alternative sources, like a second public offering, a private placement of securities, or loans from our officers or others in order for us to maintain our operations.   At the present time, we have not made any arrangements to raise additional cash, other than through this offering.  If we need additional cash and cannot raise it we will either have to suspend operations until we do raise the cash, or cease operations entirely.   If we raise the minimum amount of money from this offering, we will have limited funds available to develop growth strategy.  If we raise the maximum amount,reliable. Although we believe the money will provide funds for our growth strategy. 

            If we raise less than the maximum amountindustry and need more money, we will have to revert to obtaining additional money as described in this paragraph.  Other than as described in this paragraph, we have no other financing plans.

Plan of Operation

Upon completion of our public offering, our specific goal is to profitably sell products on our Internet website to the public.  We intend to accomplish the foregoing by the following milestones:

1.

Complete our public offering. We believe this could take up to 270 days from the date the Securities and Exchange Commission declares our offering effective. We will not begin operations until we have closed this offering. We intend to concentrate all of our efforts on raising as much capital as we can during this period.

2.

After completing the offering, if we raise more than the minimum, we will begin to establish our office and acquire the equipment we need to begin operations. Establishing our offices will take 30 days. Our president has agreed to allow us to use his office space rent-free if only the minimum is raised. In that case, we will spend $1,000 of the proceeds to purchase a computer and set up communication lines such as phone and internet to facilitate sales. If more than the minimum is raised between $2,500 and $3,000 will be spent on setting up an independent office. We do not intend to hire employees. Our sole officer and director will handle our administrative duties. A detailed breakdown of the cost of operating our office is set forth in the Use of Proceeds section of this prospectus.

3.

Once our office is established, which we said should be 30 days after completing our offering, we intend to hire a web designer to begin development of the website. Locating a website designer and developing our website should take approximately 30- 90 days. The negotiation of additional alliances with service providers and the development of the website will be ongoing during the life of our operations. As we locate customers and as our customer database expands, we will have to be continually upgrading the website. This promotion will be ongoing through the life of our operations.

4.

Approximately 90-120 days after we complete our public offering, we intend to promote our products through traditional sources such as local food and restaurant publications, letters, emails, flyers and mailers. We intend to promote our products to restaurants and bars in Panama City initially. We will aggressively court contacts provided by our president, Haisam Hamie. We believe that it will cost a minimum of $2,000 for our marketing campaign. If we raise the maximum amount of proceeds from the offering, we will devote $5,000 to our marketing program. Marketing is an ongoing matter that will continue during the life of our operations.

5.

Within 120-180 days from the initial launch of our marketing program, we believe that we will begin generating income from the sale of our products.

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In summary, we should implement our business plan and expectmarket data to be engaging clients within 90-120 days of completing our offering. We estimate that we will generate revenue 120 to 180 days after beginning operations.

The above mentioned milestones and timelines will be dependent upon the availability of our sole officer and director.  Haisam Hamie is entirely responsible for our day-today operations. Establishing an office will take timereliable as Mr. Hamie will need to locate an appropriate facility which will be determined by the total amount raised in the offering; additionally, he will have to make arrangements for telephone and other communication lines to be established, and offices supplies will need to be procured. Once the office is fully operational, Mr. Hamie can then turn his attention to retaining a web developer.

            We anticipate that we will generate revenues as soon as we are able to offer products for sale on our website.  This will happen once we negotiate agreements with one or two suppliers of products and start advertising products on our website.

            If we cannot generate sufficient revenues to continue operations, we will suspend or cease operations.  If we cease operations, we do not have any plans to do anything else.

            On July 15, 2011, we executed a consulting agreement whereby we agreed to pay Executive Consulting Services, (ECS) Group $1,000 per month for the next year.  ECS provides administrative, compliance, accounting, and SEC reporting support for the operations of the Company. Administrative duties include maintaining compliance with regulatory agencies such as Nevada Secretary of State and the Securities and Exchange Commission, maintaining the Corporate Minute Book, is the Company's bookkeeper, and is an EDGAR/IDEA filing service. Additionally, ECS acts as liaison between the Company's president and auditor, legal counsel, transfer agent, registered agent and the SEC. UponSEC effectiveness, ECS will continue to provide administrative and compliance support especially as it relates to the preparation of financial statements and reports on Form 10-Q, 10-K and 8-K.

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Limited operating history; need for additional capital 

            There is no historical financial information about us upon which to base an evaluation of our performance.  We are a start-up (development stage) company and have not generated any revenues. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.       

            To meet our need for cash we are attempting to raise money from this offering.   We cannot guarantee that once we begin operations we will stay in business after twelve months.  If we are unable to secure enough suppliers of products at suitably low pricing or enough customers willing to buy the products at higher than the price we have negotiated with our suppliers, we may quickly use up the proceeds from the minimum amount of money from this offering and will need to find alternative sources, like a second public offering, a private placement of securities, or loans from our officers or others in order for us to maintain our operations.   At the present time, we have not made any arrangements to raise additional cash, other than through this offering.  If we need additional cash and cannot raise it we will either have to suspend operations until we do raise the cash, or cease operations entirely.   If we raise the minimum amount of money from this offering, we will have limited funds available to develop growth strategy.  If we raise the maximum amount, we believe the money will provide funds for our growth strategy. 

            We are seeking equity financing to provide for the capital required to implement our operations.  Equity financing could result in additional dilution to our existing stockholder. 

Results of operations 

From Inception on July 15, 2011 to January 31, 2012

            During the period we incorporated the company, hired the attorney, and hired the auditor for the preparation of this registration statement. We have prepared the business plan included in this registration statement.  We have reserved the domain name “www.havanafurnishings.com.”  Our net loss since inception is $18,943 comprised of legal, accounting, and consulting fees.  We have not started our proposed business operations and will not do so until we have completed this offering.

            Since inception, we sold 4,000,000 shares of common stock to our sole officer and director for $15,000.

Liquidity and capital resources

As of the date of this prospectus, this information could prove to be inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we have yet to generate any revenuesdo not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.

Until        , 2019 (25 days after the date of this prospectus), all dealers that buy, sell or trade our business operations.  Assuming we raise the minimum amountcommon stock, whether or not participating in this offering, we believe we can satisfy our cash requirements duringmay be required to deliver a prospectus. This is in addition to the next 12 months.dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


i



PROSPECTUS SUMMARY

 

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            We issued 4,000,000 shares of common stock pursuant to the exemption from registrationThe following summary highlights information contained in Section 4(2) of the Securities Act of 1933.  This was accounted for as a sale of common stock.

            As of January 31, 2012, our total assets were $1,937 consisting entirely of cash and our total liabilities were $5,880 comprised entirely of accounts and related party payables.

            To meet our short term cash needs, we are offering on a 2,000,000 minimum, 4,000,000 maximum shares of common stock at $0.015 per share, through a public offering. If we raise the minimum amount from the offering, the net proceeds to us will be $30,000 which we believe will be enough to begin operations and sustain our cash needs for the next 12 months.

             We believe that we will need an additional $25,000 per year after our initial 12 month period to maintain minimal operations. While this amount will be enough to support basic operations and compliance with regulatory agencies, it will not be enough to promote growth.  If we are not able to generate revenue and operating profitably during that time, we may need to find alternative sources of cash, like a second public offering, a private placement of securities, or loans from our officers or others in order for us to maintain our operations long term.   At the present time, we have not made any arrangements to raise additional cash, other than through this offering.  If we need additional cash and cannot raise it we will either have to suspend operations until we do raise the cash, or cease operations entirely.  If we begin to generate profits after that time, we will use the profits to further develop our business as indicated in our Use of Proceeds section.  Additionally, we refer to the Plan of Operations sectionelsewhere in this prospectus for additional information.  

            On July 15, 2011, we executed a consulting agreement whereby we agreed to pay Executive Consulting Services, (ECS) Group $1,000 per month forand is qualified in its entirety by the next year.  ECS provides administrative, compliance, accounting,more detailed information and SEC reporting support for the operationsfinancial statements included elsewhere in this prospectus. This summary does not contain all of the Company. Administrative duties include maintaining complianceinformation you should consider before investing in our common stock. Before you decide to invest in our common stock, you should read and carefully consider the following summary together with regulatory agencies such as Nevada Secretary of State and the Securities and Exchange Commission, maintaining the Corporate Minute Book, is the Company's bookkeeper, and is an EDGAR/IDEA filing service. Additionally, ECS acts as liaison between the Company's president and auditor, legal counsel, transfer agent, registered agent and the SEC. Upon SEC effectiveness, ECS will continue to provide administrative and compliance support especially as it relates to the preparation ofentire prospectus, including our financial statements and reportsthe related notes thereto appearing elsewhere in this prospectus and the matters discussed in the sections in this prospectus entitled “Risk Factors,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those discussed in the “Risk Factors” and other sections of this prospectus.

Unless the context otherwise requires, the terms NuZee, the Company, our company, we, us, and our, refer to NuZee, Inc. We completed a l-for-3 reverse stock split on Form 10-Q, 10-KOctober 28, 2019,which became effective on November 12, 2019. All share and 8-K. per share information in this prospectus (except the last reported sale price for our common stock) has been retroactively adjusted to give effect to the reverse stock split, including the financial statements and notes thereto.

Overview

Our Company

We will useare a specialty coffee company and, we believe, the proceedsleading single serve pour over coffee co-packer in the United States. Our mission is 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 single serve pour over coffee sales operations in Japan as well as manufacturing and sales operations in Korea. In addition, we plan to opportunistically leverage our strengths and relationships to grow our proprietary NuZee and Coffee Blenders brands in the United States and select international markets.

We believe we are the only commercial-scale producer of single serve drip cup coffee and that we have contractual protections and certain other advantages in place within the North American market, as outlined by the factors described below. As we have with Kraft Heinz, and in particular their Gevalia Kaffe brand, and Royal Cup Coffee & Tea, we intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve drip cup market in North America. We target existing large, high-margin companies and are paid per-package based on the number of single serve pour over drip cups produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for every single serve drip cup our co-packing customers sell in the North American market. While we financially benefit from the offeringsuccess of our manufacturing customers through the sales of their respective single serve drip cup products, we are also able to pay ECS foravoid the risks associated with owning and managing the product and its consulting services.related inventory.  As these companies gain market acceptance of single serve drip cup coffee in North America, we plan to leverage that market expansion to further grow our own brands.

We may also consider co-packaging other products that are complementary to single serve pour over drip coffee and provides us with a deeper access to our customers, such as tea bag coffee.

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DESCRIPTION OF BUSINESSWhat is single serve pour over coffee?

Single serve pour over coffee, or hand drip coffee, is a traditional and time-honored technique that pours hot water onto ground coffee with a filter. Proponents of drip coffee believe this method makes better coffee. Single serve pour over coffee uses the same technique without a machine, with the coffee flowing straight into a cup using only hot water and the prepacked coffee filter. The image below compares our single serve pour over coffee to other varieties of hot beverages.




GeneralRevolutionizing the single serve coffee market in North America

            We were incorporated in the State of Nevada on July 15, 2011. Upon completion of our offering, we will develop a website (www.havanafurnishings.com) that will offerPrior to the public restaurantsuccess of coffee pods within the last two decades, coffee was primarily consumed at home and bar furnishingsvia traditional pot-based drip brewers and, accessoriesto a lesser extent, instant coffee. Pot-based brewers are typically known for good quality coffee that produces multiple cups but not well-suited for single serve alternatives. In recent years with the advent of coffee pods and increased coffee consumption outside the home, the North American market has been focused on speed and convenience. Coffee pods addressed the need for a single serve coffee solution that was viewed as superior to instant coffee.  As coffee consumption has also moved outside the home in recent years, consumer preferences have also changed, leading to greater demand for higher quality coffee alternatives, particularly from Asia to retailer customers in Panama.  We have not generated any revenues andyounger consumers such as millennials.

Moreover, we believe the only operations we have engaged in aretypical consumer is increasingly focused on the reservationenvironmental impact of the domain name (www.havanafurnishings.com)product, as well as the developmenttaste and quality of the ingredients. We anticipate that pod-based, single serve coffee will face increasing pressure given their heavy reliance on the use of plastics. In our view, consumer preferences in North America have evolved over the last decade to substantially mirror those of Japanese consumers, who have traditionally focused on the taste, eco-footprint and quality of ingredients. Machine-based single serve coffee, which represents approximately 32% of the market in North America, we believe has an immaterial amount of market share in Japan. Single serve drip cups represent approximately 2.5 billion units annually in Japan.

The saturation of coffee pods in the North American market, coupled with changing tastes, provides our single serve drip cups with a substantial market opportunity in North America. Our single serve drip cup solution also has a number of advantages over other single serve coffee alternatives:

Our single serve drip coffee packaging is fully recyclable and does not use any plastics. The majority of the packaging is paper based and biodegradable, while the foil used to package the filter for freshness is recyclable. 

Our solution is portable and does not require a machine. Therefore, the consumer investment required to try our product is very minimal (as opposed to machine based solutions). Single serve drip cups can easily travel and have a number of consume-later applications not available to machine based solutions (camping, travel, office, etc.). 

We believe single serve drip coffee is more hygienic than other, machine-based single serve alternatives. For example, the use of a business plan. machine requires cleaning and maintenance. If not periodically cleaned or if spent pods are not removed timely, the pods can lead to poor taste and bacterial growth. 

            We will be an online business. We will generate revenues fromUnlike machine-based drip systems, the sales of our products that can be purchased from our online catalogue. The items can be paid for in advance and the products will be shipped directlysingle serve drip coffee is brandable to the customer. Our early stage expenses are listed in the Use of Proceeds section. Our longer term expenses, in addition to maintaining our general office expenses, will be mainly marketing our business and products. Our profitability will be dependent upon how much we raise through our offering. Any revenue that is generated beyond what has been allocated in our Use of Proceeds section would be considered a profit. Our profit margin will depend solely on the price we purchase the product from our suppliers for. This will be difficult to determine and will be dependent upon what we can negotiate with suppliers. China is a very competitive country for manufacturing and as a result, has a massive amount of wholesalers and distributers all competing with each other. Our objective is to attend these exhibitions and shows, to identify and interview the many different manufacturers then pick and choose the ones that will offer us the highest quality products at the lowest prices.

            We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change.

            We have not begun operations and will not begin operations until we completed this offering.  Our plan of operation is forward looking and there is no assurance that we will ever begin operations.  Our prospects for profitability are not favorable if you consider numerous Internet-based companies have failed to achieve profits with similar plans.

cup level. 

Blank Check IssueWhy NuZee?

            We are not a blank check corporation. Section 7(b)(3) of the Securities Act of 1933, as amended defines the term “blank check company” to mean, any development stage company that is issuing a penny stock that, “(A) has no specific plan or purpose, or (B) has indicated that its business plan is to merge with an unidentified company or companies.” We have a specific plan and purpose. Our business purpose is to offer unique furniture and accessories from Europe and Asia to retail customers at wholesale prices by ordering online. In Securities Act Release No. 6932 which adopted rules relating to blank check offerings, the Securities and Exchange Commission stated in II DISCUSSION OF THE RULES, A.Scope of Rule 419, that, “Rule 419 does not apply to . . . start-up companies with specific business plans . . . even if operations have not commenced at the time of the offering.” Further, we have not indicated in any manner whatsoever, that we plan to merge with an unidentified company or companies, nor do we have any plans to merge with an unidentified company or companies.

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            We have no plans or intentions to be acquired or to merge with an operating company, nor does our stockholder, have plans to enter into a change of control or similar transaction or to change our management.

Products

Our principal business objective is to sell restaurant and bar furnishings and accessories online to the public at wholesale prices primarily in Panama. We will cater to new restaurants and bars that are just starting up along with older restaurants and bars that are looking to renovate. We will have a couple of options for our clients to choose from. Option #1 will involve the client picking a pre-made design of furnishing for their restaurant or bar from our online catalogue or they can mix and match different items from our online catalogue. Option #2 would allow the client to come to us with a restaurant design and we would order the products for them from our sources. Our business models will include everything from forks and knives to tables, chairs, furniture, and bar equipment. We will be catering and advertising to Panamanian restaurants and bars, commercial contractors, interior designers and architects. We seek to establish ourselves as onethe leading single serve pour over co-packer of single serve pour over coffee for the North American market, and to expand our own brands as single serve pour over coffee gains market acceptance. We believe that top tier brands that want to compete in the North American single serve pour over coffee market will demand the highest levels of quality from their suppliers. We further believe that, as a result of our exclusivity agreement, Level 2 SQF Certification from the Safe Quality Food Institute, operational knowledge and recently announced co-packing arrangements with Kraft Heinz and Royal Cup Coffee & Tea, we are the leader in the single serve pour over coffee market in North America. As a result, we feel we are well positioned to be the co-packer of choice for companies offering single serve pour over coffee products in the North American market.

We own sophisticated packing equipment developed by East Asian companies for pour over coffee production. We believe these manufacturers are the world leaders for supplying pour over coffee production. We have entered into a written exclusivity agreement with the premier supplier of the top, online restauranttype of high-quality packing equipment we use for our products, FUSO Industries Co. Ltd. (“FUSO”), which we believe significantly restricts our North American competitors’ access to this equipment. While our agreement with FUSO provides for a six month cancelation provision, due to the development of our co-packing business over the past several years, we are currently in active negotiations with FUSO as we aim to extend the period of exclusivity and bar furnitureamend our agreement to modify or eliminate the rights to termination. While lower-grade equipment alternatives do exist, availability is extremely limited for the top-grade equipment that generates co-packing products to the exacting specifications we believe large, established companies will demand. For example, the current wait time for the production and delivery of co-packing machinery of the type we use in our Vista, California plant is approximately two years. We understand that as the single serve drip cup gains momentum in the North American market we will face increasing competition. However, we believe we have a significant head start against any new potential commercial manufacturers in that (i) we have an exclusive arrangement with the premier equipment manufacturer, (ii) we have, and continue to develop, manufacturing expertise on increasingly complex and larger orders, (iii) we have experience dealing with companies of all sizes and their specific requirements (from small roasters to international companies) and (iv) we have SQF Level 2 certification.




We received Level 2 SQF Certification from the Safe Quality Food Institute, which is a customary requirement to produce for large multi-national and international companies. Obtaining Level 2 SQF Certification may take more than a year to achieve. We are also certified as fair trade, organic, kosher and halal.

Our primary focus is the development of single serve pour over coffee 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, such as our recent expansion into the lodging market through our arrangement with Royal Cup Coffee & Tea, and positioning ourselves as the leading commercial-scale co-packer of single serve pour over coffee products. We may also look to co-package other products that are complementary to single serve pour over drip coffee and provides us with a deeper access to our customers, such as tea bag coffee. The competitive landscape for our services and products can be illustrated as follows:

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 the single serve pour over product at both our Vista, California facility and at our production operations in Korea. We plan to carry over this expertise to our recently announced Plano, Texas manufacturing facility, which will serve as our new single serve pour over co-packing hub and corporate headquarters to capture the location’s logistical advantages and lower cost structure.

Our sources of revenue

Co-packing

We operate as a third-party contract packager for the finished goods of other major companies operating in the coffee beverage industry. Under these arrangements, we produce and package coffee products according to our customers’ formulations and specifications. We currently focus on fostering co-packing arrangements with larger companies developing pour over coffee products. For example, we recently entered into co-packing agreements with Kraft Heinz, under their Gevalia Kafee® brand, and Royal Cup Coffee & Tea.

In addition to larger companies, we package for smaller companies that have significant growth potential. For example, we started packaging for Copper Cow in July 2017 and continue to do so today. Copper Cow started with smaller batch, single product SKUs but over the years has meaningfully increased order sizes as well as the number of SKUs. We are continually looking for new exciting companies to work with and grow with like Copper Cow.

NuZee branded products

We have developed products and brands for the primary reason of providing completed finished products to showcase to potential co-packing customers. Our products effectively serve as a sort of “sample” to potential customers that include high quality packaging and coffee. We have received indications of interest from some potential customers in co-packing single serve coffee under the customer’s brand using coffee sourced by us as opposed to the customer providing the coffee, which is how we typically co-pack for customers.




Barista.Our Barista line of products is a high end product line that, in addition to showcasing our production expertise, also includes what we believe to be some of the best coffee available in a single serve application in the world. We plan to sell Barista via traditional retail channels that do not use “pay for placement” distributors. We also have a number of potential co-packing opportunities in which our customers would contract for us to replicate one or more of our Barista products with their foil and packing, providing further evidence of the high-quality nature of this line and coffee. We expect the Barista product line to be our flagship products that are both sold directly to consumers and used as a sales companiestool for co-packing customers. 

Twin Peaks.We currently sell our Twin Peaks single serve pour over coffee exclusively via Amazon, under Amazon’s accelerator program. This program commenced in Panama by providing quality furnishingsApril of 2019 and premierwe expect that as Amazon and its customers become more familiar with single serve pour over coffee, we will increase our revenue for this product. 

Pine Ranch. Pine Ranch is a tea bag-style coffee that is available in two distinct roasts: a medium roast called “Smooth Blend” and a dark roast called “Bold Blend”. We introduced this product line in the third quarter of 2019.  The brand is initially being sold to retailers and at wholesale, and we plan to offer it direct to consumers in 2020. Pine Ranch is available in  dispense boxes that are suitable for offices and retail stores. Pine Ranch is also a zero-landfill product that we can showcase to potential co-packing customers as an alternative to the pour over format. We commenced production for our first tea bag style co-packing customer service.in October 2019. 

Recent momentum and current co-packing clients

The productsWe recently announced agreements to co-package coffee for Kraft Heinz, under their Gevalia Kafee® brand, and Royal Cup Coffee & Tea. In addition, we have recently entered into similar agreements with others, and we intend to promote will be selected bycontinue to pursue such co-packing arrangements in the future. We believe this interest is due to (i) the saturation of machine based single serve coffee alternatives, (ii) increase in consumer requirements for eco-friendly packaging and (iii) our sole officersuperior taste compared to other single serve coffee alternatives.

A select list of our current co-packing customers include: Gevalia Kafee (Kraft Heinz), Royal Cup Coffee & Tea, Copper Cow Coffee, Alumbre Coffee, C&C Hawaii Coffee, Lion Coffee, Idyllwild Coffee and director, Haisam Hamie.Virgin Islands Coffee.

Website

We intendrecently entered into a five year lease for a new manufacturing hub and corporate headquarters in Plano, Texas (just outside of Dallas). We plan to create and maintain a website that will have this hub operational during the following features: e-mail forwarding, e-mailing aliasing, auto responder, front page support, shopping cart, secure and macromedia flash.   If the minimum funds are raised from our offering, we will engage a web developer to design a simple non-interactive pagefourth calendar quarter of 2019. Texas provides us with a tabvariety of benefits versus our Vista, California facility, including reduced operating costs, lower freight costs to showcase our new products; their pricemost states and better economies of scale. In Plano, we plan to have approximately 20 packing machines (compared with four, expanding to six in Vista, California) and approximately 30 employees. In the future, we plan to look for a short descriptionmore permanent location of each item, a tab for archived items; those that were moved from the initial page to make room for newer items, there price and some details about the product, a tab for “checking out” to purchase your products and a tab to contact us. If we raise more than the minimum, we will add additional tabs and pages to enhance the site to include, one-click checkout, linking of product details and specifications and customer review tabs of the products. The foregoing will allow us to make retail sales of interior decor, promote our productsappropriate scale in an attractive fashion, and communicate with our customers on-line.Texas.

Our competitive strengths

            The website is intended to be a destination site for individuals interested in restaurant and bar furnishings and accessories.  The site will offer a large array of products and by becoming a “one-stop shopping” destination will significantly enhance the efficiency of the purchasing process simultaneously reducing the time and cost of finding reasonably furnishings products.  We intend to continually source out and negotiate strategic relationships with individual suppliers and manufacturers in China and the United States to offer their products on our website. 

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We believe that the lack of financial securityfollowing strengths contribute to our success:

Favorable industry trends benefit us.With changing consumer preferences over the last decade that include a greater demand for higher quality coffee alternatives as well as greater flexibility and convenience, we believe we provide a unique alternative to non-single serve drip products currently on the Internetmarket. For example, we believe our single serve drip cup provides a premium alternative to other single serve coffee alternatives. Recent consumer trends are moving towards premium alternatives to existing mainstream products (i.e. gourmet burgers, craft beers, specialty sodas, organic supermarkets, etc.). In addition to being a premium alternative, our product does not require a machine, which provides our product with a number of other benefits to existing single serve coffee that are machine based. 

Exclusivity provides us protection in our core market.We have an exclusive agreement with the world’s leading manufacturer of equipment and filters used in packaging single serve pour over coffee. We believe that this agreement along with our operating expertise and SQF Level 2 certifications provide us with meaningful protections from the entry of potential competitors in our core North American market. 

Significant production and operational experience in single serve pour over coffee.We have been producing single serve pour over coffee for almost four years in increasing scale and complexity. We believe the process and equipment for producing pour over single serve coffee is hindering economic activity thereon. To ensurecomplex, and a potential new entrant into our market would encounter a significant learning curve to reach our level of operational experience and expertise. 

Co-packing agreements with large international companies.We have recently announced a co-packing agreement with a large international company. We believe that as our potential co-packing customers continue to realize that we have the securityexperience co-packing for a variety of transactions occurringcustomer sizes, we will become the co-packer of choice. The standards required to co- 




pack for large international companies almost always meet or exceed the standards required to co-pack for any other customer. We also believe that as our co-packing customers’ competitors realize they have a single serve pour over the Internet, U.S. federal regulations requirecoffee solution, they will be more motivated to develop their own such solution and that any computer software used within the United States contain a 128-bit encoding encryption, while any computer software exportedwill lead to increased co-packing opportunities for us.

Food grade SQF Level 2 certification. SQF Level 2 certification can take up to a foreign country contain a 40-bit encoding encryption. There is uncertainty asyear and requires significant additional resources to whether the 128-bit encoding encryption required by the U.S. is sufficient securityobtain. Our existing SQF Level 2 certification allows us to co-pack for transactions occurring over the Internet. Accordingly, there is a danger that any financial (credit card) transaction via the Internetlarge, diversified companies. These companies usually have very strict certification standards and will not be a secure transaction. Accordingly, risks such asoutsource production to companies that do not meet the losshighest level of data or loss of service on the Internet from technical failure or criminal acts are now being considered in the system specifications and in the security precautions in the development of the website. Although, we will be using a 128-bit encoding encryption for our website transactions, there is no assurance that such security precautions will be successful.

Other than investigating potential technologies in support of our business purpose, we have had no material business operations since inception in May 2011. At present, we have yet to acquire or develop the necessary technology assets in support of our business purpose to become an Internet-based retailer focused on the distribution of restaurant and bar furniture and accessories.

            The Internet is a world-wide medium of interconnected electronic and/or computer networks. Individuals and companies have recently recognized that the communication capabilities of the Internet provide a medium for not only the promotion and communication of ideas and concepts, but also for the presentation and sale of information, goods and services. 

            We have not located a web developer at this time. Our president will interview and choose a local web developer in the Panama City area to work with once the offering has been completed.

Convenient Shopping Experience

            Our online store will provide customers with an easy-to-use Web site. The website will be available 24 hours a day, seven days a week and will be reached from the shopper's home or office. Our online store will enableindustry certifications. SQF Level 2 requires us to deliver a broad selectionmeet very high quality and compliance standards for production and warehousing as well as chain of productscustody record keeping and supplier standards, which we believe gives us an advantage compared to customers in rural or other locationspotential competitors that do not have convenientthis certification. 

Our Japanese and Korean subsidiaries support our U.S. operations. We have a sales office in Japan and a manufacturing and sales office in Korea. We source our manufacturing equipment and filters from East Asian companies, and have an exclusive agreement with FUSO, a Japanese manufacturer. We believe that having offices in Japan and Korea provides us with direct access to physical stores.  We also intendour key vendors that helps us to make the shopping experience convenient by categorizingmaintain such relationships as well as helps us operationally in our products into easy-to-shop departments.core U.S. market. 

Our business strategy

Customer Service

We intend to provideachieve our mission and further grow our business by pursuing the following strategies:

Continually grow our base of large national or international co-packing customers.We have recently announced a customer service department via email where consumers can resolve order and product questions which will be handled initially by our president, Haisam Hamie, until weco-packing agreement with a large international company. We are profitable enough to hire employees. Furthermore, we will insure consumer satisfaction by offeringin active discussions with a money back guarantee. There is, however, no assurance that we will ever be profitable.

Online Retail Store

            We intend to design our Internet store to be a place for businesses to purchase our products online.   

30


Shopping at our Online Store

            Our online store will be located atwww.havanafurnishings.com. number of similar sized companies. We believe that, as the saleU.S. market continues to gain awareness of restaurantsingle serve pour over coffee, we will continue to grow our base of large domestic or international co-packing customers. 

Co-pack for smaller scale, rapidly growing, innovative coffee customers and bar products on the Internet can offer attractive benefitscapture their growth over time.In addition to consumers. These include enhanced selection, convenience, quality, ease-of-use, depth of contentco-packing for large domestic or international customers, we believe that select smaller scale, rapidly growing, innovative co-packing customers provide us with different opportunities versus larger customers. For example, smaller scale customers often possess better social media reach and information, and competitive pricing.  Key features of our online store will include:

Browsing

            Our online store will offer consumers several subject areas and special features arranged in a simple, easy-to-use format intended to enhance product selection.  By clicking on category names, the consumer will move directly to the home page of the desired category and can view promotions and featured products.

Selecting a Product and Checking Out

            To purchase products, consumers will simply click on the "add to cart" button to add products to their virtual shopping cart. Consumers will be able to add and subtract products from their shopping cart as they browse around our online store prior to making a final purchase decision, just as in a physical store.  To execute orders, consumers click on the "checkout" button and, depending upon whether the consumer has previously shopped at our online store, are prompted to supply shipping details online. We will also offer consumers a variety of wrapping and shipping options during the checkout process. Prior to finalizing an order by clicking the "submit" button, consumers will be shown their total charges along with the various options chosen at which point consumers stillmarketing campaigns have the ability to change their“go viral.” We believe by selectively choosing high quality smaller customers, we can benefit from growing market acceptable of single serve pour over coffee. 

Increase our production capacity in response to growing demand for co-packing.We have entered into a lease for our planned manufacturing hub in Plano, Texas. We have started to order equipment, begin the SQF Level 2 certification process and begin other processes to have the facility operational by our second fiscal quarter of the upcoming fiscal year (on or cancel it entirely.before March 31, 2020). At peak potential capacity, we project the Plano, Texas facility would provide 5 – 6 times the current production capacity of our Vista, California facility. We have started this effort in anticipation of growing demand for co-packing. 

Strategically grow and expand our international operations that are strategic to our vision.We plan to strategically grow our current international operations as well as potentially expand international if this growth or expansion is strategic to our vision. We believe the Korean market, albeit competitive, still has significant growth potential as well as strong market acceptance for coffee and single serve pour overs. As we look at other potential international manufacturing locations, we look for characteristics similar to the Korean and U.S. markets. 

Strategically increase the sales of our proprietary brands.We plan to continue to increase the sales of our proprietary brands without utilizing “pay for placement” distributors. We anticipate our direct sales of our proprietary products will benefit as we increase our co-packing revenues because our co-packing customers will help educate consumers on the benefits of single serve pour coffee. We plan to increase our effort on direct sales methodically and concurrently as we increase co-packing revenues and volume. 

Industry

Coffee consumption is at an all-time high. According to the United States Department of Agriculture (USDA), global coffee consumption is forecast to reach a record 167.9 million bags in 2019/20 (a bag is equivalent to 60 kilograms). The United States is the




country with the highest consumption with 26.8 million bags forecast for 2019/20, up from 23.6 million in 2014/15 (a 2.6 percent compound annual growth rate, or CAGR)1.

 

PayingPicture 5 

 

            To pay for orders, a consumer must use a credit card, which is authorized duringIn dollar terms, the checkout process.  Charges are assessed against the card when the order is placed.  Our online store will use security such as the 128-bit encoding encryption technology that works with the most common Internet browsers.

            We will offer our customers a full refund for any reason if the customer returns the purchased item within 7 days from the date of saleglobal coffee market amounts to US$429.5 billion in the same condition it was sold to the customer. Up to 23 days after the 7 day full refund period we will exchange the product with another one of our products that is of equal or lesser value, after 30 days we will not exchange products or refund any money to our customer. The customer is responsible for paying for the return shipping fees. They will return them directly to us and we will return them to our supplier in accordance with their return policies. If the return falls outside of an acceptable timetable for a full refund on the returned purchase by our supplier, we will incur the expense and reflect such in our financial statements.

31


Source of Products

            We intend to purchase products from manufacturers and distributors located in China2019, and the market is expected to grow annually by 5.8 percent (CAGR 2019-2023). The United States. The majority of all furniture will be imported from China. A 2400 square foot shipping container better known as a HQ container can hold approximately $20,000 to $50,000 worth of goods depending on the size of the goods. A container of this nature would cost approximately $2,500.00 to ship to Panama. Minimal storage expenses will be needed as products are only ordered when a client makes and pays for a purchase.The majority of our business is conducted online and is dependent on our ability to develop and maintain the website “www.havanafurnishings.com.” As an internet based business minimal staff is needed. All products will be prepaid and will not carry any debt. On occasion, we may, depending upon the particulars of a product make special purchases and pass the savings on to our customers. By negotiating a better price due to quantity or manufacturer close outs we can stay ahead of our competition.

The products will be shipped directly from the manufacturer to the customer, thereby eliminating the need for storage space or packaging facilities.The way we will determine our pricing structure will depend on what the supplier and manufacturer is selling the product for. Markups on prices will be dependent upon the prices we negotiate with our suppliers.

In order to meet, network and align ourselves with our wholesalers and distributors of products we will be looking to attend trade shows and exhibitions located across China. One of the trade shows we will be attending is called Furniture China. This trade show is the leading furniture trade exhibition in Asia and one of the Top 3 international furniture exhibitions of the world,Furniture Chinais held annually in Shanghai. Another trade show we will look to attending is the Restaurant & Bar Hong Kong. Located in Hong Kong this exhibitionStates is the largest exhibition dedicatedmarket with US$80.9 billion generated in 2019.2

An estimated 63 percent of American adults drink coffee on a daily basis3, and an increasing number of consumers seem to be seeking bolder and more unique coffee experiences. This is evidenced by more Americans’ gourmet coffee consumption reaching a 60/40 advantage over traditional non-gourmet coffee for the first time in the 69-year history of the National Coffee Association’s annual report on coffee consumption.4

The “at home” segment continues to dominate coffee consumption, with 81 percent of volume consumption attributable to the hospitality sector whichat home market in 2019, representing a 20 percent revenue share. The market share of the at home segment has been relatively constant over the last few years and is expected to maintain a similar share of coffee consumption in 2019-2023.5

Picture 1 


1 “Coffee: World Markets and Trade”, United States Department of Agriculture, Foreign Agricultural Service, June 2019 – https://downloads.usda.library.cornell.edu/usda-esmis/files/m900nt40f/xk81jw68v/kp78gs60d/coffee.pdf

2 Statista, August 2019 – https://www.statista.com/outlook/30010000/100/coffee/worldwide#market-revenue

3 National Coffee Association blog, March 2019 – https://nationalcoffee.blog/2019/03/09/national-coffee-drinking-trends-2019/

4 Roast Magazine, March 2019 – https://dailycoffeenews.com/2019/03/11/2019-coffee-and-beverage-trends-inside-the-ncas-annual-report/

5 Statista, August 2019 – https://www.statista.com/outlook/30010000/100/coffee/worldwide#market-revenue




Single-serve coffee brewing has grown in popularity in recent years, and single-serve brewing machines were the second most popular brewing system after standard drip coffee makers, with 26 percent of American coffee drinkers using them in 2018.6 Additionally, and according to an online survey by the National Coffee Association, 42 percent of US households owned a single-cup coffee brewing machine in 2019, up from 1 percent in 2005 and 15 percent in 2014.7

Picture 2 

While consumers have been purchasing single-serve coffee machines to recreate the café style experience at home, there has been an increased focus on environmental sustainability and demand for eco-friendly products. The2019 Retail and Sustainability Survey by CGS showed that more than two-thirds of respondents consider sustainability when making a purchase and are willing to pay more for sustainable products.8  In another recent survey of US and UK consumers by Globalwebindex, 42 percent of consumers said that products that have packaging made from recycled products and/or sustainable materials are important in their day-to-day shopping, and more than half said they have reduced the amount of disposable plastic they use in the past 12 months.9  Greenpeace USA considered coffee pods as “one of the best examples of unnecessary single-use plastics that are polluting our planet” and the big producers of pods having been seeking eco-friendly alternatives.10 Sustainability is expected to continue to be a big trend in the coffee pod market, especially as some cities and local governments consider bans on the use of single-use plastic pods (akin to bans on plastic straws and plastic bags) and as consumers become increasingly concerned about throwing used plastic pods in landfills.11

We believe that many of the prevalent industry trends – the continued consumption and market growth, the prevalence of “at home” consumption, the popularity of single-serve coffee brewing, the increased focus on unique coffee experiences, and consumers’ shift to eco-friendly and sustainable alternatives – will be presentingfavorable to our business.

Our Risks and History of Losses

Investing in our common stock involves a high degree of risk. You should carefully consider the latest productsrisks and services. Lastly we will be looking at attenduncertainties summarized below, the Canton Fair. Canton Fair isrisks described under the largest biannual China trade fair held in Guangzhou. The Canton fair complex covers a total construction area“Risk Factors” section beginning on page 13 of, 1,100,000 M2 with the indoor exhibition area of 338,000 M2 and the outdoor exhibition areaother information contained in, this prospectus before you decide to invest. Our ability to achieve our mission and execute our strategies is subject to certain challenges, risks and uncertainties, including:

Our ability to sustain our recent growth rates and manage our rapid growth; 


6Statista, March 2019 – https://www.statista.com/topics/2219/single-serve-coffee-market/

7Statista, August 2019 – https://www.statista.com/statistics/316217/us-ownership-of-single-cup-brewing-systems/

8CGS, January 2019 – https://www.globenewswire.com/news-release/2019/01/10/1686144/0/en/CGS-Survey-Reveals-Sustainability-Is-Driving-Demand-and-Customer-Loyalty.html

9GLobalwebindex, April 2019 – https://blog.globalwebindex.com/chart-of-the-week/lifting-the-lid-on-sustainable-packaging/

10USA Today, March 2019 – https://www.usatoday.com/story/tech/2019/03/13/heres-why-your-used-k-cups-coffee-pods-arent-usually-recycled/3067283002/

11Food Dive, September 2018 – https://www.fooddive.com/news/coffee-pods-lose-ground-as-consumers-look-for-sustainable-premium-java-exp/531816/




Our ability to obtain sufficient funding to expand our business and respond to business opportunities; 

Our ability to acquire new customers or retain existing customers in a cost-effective manner; 

Our ability to successfully improve our production efficiencies and economies of 43,600 M2scale; 

Our ability to manage our supply chain to continue to satisfy our future operation needs; and 

TaxesOur ability to retain our leadership position in co-packing single serve pour over coffee. 

We have incurred net losses since our inception in 2011, including net losses of $3.6 million and Customs

$1.8 million for the years ended September 30, 2018 and 2017, respectively, and $13.4 million for the nine months ended June 30, 2019. As of June 30, 2019, our accumulated deficit was approximately $26.0 million. We will be responsible for paying all taxesexpect to incur significant sales and customs charges that aremarketing expenses prior to recording sufficient revenue from our operations to offset these expenses. In the United States, we expect to incur additional losses as a result of the costs associated with operating as an exchange-listed public company following this offering.

Recent Developments

Reverse Stock Split

On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019 (the “Reverse Split”). The accompanying financial statements and notes to the importfinancial statements give retroactive effect to the Reverse Split for all periods presented. The shares of common stock retained a par value of $0.00001 per share. Accordingly, the stockholders’ deficit reflects the Reverse Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the products we are selling to our customers. The costs will be built in to the fees we charge for the products and will be taken into consideration as we set the prices on our products. All the taxes paid will be disclosed in our financial statements.

Revenue

Revenues will be generateddecreased shares resulting from the direct saleReverse Split.

Private Placement Transaction

On November 7, 2019, we completed a private placement financing transaction pursuant to which we issued approximately 111,738 shares of productscommon stock to customers.  a small number of investors for an aggregate purchase price of approximately $2.0 million.

Corporate information

We will order productswere incorporated in 2011 in Nevada as Havana Furnishings, Inc.  NuZee Co. Ltd. was incorporated in 2011.  NuZee Co. Ltd. merged into Havana Furnishings, Inc. in 2013, and we changed our name to NuZee, Inc. Our principal executive offices are located at 1700 Capital Avenue, Suite 100, Plano, Texas 77055, and our telephone number is (760) 295-2408. We also maintain a California office located at 2865 Scott Street, Suite 107, Vista, California 92081. We lease modest office space in Japan.

Our corporate website is www.mynuzee.com. Information contained on, behalf of our customers directly from our suppliers.  At the time we receive an order from a customer, we will order the product from the supplier, thus able to avoid carrying any inventoryor that can be costlyaccessed through, our website is not a part of this prospectus or incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.




THE OFFERING SUMMARY

Common stock offered by us

        shares (or          shares, if the underwriters exercise their over-allotment option in full).

Common stock to be outstanding immediately after this offering

        shares (or          shares, if the underwriters exercise their over-allotment option in full).

Over-allotment option

We have granted the underwriters an option, exercisable for forty-five (45) days after the date of this prospectus, to purchase up to an additional        shares of common stock to be offered by us pursuant to this offering at $            per share of common stock, solely to cover over-allotments, if any.

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $    million, or approximately $    million if the underwriters exercise their over-allotment option in full. We expect to use the net proceeds from this offering for working capital and general corporate purposes. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

Underwriters’ warrants

Upon the closing of this offering, we will issue to The Benchmark Company, LLC, as the representative of the underwriters in this offering, warrants entitling it to purchase a number of shares of common stock equal to 5.0% of the shares of common stock sold in this offering at an exercise price equal to the public offering price of the common stock in this offering. The warrants shall be exercisable commencing six (6) months after the closing of this offering and will expire five (5) years after the effective date of the registration statement of which this prospectus forms a part.

Lock-Up

We have agreed, subject to certain exceptions and without the approval of the representative of the underwriters, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities for a period of six months following the closing of the offering of the shares. Our directors, executive officers and our primary stockholder have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of six months commencing on the closing date of this offering. See “Underwriting” beginning on page 78.

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

OTCQB symbol

“NUZE”

Proposed national securities exchange symbol

We intend to apply to have our common stock listed on a national securities exchange under the symbol “NUZE.” No assurance can be given that such listing will be approved or that a trading market will develop for the common stock.

All share and per share information in this prospectus (except the last reported sale price for our common stock) has been retroactively adjusted to give effect to the Reverse Split, including the financial statements and notes thereto. The number of shares of common stock to be outstanding immediately after this offering is based upon 13,587,580 shares outstanding as of June 30, 2019, and excludes the following:

1,787,334 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2019, with a weighted-average exercise price of $6.90 per share; 




1,544,333 shares of our common stock reserved for future grant or issuance under the NuZee, Inc. 2013 Stock Incentive Plan (the “2013 Plan”); 

3,333,334 shares of our common stock reserved for future grant or issuance under the NuZee, Inc. 2019 Stock Incentive Plan (the “2019 Plan”); and 

300,000 shares of our common stock issuable upon the exercise of options that we expect to grant upon the pricing of this offering to our directors, executive officers and certain other employees at an exercise price equal to the public offering price of this offering. 

Unless otherwise indicated, this prospectus reflects and assumes the following:

no exercise of outstanding options; and 

no exercise by the underwriters of their over-allotment option. 




SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize our consolidated financial data for the periods ended and as of the dates indicated. We have derived the statements of operations data for the years ended September 30, 2018 and 2017 and the balance sheet data as of September 30, 2018 from our audited financial statements included elsewhere in this prospectus. We have derived the statements of operations data for the nine months ended June 30, 2019 and 2018 and the balance sheet data as of June 30, 2019 from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of results to be expected for any period in the future and the results for the nine months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year or any other period. You should read this information together with our financial statements and related notes appearing elsewhere in this prospectus and the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Nine months ended

June 30,

 

 

Fiscal year ended

September 30,

 

  

2019

 

 

2018

 

 

2018

 

 

2017

Consolidated statement of operations data:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net

  

$

1,304,566

  

 

$

1,018,849

  

 $

1,388,972

 

  

 $

1,628,410

 

Cost of sales

  

 

923,903

 

 

 

699,497

 

 

1,321,755

 

 

 

1,319,232

 

Gross profit

  

 

380,663

 

 

 

319,352

 

 

67,217

 

 

 

309,178

 

Selling, general and administrative expenses

  

 

3,059,548

 

 

 

1,963,897

 

 

2,846,407

 

 

 

1,938,556

 

Option expense

  

 

10,608,751

 

 

 

366,708

 

 

838,779

 

 

 

138,098

 

Loss from operations

  

 

(13,287,636

)

 

 

(2,011,253

)

 

(3,617,969

)

 

 

(1,767,476

)

Other income

  

 

14,424

 

 

 

9,058

 

 

63,484

 

 

 

40,764

 

Equity in loss of unconsolidated affiliate

 

 

 

 

 

(10,733

)

 

(10,733

)

 

 

(39,267

)

Other expense

 

 

(140,805

)

 

 

(5,754

)

 

(1,906

)

 

 

(3,235

)

Interest Expense

 

 

(2,679

)

 

 

(2,000

)

 

(2,468

)

 

 

(6,976

)

Net loss

 

 

(13,416,696

)

 

 

(2,020,682

)

 

(3,569,592

)

 

 

(1,776,190

)

Net income (loss) attributable to noncontrolling interest

 

$

19,501

 

 

$

5,030

 

$

7,579

 

 

$

(9,051

)

Net loss attributable to NuZee, Inc.

  

$

(13,436,197

)

 

$

(2,025,712

)

$

(3,577,171

)

 

$

(1,767,139

)

Basic and diluted loss per common share

  

$

(1.01

 

$

(0.17

$

(0.29

)

 

 $

(0.16

)

Basic and diluted weighted average number of shares of common stock outstanding

  

 

13,353,005

 

 

 

12,101,746

 

 

12,234,107

 

 

 

10,711,788

 

 

  

As of

 

  

June 30,

2019

 

 

September 30,

2018

Consolidated balance sheet data:

  

 

 

 

 

 

 

Cash and cash equivalents

  

$

3,061,430

  

 

$

1,806,666

Working capital

  

 

3,303,163

 

 

 

1,778,849

Total assets

  

 

6,056,516

 

 

 

2,982,512

Loan payable – net of current portion

  

 

263,974

 

 

 

88,063

Total liabilities

  

 

984,330

 

 

 

570,447

Total stockholders’ equity

  

 

5,072,186

 

 

 

2,412,065




RISK FACTORS

Before you invest in our common stock, you should understand the high degree of risk involved. You should carefully consider the following risks and other information in this prospectus, including our consolidated financial statements and related notes included elsewhere in this prospectus, before you decide to purchase shares of our common stock. The following risks may adversely impact our business and financial condition. As a result, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Financial Condition and Capital Requirements

We have limited operating history, which may become obsolete.  We would earn revenue based on the difference betweenmake it difficult to evaluate our negotiated price for the product withcurrent business and to forecast our suppliers and the price that the customer pays.

32


Databasefuture performance.

We intendhave little operating history and are addressing an emerging market. As a result, our current and future business prospects are difficult to develop a database to gather information regarding our customers and suppliers. This database will categorize all our customers, customers that bought from us,evaluate. All potential customers that have browsed our website, and potential customers from our planned source of e-mail and direct mail. We will also have a database of suppliers we deal with. This will record the suppliers we bought from, returned products to, exchanged products with, and a daily, monthly, and yearly dollar value of what was purchased from the supplier. Having this database in place will help keepinvestors must consider our business organizedprospects in light of the risks and difficulties we have encountered and will help us identify and target clients.

Competition 

            The electronic commerce market is intensely competitive. The market for information resources is more mature but also intensely competitive. We expect competition to continue to intensifyencounter as a company operating in the future.  Competitors include companies with substantial customer bases in the computera rapidly evolving market. Some of these risks relate to our potential inability to:

effectively manage our business and other technical fields. There can be no assurance that we can maintain a competitive position against current or future competitors, particularly those with greater financial,proprietary information; 

recruit and retain sales and marketing, service, support, technical and managerial personnel; 

recruit and retain sales personnel and appropriate distributor relationships; 

successfully develop and protect our intellectual property portfolio; 

successfully provide high levels of service as our business expands; and 

successfully address other resources.  Our failure to maintain a competitive position within the marketrisks, as described in this prospectus or otherwise. 

If we do not address these risks successfully, it could have a material adverse effect on our business and financial conditioncondition.

We have a history of net losses. We expect to continue to incur net losses in the future and we may never generate sufficient revenue from the commercialization of our single serve pour over coffee products or co-packing services to achieve or sustain profitability.

We have incurred net losses since our inception in 2013, including net losses of $3.6 million and $1.8 million for the years ended September 30, 2018 and 2017, respectively, and $13.4 million for the nine months ended June 30, 2019. As of June 30, 2019, our accumulated deficit was approximately $26.0 million. We expect to incur significant sales and marketing expenses prior to recording sufficient revenue from our operations to offset these expenses. In the United States, we expect to incur additional losses as a result of the costs associated with operating as an exchange-listed public company following this offering.

These losses have had, and will continue to have, an adverse effect on our working capital, total assets and stockholders’ equity (deficit). Our ability to become and remain profitable will depend on our ability to generate significantly higher revenues from the sales of our pour over coffee products and co-packing services, which depends upon a number of factors, including but not limited to successful sales, manufacturing, marketing and distribution of our products and services.

Because of the numerous risks and uncertainties associated with our commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then sustain profitability would have a material adverse effect on our business and financial condition.

Our independent auditor’s report for the fiscal year ended September 30, 2018 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited annual financial statements as of and for the year ended September 30, 2018, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Recurring losses from operations raise substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, the inclusion of an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern and




our lack of cash resources may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations with third parties.

We may need to raise additional capital to fund our existing operations, market our products and expand our operations.

We believe that the net proceeds of this offering, together with our existing cash balances, will be sufficient to cover our cash needs for at least the next 12-24 months. If our available cash balances, net proceeds from this offering and anticipated cash flow from operations are lower than we anticipate, including due to changes in our business plan, a lower demand for our products or other risks described in this prospectus, we may seek to raise additional capital sooner than currently expected.

We may also consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:

fund development of our products; 

acquire, license or invest in technologies or intellectual property relating to our existing products; 

acquire or invest in complementary businesses or assets; and 

finance capital expenditures and general and administrative expenses. 

Our present and future funding requirements will depend on many factors, including:

success of our current marketing efforts; 

our revenue growth rate and ability to generate cash flows from product sales; 

effects of competing technological and market developments; and 

changes in regulatory oversight applicable to our products. 

The various alternatives for raising additional capital include short-term or long-term debt financings, equity offerings, collaborations or licensing arrangements and each one carries potential risks. If we raise funds by issuing equity securities, our stockholders will be further diluted. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations or our ability to issue additional equity securities or issue additional indebtedness. We may also be required under additional debt financing to grant security interests on our assets, including our intellectual property. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our intellectual property, or grant licenses on terms that are not favorable to us which could lower the economic value of those items to us. The credit markets and the financial services industry have in the past experienced turmoil and upheaval characterized by the bankruptcy, failure, collapse, or sale of various financial institutions and intervention from the U.S. federal government. These events typically make equity and debt financing more difficult to obtain. Accordingly, additional equity or debt financing might not be available on reasonable terms, if at all. If we cannot secure additional funding when needed, including due to changes in our business plan, a lower demand for our products or other risks described in this prospectus, we may have to delay, reduce the scope of or eliminate one or more sales and marketing initiatives and development programs, which would have a materially adverse effect on our business.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to annual limitations on its ability to use its pre-change net operating loss carryforwards, or NOLs, or other tax attributes to offset future taxable income or reduce taxes. Our past issuances of stock and other changes in our stock ownership may have resulted in ownership changes within the meaning of Section 382 of the Code; accordingly, our pre-change NOLs may be subject to limitation under Section 382. State NOL carryforwards may be similarly limited. Furthermore, the closing of this offering, alone or together with transactions in our stock that have occurred in the past and may occur in the future, may trigger an ownership change pursuant to Section 382. Because of the cost and complexity involved in the analysis of a Section 382 ownership change and the fact that we do not have any taxable income to offset, we have not undertaken a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Shares issued in this offering or future changes in our stock ownership (either in combination with this offering or separately) could result in ownership changes under Section 382 of the Code further limiting our ability to utilize our NOLs. Furthermore, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons,




even if we attain profitability, we may not be able to use a material portion of our NOLs, and this would reduce our earnings potentially affect and the valuation of our stock.

Risks Related to Our Business

Continued innovation and the successful development and timely launch of new products and product extensions are critical to our financial results and achievement of operations. Thereour growth strategy.

Achievement of our growth strategy is dependent, among other things, on our ability to extend the product offerings of our existing brands and introduce innovative new products. Although we devote significant focus to the development of new products, we may not be successful in developing innovative new products or our new products may not be commercially successful. Additionally, our new product introductions are often time sensitive, and thus failure to deliver innovations on schedule could be detrimental to our ability to successfully launch such new products and retain partners, in addition to potentially harming our reputation and customer loyalty. Our financial results and our ability to maintain or improve our competitive position will depend on our ability to effectively gauge the direction of our key marketplaces and successfully identify, develop, manufacture, market and sell new or improved products in these changing marketplaces.

Our future financial results are difficult to predict, and failure to meet market expectations for our financial performance or our publicly announced guidance may cause the price of our stock to decline.

As we and our industry evolve, we expect to face new challenges with respect to our introduction of innovative products and the changing competitive landscape within the single serve category and the beverage industry. These challenges can occur at various stages, including design, supply chain and sales cycle. Our public forecasts regarding the expected performance of our business and future operating results are forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in our filings with the SEC and in our other public statements, and necessarily reflect current assumptions and judgments that may prove incorrect. As a result, there can be no assurance that our performance will be consistent with any public forecasts or that any variation from such forecasts will not be material and adverse. Failure to meet expectations, particularly with respect to operating margins, earnings per share, operating cash flows and net revenues may result in a decline and/or increased volatility in the price of our stock. In addition, price and volume fluctuations in the stock market as a whole may affect the price of our stock in ways that may be unrelated to our financial performance.




Increased competition, including as a result of industry consolidation, could hurt our businesses.

The beverage industry is intensely competitive and we willcompete with respect to product, quality, convenience and price. We face significant competition in each of our channels and marketplaces. We compete with major international beverage companies that operate in multiple geographic areas, as well as numerous companies that are primarily local in operation. Our beverages also compete against local or regional brands as well as against private label brands developed by retailers. Our ability to gain or maintain share of sales in the global marketplace or in various local marketplaces or maintain or enhance our relationships with our partners and customers may be limited as a result of actions by competitors, including as a result of increased consolidation in the food and beverage industry.

Our success depends, in part, on our relationships with the manufacturers of our packing equipment, including our exclusivity arrangement.

We source our sophisticated packing equipment from companies located in East Asia. Furthermore, we have entered into an exclusivity agreement with the primary manufacturer of the co-packing equipment we use in our operations, which we believe significantly restricts our North American competitors’ access to this equipment. Our exclusivity agreement does not apply to two companies that had previously purchased packing equipment from this manufacturer, and that may compete with our products and services. However, availability is in general extremely limited for equipment of the top quality offered by this manufacturer, though other manufacturers do offer lower-grade alternatives. Our exclusivity agreement may be terminated with limited notice, and we may not be able to compete successfully against currentreplace the terminating manufacturer in a timely manner or on terms agreeable to us, if at all. If we are not able to maintain our exclusivity arrangement, or if our manufacturer elects to violate our exclusivity arrangement, our competitive position may suffer and future competitors, and competitive pressures faced by us mayour revenues could decline significantly, which would have a material adverse effect on our business, financial condition, and results of operations.

 

Changes in the beverage environment and retail landscape could impact our financial results.

The beverage environment is rapidly evolving as a result of, among other things, changes in consumer preferences; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, the beverage retail landscape is dynamic and constantly evolving, not only in emerging and developing marketplaces, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed marketplaces, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace. If we are unable to successfully adapt to the rapidly changing environment and retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.

Sales to a limited number of customers represent a significant portion of our net sales. The loss of a key customer, including by consolidation in the retail channel, and efforts by our customers to improve their profitability could reduce sales of NuZee branded products and adversely affect our financial performance.

Sales to relatively few customers account for a significant percentage of our net sales, and our success depends in part on our ability to maintain good relationships with these and other key retail and grocery customers. Currently, Amazon and our www.coffeeblenders.com website are our only established domestic retail channels for direct sales to consumers of NuZee branded products. However, we can provide no assurance that any of these customers or any of our other customers will continue to utilize our products or our services at current levels, or at all. Although we generally enter into master agreements with our key customers, these agreements govern the terms and conditions of the relationship and typically do not contain minimum purchase requirements. The loss of one or more of our key customers, or cancellation of or reduction in the amount of purchase by our key customers, could have an adverse effect on our results of operations and financial condition.

In addition, because of the competitive environment facing retailers, many of our customers have increasingly sought to improve their profitability through increased promotional programs, pricing concessions, more favorable trade terms and increased emphasis on private label products. To the extent we provide concessions or trade terms that are favorable to customers, our margins would be reduced. Further, if we are unable to continue to offer terms that are acceptable to our significant customers or our customers determine that they need fewer inventories to service consumers, these customers could reduce purchases of our products or may increase purchases of products from our competitors, which would harm our sales and profitability.

Our competitive positionindustry is also being affected by the trend toward consolidation in the retail channel. Retailers have and will likely continue to seek lower prices from us and demand increased marketing or promotional expenditures. Large retailers also may be more likely to use their distribution networks to introduce and develop private label brands. Strategic partners may also choose to vertically integrate their brands’ manufacturing and distribution. Any of the foregoing could negatively affect our sales of NuZee branded products and our profitability.




Our growth and profitability depend on the performance of third-parties and our relationship with them.

A significant portion of our distribution network, and correspondingly our success in distributing our pour over coffee products, depends on the performance of third-parties.  Any non-performance or deficient performance by such parties may undermine our operations and profitability, and may result in total loss to your investment.  To distribute our product, we use a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who, in turn, sell our product to consumers.  The success of this network depends on the performance of this network of brokers, distributors and retailers.  There is a risk that a broker, distributor or retailer may refuse to or cease to market or carry our product, or that any such entity may not adequately perform its functions within the industry is negligiblenetwork by, without limitation, failing to distribute to sufficient retailers or positioning our product in lightlocalities that may not be receptive to our product.

Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sale activities.  We must also maintain good commercial relationships with third-party brokers, distributors and retailers so that they will promote and carry our product.  Any adverse consequences resulting from the performance of the fact that we have not startedthird-parties or our operations.  Older, well established distributors of the products we intend to offer with records of success will attract qualified clients away from us.  Since we have not started operations, we cannot competerelationship with them on the basiscould undermine our operations and profitability, and may result in total loss of reputation.  We do expect to compete with them on the basisyour investment.

The loss of price and product selection.  In order to achieve this, we will offer lower mark-ups onany member of our products until we have built upsenior management team or our client base to increase our profit margin. We intend to be ableinability to attract and retain customers by offeringhighly skilled personnel could have a breadthmaterial adverse effect on our business.

Our success depends on the skills, experience and performance of tasteful product selection throughkey members of our relationshipssenior management team, including Masateru Higashida, our Chief Executive Officer, Secretary and Treasurer, Travis Gorney, our President and Chief Operating Officer, and Shanoop Kothari, our Chief Financial Officer. The individual and collective efforts of our senior management team will be important as we continue to expand our commercial activities and develop additional products. The loss or incapacity of existing members of our senior management team could have a material adverse effect on our business and financial condition if we experience difficulties in hiring qualified successors. Our employment agreements with manufacturersour executive officers are “at will”, and suppliers. the retention of our executive officers for any period of time cannot be guaranteed. We do not maintain “key person” insurance on any of our employees.

Due to the specialized nature of the business and our small size, we are highly dependent upon our ability to attract and retain qualified sales and marketing, technical and managerial personnel. The loss of the services of existing personnel, as well as the failure to recruit key sales, marketing, technical and managerial personnel in a timely manner would be detrimental to our development and could have a material adverse effect on our business and financial condition. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as sales and marketing, may require the addition of new management personnel, both domestic and international. All of our employees may terminate their employment at any time with short or no advance notice. We may have difficulties locating, recruiting or retaining qualified sales people. Recruiting and retention difficulties will limit our ability to support our development and sales programs and to build a commercially viable business.

 

MarketingA substantial portion of our sales are completed on a purchase order basis.  Although these purchase orders are generally not cancelable, customers may decide to delay or cancel orders, which could negatively impact our revenues.

 

Orders covered by firm purchase orders are generally not cancelable; however, customers may decide to delay or cancel orders.  In the event that we experience any delays or cancellations, we may have difficulty enforcing the provisions of the purchase order and our revenues could decline substantially.  Any such decline could result in us incurring net losses, increasing our accumulated deficit and needing to raise additional capital to fund our operations.

Because our management structure is not centralized, the management of our business operations may be more expensive and more difficult.

As part of our strategy to attract the most qualified individuals, we do not require the members of our management team to relocate to a particular geographic area. Accordingly, the members of our management team are geographically dispersed. This decentralized structure might cause additional expenses in the conduct of our business, and may also delay communication between members of our management team, lower the quality of our management decisions or decrease our ability to take action quickly.

Product safety and quality concerns could negatively affect our business.

Our success depends in part on our ability to maintain consumer confidence in the safety and quality of all of our products. While we are committed to the safety and quality of our products, we may not achieve our product safety and quality standards. Product safety or quality issues, or mislabeling, actual or perceived, or allegations of product contamination or quality or safety issues, even when false or unfounded, could subject us to product liability and consumer claims, negative publicity, a loss of consumer confidence and trust, may require us from time to time to conduct costly recalls from some or all of the channels in which the affected product was distributed, could damage the goodwill associated with our brands, and may cause consumers to choose other products. Such issues




could result in the destruction of product inventory and lost sales due to the unavailability of product for a period of time, which could cause our business to suffer and affect our results of operations.

Increases in the cost of high-quality coffee beans or other commodities or decreases in the availability of high quality coffee beans or other commodities could have an adverse impact on our business and financial results.

We purchase, roast, and sell high-quality whole bean coffee and related coffee products. The price of coffee is subject to significant volatility, and may increase due to the factors described below. The high-quality coffee beans we seek tend to trade on a negotiated basis at a premium above the commodity trading price of coffee as quoted on the Intercontinental Exchange, also known as the “C” price of coffee. This premium depends upon the supply and demand at the time of purchase and the amount of fundsthe premium can vary significantly. Increases in the “C” coffee commodity price do increase the price of high-quality coffee and also impact our ability to enter into fixed-price purchase commitments. The supply and price of coffee we raise frompurchase can also be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease (such as coffee rust), general increase in farm inputs and costs of production, inventory levels and political and economic conditions, as well as the actions of certain organizations and associations that have historically attempted to influence prices of coffee through agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee commodities can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality coffee beans could have an adverse impact on our profitability. In addition, if we are not able to purchase sufficient quantities of coffee due to any of the above factors or a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee, which could have an adverse impact on our business and financial results.

Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines.

We may be able to pass some or all raw materials, energy and other input cost increases to customers by increasing the selling prices of our products or decreasing the size of our products; however, higher product prices or decreased product sizes may also result in a reduction in sales volume and/or consumption. If we are not able to increase our selling prices or reduce product sizes sufficiently to offset increased raw material, energy or other input costs, including but not limited to packaging, direct labor, overhead and employee benefits, or if our sales volume decreases significantly, there could be a negative impact on our results of operations and financial condition.

We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

While we are currently a small company and, therefore, limited in our product development, marketing and sales activities, we anticipate growth in our business operations commensurate with the expansion of our sales and support operations and distribution network and the commercialization of new pour over coffee products. Since our inception in 2011, we have increased the number of our full- and part-time employees to 27 as of September 30, 2019, and we expect to continue hiring new employees and independent contractors to support our anticipated growth. This future growth could impose significant added responsibilities on members of our existing management and create strain on our organizational, administrative and operational infrastructure, including sales and marketing, quality control, and customer service. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures, which prior to this offering have been determined to be inadequate. Our status as an exchange-listed public company will determine how muchrequire us to increase our investment in financial accounting and reporting. If our current infrastructure is unable to handle our growth, we may need to expand our infrastructure, to identify and recruit new staff and to implement new reporting systems. The time and resources required to implement such expansion and systems could adversely affect our operations. Our future financial performance and our ability to expand and market our pour over coffee products and to compete effectively will depend, in part, on our ability to manage this potential future growth effectively, without compromising quality.

Any failure by us to accurately forecast customer demand for our products, or to quickly adjust to forecast changes, could adversely affect our business and financial results.

There is inherent risk in forecasting demand due to the uncertainties involved in assessing the current level of maturity of the single serve component of our business. We set target levels for the manufacture of our pour over coffee products and for the purchase of coffee in advance of customer orders based upon our forecasts of customer demand and those of our business partners. If our forecasts exceed demand, we could experience excess inventory in the short-term, excess manufacturing capacity in the short and long-term, and/or price decreases, all of which could impact our financial performance. Alternatively, if demand exceeds our forecasts significantly beyond our current manufacturing capacity, we may not be able to satisfy customer demand, which could result in a loss of share if our competitors are able to meet customer demands. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income.




We may not be able to adequately protect our intellectual property rights, and our competitors may be able to offer similar products and services, which would harm our competitive position.

Our success depends in part upon our intellectual property rights. We rely primarily on trademark, trade secret laws, confidentiality procedures, license agreements and contractual provisions to establish and protect our proprietary rights over our products, procedures and services. Other persons could copy or otherwise obtain and use our intellectual properties without authorization, or create intellectual properties similar to ours independently. We may also pursue the registration of our domain names, trademarks and service marks in other jurisdictions, including the United States. However, we cannot assure you that we will be able to spendprotect our proprietary rights. Further, our competitors may be able to independently develop similar intellectual property, duplicate our products and services or design around any intellectual property rights we hold. Further, our intellectual property rights may be subject to termination or expirations. The loss of intellectual property protections or the inability to timely regain intellectual property protections could harm our business and ability to compete.

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time subject to legal proceedings and claims relating to the intellectual property rights of others. There may be third-party intellectual property that is infringed by our products, services or other aspects of our business. There could also be existing patents or other intellectual property rights of which we are not aware that our products may inadvertently infringe. We cannot assure you that holders of the relevant intellectual property rights purportedly relating to some aspect of our technology platform or business, if any such holders exist, would not seek to enforce such intellectual property rights against us in the United States or any other jurisdiction. We also cannot be certain that our efforts will be effective in completely preventing the infringement of trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these third-party infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question.

Failure to comply with applicable transfer pricing and similar regulations could harm our business and financial results.

In many countries, including the United States, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned and are taxed accordingly.Although we believe that we are in substantial compliance with all applicable regulations and restrictions, we are subject to the risk that governmental authorities could audit our transfer pricing and related practices and assert that additional taxes are owed.In the event that the audits or assessments are concluded adversely to us, we may or may not be able to offset or mitigate the consolidated effect of foreign income tax assessments through the use of U.S. foreign tax credits. Because the laws and regulations governing U.S. foreign tax credits are complex and subject to periodic legislative amendment, we cannot be sure that we would in fact be able to take advantage of any foreign tax credits in the future.

Our business operations are conducted in multiple languages and could be disrupted due to miscommunications or translation errors.

The success of our business depends in part on our marketing efforts in the United States and advertising campaign. various countries in East Asia, each of which is conducted in the local language. Additionally, our operations often require that complex contracts, communications and technical information be accurately translated into foreign languages. Miscommunications or inaccurate foreign language translations could have a material adverse effect on our business operations and financial condition.

If we raiseare unable to protect our information systems against service interruption or failure, misappropriation of data or breaches of security, our operations could be disrupted, we could be subject to costly government enforcement actions and private litigation and our reputation may be damaged.

Our businesses involve the minimum,collection, storage and transmission of personal, financial or other information that is entrusted to us by our customers and employees. Our information systems also contain the Company’s proprietary and other confidential information related to our businesses. Despite the implementation of network security measures, our systems and those of third parties on which we intendrely may also be susceptible to advertise locallydamage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; telecommunications or system failures; server or cloud provider breaches; computer viruses;




physical or electronic break-ins; cyber-attacks; catastrophic events; or breaches due to employee error or malfeasance or other attempts to harm our systems. Cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology networks and systems to more sophisticated and targeted measures, known as advanced persistent threats, directed at the Company, its products, its customers and/or its third-party service providers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures in time. We could also experience a loss of critical data and delays or interruptions in our ability to manage inventories or process transactions. Some of our commercial partners, such as those that help us deliver our website, may receive or store information provided by us or our users through food and restaurant newspapers, flyers, andour websites. If these third parties fail to adopt or adhere to adequate information security practices, or fail to comply with our online policies, or in the telephone directory.event of a breach of their networks, our users’ data may be improperly accessed, used or disclosed.

If our systems are harmed or fail to function properly, we may need to expend significant financial resources to repair or replace systems or to otherwise protect against security breaches or to address problems caused by breaches. If we raise the maximumexperience a significant security breach or fail to detect and appropriately respond to a significant security breach, we intendcould be exposed to expand our marketing strategiescostly legal or regulatory actions against us in connection with such incidents, which could result in orders or consent decrees forcing us to furniture magazines, interior designer magazines, and advertisement flyer through direct mail. We will marketmodify our business via bus station billboardspractices. Any incidents involving unauthorized access to or improper use of user information, or incidents that are a violation of our online privacy policy, could harm our brand reputation and highway billboards across Panamadiminish our competitive position. Any of these events could have a material and eventually into Central America asadverse effect on our earnings rise and are stable enoughbusiness, reputation or financial results. Our insurance policies carry coverage limits, which may not be adequate to support such advertising. Direct mail advertising will be in the form of printed flyers that will be dropped off in high traffic areas and at restaurants and bars within the Panama City area. For our e-mail marketing addresses, we look to hire an e-mail marketing company to providereimburse us with a list of architects, interior designers, developers, restaurants and bars.  for losses caused by security breaches.

 

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InsuranceAdverse weather conditions, including climate change, may have an adverse impact on our business and results of operations.

 

            We do not maintain any insurance and do not intendThe supply of our raw ingredients required to maintain insuranceproduce our pour over coffee products could be impacted by adverse weather conditions that increase the cost or reduce the availability of such ingredients. The sales of our products are also influenced to some extent by weather conditions in the future.  Becausemarkets in which we do not have any insurance, if we are made a party of a products liability action, we may not have sufficient funds to defend the litigation.  If that occurs a judgment could be rendered against us which could cause us to cease operations.operate.

 

Vendor Relationships

            We hopeFurthermore, there is increasing concern that a gradual increase in global average temperatures due to develop a strong relationship with our vendors through repeated useincreased concentration of carbon dioxide and mutually financially advantageous contracts.  Asother greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Decreased agricultural productivity in certain regions of the date of this prospectus, we have not developed any vendor relationships, but intend to do so immediately upon completion of our public offering.  There is no assurance however, that we will be successful in developing any vendor relationships.

Employees; Identification of Certain Significant Employees.

            We are a development stage company and currently have no employees, other than our sole officer and director.  We intend to hire additional employees on anworld as needed basis.  

Offices

            Our principal executive office is located at 122BEdificio Ultramar Plaza. Apt. #4A 47th Street

Panama City, Panama. Our telephone number is (507) 269-1315 and our registered agent for service of process is the National Registered Agents Inc. of NV, located at 1000 East William Street, Suite 204, Carson City, Nevada 89701.   Our office is located in the home of our president, Haisam Hamie. 

            We intend to establish an outside office if we raise more than our minimum, to maintain the website and database.  This will include physical office space, computer equipment, telephones and other assets as required to maintain the operations. If we only reach our minimum, our sole officer has agreed to continue to run the operations from his home office space that he allows us to use on a rent-free basis. We use approximately 200 square feet which has been sufficient for our operations to date and is expected to be sufficient for our operations should we only raise the minimum proceeds from our offering.

Government Regulation

            We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally or directly applicable to electronic commerce.  However, the Internet is becoming increasingly popular.  As a result it is possible that a number of laws and regulationschanging weather patterns may be adopted with respect to the Internet.  These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security.  Furthermore, the growth of electronic commerce may prompt calls for more stringent consumer protection laws. Several states have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies.  The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties.  We will not provide personal information regarding our usersto third parties. However, the adoption of such consumer protection laws could create uncertainty in Web usage and reduce the demand for our products.

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            We are not certain how business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, obscenity and export or import matters.  The vast majority of such laws were adopted prior to the advent of the Internet.  As a result, they do not contemplate or address the unique issues of the Internet and related technologies.  Changes in laws intended to address such issues could create uncertainty in the Internet market place. Such uncertainty could reduce demand for servicesavailability or increase the cost of doingkey agricultural commodities, such as coffee and tea, which are important sources of ingredients for our products, and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.

If we fail to comply with FDA regulations our business could suffer.

The manufacture and marketing of beverage and nutraceutical products are subject to extensive regulation by the U.S. Food and Drug Administration (“FDA”) and foreign and state regulatory authorities. In the United States, beverage and nutraceutical companies such as ours must comply with laws and regulations promulgated by the FDA. These laws and regulations require various authorizations prior to a product being marketed in the United States. Manufacturing facilities and practices are also subject to FDA regulations. The FDA regulates the clinical testing, manufacture, labeling, sale, distribution and promotion of nutraceutical and, to the extent applicable, beverage products in the United States. Any failure by us to comply with regulatory requirements, including any future changes to such requirements, could have a material adverse effect on our business, prospects, financial condition and results of operations.

Even after clearance or approval of a product, we are subject to continuing regulation by the FDA, including the requirements of registering our facilities and listing our products with the FDA. We are subject to reporting regulations. These regulations require us to report to the FDA if any of our products may have caused or contributed to a death or serious injury and such product or a similar product that we market would likely cause or contribute to a death or serious injury. Unless an exemption applies, we must report corrections and removals to the FDA where the correction or removal was initiated to reduce a risk to health posed by the product or to remedy a violation of the Food, Drug and Cosmetic Act. The FDA also requires that we maintain records of corrections or removals, regardless of whether such corrections and removals are required to be reported to the FDA. In addition, the FDA closely regulates promotion and advertising, and our promotional and advertising activities could come under scrutiny by the FDA.

The FDA also requires that manufacturing be in compliance with its Quality System Regulation, or QSR. The QSR covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Any failure by us to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, our manufacturing operations, to the extent we have any, and the recall or seizure of our products, which would have a




material adverse effect on our business. In the event that one of our suppliers fails to maintain compliance with our quality requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result.

The FDA has broad enforcement powers. If we violate applicable regulatory requirements, the FDA may bring enforcement actions against us, which could have a material adverse effect on our business, prospects, financial condition and results of operations. Violations of regulatory requirements, at any stage, including after approval, may result in various adverse consequences, including the delay by a regulatory agency in approving or refusal to approve a product, withdrawal or recall of an approved product from the market, or other voluntary agency-initiated action that could delay further development or marketing, as well as the imposition of criminal penalties.

The health benefits of the functional ingredients in our products are not guaranteed.

Although clinical studies indicate certain ingredients used in our products may have health benefits, there is no guarantee that a consumer of our products will experience such health benefits. Additionally, negative publicity, opposing studies concerning any of our ingredients or negative changes in consumers’ perception of the health benefits of our products may result in loss of market share or potential market share and negatively impact our operations.

Changes in regulatory standards could adversely affect our business.

Our business is subject to extensive domestic and international regulatory requirements regarding distribution, production, labeling and marketing. Changes to regulation of the beverage industry could include increased limitations on advertising and promotional activities or other non-tariff measures that could adversely impact our business. In addition, we face government regulations pertaining to the health and safety of our employees and our consumers as well as regulations addressing the impact of our business on the environment, domestically as well as internationally. Compliance with these health, safety and environmental regulations may require us to alter our manufacturing processes and our sourcing. Such actions could adversely impact our results of operations, cash flows and financial condition, and our inability to effectively and timely comply with such regulations could adversely impact our competitive position.

Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products.

Various jurisdictions may seek to adopt significant additional product labeling (such as requiring labeling of products that contain genetically modified organisms) or warning requirements or limitations on the availability of our products relating to the content or perceived adverse health consequences of certain of our products. If these types of requirements become applicable to one or more of our major products under current or future environmental or health laws or regulations, they may inhibit sales of such products. One such law, which is in effect in California and is known as Proposition 65, requires that a warning appear on any product sold in California that contains a substance that, in the view of the state, causes cancer or birth defects. The state maintains lists of these substances and periodically adds other substances to these lists. Proposition 65 exposes all food and beverage producers to the possibility of having to provide warnings on their products in California because it does not provide for any generally applicable quantitative threshold below which the presence of a listed substance is exempt from the warning requirement. Consequently, the detection of even a trace amount of a listed substance can subject an affected product to the requirement of a warning label. However, Proposition 65 does not require a warning if the manufacturer of a product can demonstrate that the use of the product in question exposes consumers to a daily quantity of a listed substance that is below a “safe harbor” threshold that may be established, is naturally occurring, is the result of necessary cooking, or is subject to another applicable exception. While currently substances created by and inherent in the processes of roasting coffee beans or brewing coffee have been determined by the State of California not to pose a significant risk, such chemicals could be added to the Proposition 65 lists in the future.With respect to substances that have not yet been listed under Proposition 65, the Company takes the position that listing is not scientifically justified. The State of California or other parties, however, may take a contrary position. If we were required to add Proposition 65 warnings on the labels of one or more of our beverage products produced for sale in California, the resulting consumer reaction to the warnings and possible adverse publicity could negatively affect our sales both in California and in other marketplaces.

Our international sales and operations subject us to various additional legal, regulatory, financial and other risks.

We operate globally and are attempting to develop products in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which may expose us to certain financial and other risks. International operations are subject to a variety of risks, including:

foreign currency exchange rate fluctuations; 

greater difficulty in overseeing foreign operations; 




logistical and communications challenges; 

potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws; 

burdens and costs of compliance with a variety of foreign laws; 

��political and economic instability; 

foreign tax laws and potential increased costs associated with overlapping tax structures; 

greater difficulty in protecting intellectual property; 

the risk of third-party disputes over ownership of intellectual property and infringement of third-party intellectual property by our products; and 

general social, economic and political conditions in these foreign markets. 

Employment litigation and unfavorable publicity could negatively affect our future business.

Employees may, from time to time, bring lawsuits against us regarding injury, creation of a hostile work place, discrimination, wage and hour, sexual harassment and other employment issues. In recent years there has been an increase in the number of discrimination and harassment claims generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Companies that have faced employment or harassment related lawsuits have had to terminate management or other key personnel and have suffered reputational harm that has negatively impacted their sales. If we were to face any employment related claims, our business could be negatively affected.

Risks Related to this Offering and Ownership of our Common StockRisks Related to this Offering and Ownership of our Common Stock

Our common stock presently is listed for trading on the OTCQB which means you may not be able to resell shares of our common stock publicly, if at all, at times or prices you feel are fair and appropriate.

While our intention is to list our common stock on a national securities exchange, our common stock presently is listed for trading on the OTC Market’s OTCQB service.

A listing on the OTC Markets is generally understood to be a less active, and therefore less liquid, trading market than other types of markets such as a stock exchange. Compared to a listing on a stock exchange, a listing on the OTC Markets can be expected to have an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us and our common stock. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. In addition, we have had small trading volume in our common stock, which makes it difficult for our stockholders to sell their shares as and when they choose. Small trading volumes generally depress market prices. As a result, we believe that you may not be able to resell shares of our common stock publicly, if at all, at times or prices that you feel are fair or appropriate.

While we are seeking to list our common stock on a national securities exchange, there is no assurance that our securities will ever be listed on a major stock exchange.

While we are seeking to list our common stock on a national securities exchange, we cannot ensure that we will be able to satisfy the listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock are otherwise rejected for listing, our common stock will continue to trade on the OTC Markets, in which event the trading price of our common stock could suffer, the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.




The market price of our stock may be volatile, and you could lose all or part of your investment. Further, we do not know whether an active, liquid and orderly trading market will develop for our securities or what the market price of our securities will be and as a result it may be difficult for you to sell your shares of our securities.

Prior to this offering there has been a limited public market for shares of our securities. Although we intend to apply to have our securities listed on a national securities exchange, an active trading market for our shares may never develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in shares of our securities is not active. The public offering price for our securities will be determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the securities after the offering. As a result of these and other factors, you may be unable to resell your shares of our securities at or above the public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our securities and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our securities as consideration, which could have a material adverse effect on our business, financial condition, and results of operations. In addition, the trading price of our common stock following this offering is likely to be highly volatile and subject to wide fluctuations in response to various factors, some of which we cannot control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include but are not limited to:

the success of, or developments in, competitive products or technologies; 

regulatory actions with respect to our products and our competitors; 

the level of success of our marketing strategy; 

announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments; 

regulatory or legal developments in the United States and other countries; 

recruitment or departure of key personnel; 

expenses related to any of our development programs and our business in general; 

actual or anticipated changes in financial estimates, development timelines or recommendations by securities analysts; 

failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; 

variations in our financial results or those of companies that are perceived to be similar to us; 

fluctuations in the valuation of companies perceived by investors to be comparable to us; 

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; 

our ability or failure to raise additional capital in equity or debt transactions; 

costs associated with our sales and marketing initiatives; 

costs and timing of obtaining and maintaining FDA and other regulatory clearances and approvals for our products; 

sales of our common stock by us, our insiders or our other stockholders; and 

general economic, industry and market conditions. 

In addition, the stock market in general has in the past experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a dramatic and material adverse impact on the market price of our common stock.




Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and sales of such shares may have a depressive effect on the share price of our common stock.

Substantially all of the outstanding shares of common stock are “restricted securities” within the meaning of Rule 144. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four-calendar week rule does not apply to companies quoted on the OTC Markets). 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.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively, which could affect our results of operations and cause our stock price to decline.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds.” We intend to use the net proceeds from this offering for working capital and general corporate purposes. As a result, you will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. You will not have the opportunity, as part of your investment decision, to assess whether we are using the proceeds appropriately. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock may be volatile, and in the past, companies that have experienced volatility in the market price of their stock have been subject to securities litigation, including but not limited to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could have a material adverse effect on our business and financial condition.

Our principal stockholder and management, including our Chief Executive Officer in particular, own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Prior to this offering, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 38.6% of our voting stock and, upon completion of this offering, that same group will hold approximately      % of our outstanding voting stock (assuming no exercise of the underwriters’ over-allotment option, no exercise of outstanding options and no purchases of shares in this offering by any of this group), in each case assuming a public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split). Our Chief Executive Officer and Chairman of the Board of Directors individually beneficially owned approximately 34.9% of our voting stock prior to this offering, and will hold approximately      % of our outstanding voting stock following this offering. This concentration of control creates a number of risks. After this offering, this group of stockholders will have the ability to exert significant influence over us through this ownership position. These stockholders may be able to exert significant influence over all matters requiring stockholder approval, including with respect to elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction, and our stockholders may find it difficult to replace members of management should our stockholders disagree with the manner in which the Company is operated. Furthermore, this concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders.




Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

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. After this offering, we will have outstanding                   shares of common stock based on the number of shares outstanding as of June 30, 2019. This includes the shares that we sell in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares, shares of our common stock are currently restricted as a result of litigation costssecurities laws or increased service delivery costs.lock-up agreements but will be able to be sold after this offering as described in the “Shares Eligible for Future Sale” section of this prospectus. We also intend to register all shares of common stock that we may issue under our 2019 Plan. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

 

            In addition, becauseWe incur significant costs as a result of operating as a public company, and our products are available over the Internet in multiple states and foreign countries, other jurisdictions may claim that we aremanagement will be required to qualifydevote substantial time to do business in each such state or foreign country.  We are qualified to do business only in Nevada.  Our failure to qualify innew compliance initiatives upon the intended listing on a jurisdiction where it is required to do so could subject it to taxes and penalties.  It could also hamper our ability to enforce contracts in such jurisdictions.   Currently, we are qualified to do business in Nevada.  Other than Nevada, we do not believe we will have to qualify to do business in any other jurisdiction.national securites exchange.

 

            In Nevada,Upon listing on a national securities exchange, we are required to pay an annual fee toexpect the Nevada Secretary of State of $125 and pay a licensing fee of $200 per year.  Nevada has no corporate income taxes.  

            Because we are a foreign corporation with our principal place of business in Panama, there are certain Panamanian rules and regulations that we must adhere to; noneapplicable to companies listed on such national securities exchange to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of which willour management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other thanareas of our business or increase the fact that should any claims be filedprices of our products or services. For example, we expect these rules and judgment awarded against the Company in a United States court of law,regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be impossiblerequired to collectincur substantial costs to maintain the same or similar coverage. We cannot accurately predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on that judgment.  Additionally,our Board, our Board committees or as a foreign corporation, the Company must register the business with the Panamanian government and obtain a government permit and license.  executive officers.

 

             As a foreign corporation conducting businessFuture changes in Panama, we must file the following documents at the Public Registry Office:

  1. A notarized Spanish translationfinancial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of the Articles of Incorporation;
  2. Board of Directors minutes authorizing the Panamanian registration;
  3. Copies of the most recent financial statements;
  4. A certificate from a Panamanian Consul confirming that the Company is organized according to the law of its place of incorporation; and
  5. Notification of the transfer of capital to the Panamanian operation.

35


MANAGEMENToperations.

Officers and Directors

 

            Our sole director will serve until his successorA change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is electedeffective. New accounting pronouncements and qualified. Our sole officervarying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.

We expect to incur significant costs and devote substantial management time to maintaining our disclosure controls and procedures and internal control over financial reporting, and regardless we may be unable to prevent or detect all errors or acts of fraud or to accurately and timely report our financial results or file our periodic reports in a timely manner.

As a publicly traded company, our management is electedrequired to report annually on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We expect to incur significant management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers, including complying with the auditor attestation requirements of Section 404(b). We are in the early stages of the process of compiling the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion, and we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation report from our independent registered public accounting firm.

In the future, we may also identify material weaknesses or significant deficiencies in our internal control over financial reporting, and we may not be able to remediate them in time to meet the deadline imposed by the boardSarbanes-Oxley Act for compliance with the requirements of directorsSection 404.

We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.




These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.

Because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected. We cannot assure you that the measures we have taken will be effective in mitigating or preventing significant deficiencies or material weaknesses in our internal control over financial reporting in the future. If we fail to effectively remediate deficiencies in our control environment or are unable to implement and maintain effective internal control over financial reporting to meet the demands that are placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or to report them within the timeframes required by law or exchange regulations.

Additionally, we have engaged only a very limited number of accounting and finance personnel and we rely substantially on outside consultants. We will need to incur additional expenses to hire additional personnel with public company financial reporting expertise to build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures. If we are unable to do so, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a termdecline in our stock price.

If our remedial measures are insufficient to address material weaknesses and we are unable to maintain an effective system of one (1) year and serves until hisinternal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or his successor is duly elected and qualified, or until he or she is removed from office. The board of directors has no nominating, auditing or compensation committees. prevent fraud.

 

            The name, address, age and positionIn connection with our management’s assessment of the effectiveness of our present officersinternal control over financial reporting as of September 30, 2018, we identified a “material weakness” in our internal control over financial reporting related to our maintenance of a fully integrated financial reporting system, any failure by us to effectively segregate certain accounting duties due to the small size of our accounting staff and directors are set forth below:our inability to maintain a sufficient number of adequately trained personnel who have the knowledge and experience with GAAP and SEC reporting necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company’s personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff.

 

Name and Address

Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, detected or corrected on a timely basis.

Age

Position(s)

Haisam Hamie

Edificio Ultramar Plaza

Apt. #4A 47th Street

Panama City, Panama

46

President, principal executive officer, secretary, treasurer, principal financial officer, principal accounting officer and sole member of the board of directors.

 

If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, then there exists a risk that our consolidated financial statements may contain material misstatements that are unknown to us at that time, and such misstatements could require us to restate our financial results. Our management or our independent registered public accounting firm may identify other material weaknesses in our internal control over financial reporting in the future. The person named above has held his offices/positions since inceptionexistence of a material weakness in our internal control over financial reporting may result in current and potential stockholders losing confidence in our financial reporting, which could negatively impact the market price of our common stock.

In addition, the existence of material weaknesses in our internal control over financial reporting may affect our ability to timely file periodic reports under the Exchange Act and may consequently result in the SEC revoking the registration of our common stock, or the delisting of our common stock. Any of these events could have a material adverse effect on the market price of our common stock or on our business, financial condition and results of operations.

Anti-takeover provisions in our articles of incorporation and second amended and restated bylaws, as well as provisions in Nevada law, might discourage, delay or prevent a change of control of our company or changes in our management and, is expected to hold his offices/positions untiltherefore, depress the next annual meetingtrading price of our stockholders.

securities.

Background of officers and directors

 

            SinceOur articles of incorporation, second amended and restated bylaws and Nevada law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our inception on July 15, 2011, Haisam Hamie has been our president, principal executive officer, secretary, treasurer, principal financial officer, principal accounting officer and soleBoard. Our corporate governance documents include provisions:

providing for a single class of directors where each member of the board shall serve for a one year term and may be elected to successive terms; 

authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock; 




limiting the liability of, directors. From April 2005and providing indemnification to, February 2009 Mr. Hamie wasour directors, including provisions that require the managerCompany to advance payment for defending pending or threatened claims; 

controlling the procedures for the conduct and scheduling of Habibi's restaurantboard and stockholder meetings; 

limiting the number of directors on our board and the filling of vacancies or newly created seats on the board to our Board then in office; and 

providing that directors may be removed by stockholders at any time. 

These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.

As a Nevada corporation, we are also subject to provisions of Nevada corporate law, including Section 78.411,et seq. of the Nevada Revised Statutes, which prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last two years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a large restaurant locatedprescribed manner.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the most popular bar and nightlife areafuture for shares of Panama City. He was responsibleour common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that our stockholders could receive a premium for the day to day operations of the business. In February, 2009,  Mr. Hamie was part owner of Fenicia which was a brand new restauranttheir common stock in Panama City, Panama. Not only was Mr. Hamie part owner, but he was also responsible for the design and furnishings of the restaurant during its construction and establishment. Mr Hamie remained and managed the restaurant until April 2011, at which point he sold his share to his partner. From May 2011 until present day Mr. Hamie returned to Habibi's restaurant and continues to manage it.an acquisition.

 

DuringWe have never paid dividends on our capital stock and we do not anticipate paying any dividends in the past ten years, Mr. Hamie has not beenforeseeable future. Consequently, any profits from an investment in our common stock will depend on whether the subjectprice of the following events:

1.

A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

2.

Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

36


3.

The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;

 (i)                   

 Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator,  floor broker, leverage   transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 (ii)      

Engaging in any type of business practice; or

 (iii)

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

4.

The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;

5.

Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

6.

Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7.

Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(i)

Any Federal or State securities or commodities law or regulation; or

(ii)

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or

(iii)

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

37


8.

Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.  

Audit Committee Financial Expertour common stock increases.

 

We dohave not have an audit committee financial expert.  We do not have an audit committee financial expert becausepaid dividends on any of our classes of capital stock to date and we believecurrently intend to retain our future earnings, if any, to fund the cost related to retainingdevelopment and growth of our business. As a financial expert at this time is prohibitive.  Further, because we have no operations, atresult, capital appreciation, if any, of our common stock will be your sole source of gain for the present time, we believe the services of a financial expert are not warranted. 

Conflicts of Interestforeseeable future.

 

            The only conflict that we foresee are thatClaims for indemnification by our sole officerdirectors and director will devote timeofficers may reduce our available funds to projects that do not involvesatisfy successful third-party claims against us and may reduce the amount of money available to us.


EXECUTIVE COMPENSATION

 

            The following table sets forthOur articles of incorporation and second amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the compensation paidfullest extent permitted by usNevada law. In addition, our articles of incorporation and second amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide for the last three fiscal years ending July 31, 2011 for our sole officer. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any.  The compensation discussed addresses all compensation awarded to, earned by, or paid or named executive officers. 

EXECUTIVE OFFICER COMPENSATION TABLE

 

 

 

 

 

 

Non-

Nonqualified

 

 

 

 

 

 

 

 

Equity

Deferred

All

 

Name

 

 

 

 

 

Incentive

Compensa-

Other

 

and

 

 

 

Stock

Option

Plan

tion

Compen-

 

Principal 

 

Salary

Bonus

Awards

Awards

Compensation

Earnings

sation

Total

Position 

Year

(US$)

(US$)

(US$)

(US$)

(US$)

(US$)

(US$)

(US$)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

 

 

 

 

 

 

 

 

 

 

Haisam Hamie

2011

0

0

0

0

0

0

0

0

President 

2010

0

0

0

0

0

0

0

0

 

2009

0

0

0

0

0

0

0

0

            We have no employment agreements with our sole officer. We do not contemplate entering into any employment agreements until such time as we begin profitable operations.following:

 

            The compensation discussed herein addresses all compensation awarded to, earned by,We will indemnify our directors and officers for serving us in those capacities or paid tofor serving other business enterprises at our named executive officers.

38


            There are no other stock option plans, retirement, pension, or profit sharing plans for the benefit of our officers and directors other than as described herein.

Compensation of Directors

            The member of our board of directors is not compensated for his services as a director. The board has not implemented a plan to award options to any directors. There are no contractual arrangements with any member of the board of directors. We have no director's service contracts.

DIRECTOR’S COMPENSATION TABLE

 

Fees

 

 

 

 

 

 

 

Earned

 

 

 

Nonqualified

 

 

 

or

 

 

Non-Equity

Deferred

 

 

 

Paid in

Stock

Option

Incentive Plan

Compensation

All Other

 

 

Cash

Awards

Awards

Compensation

Earnings

Compensation

Total

Name

(US$)

(US$)

(US$)

(US$)

(US$)

(US$)

(US$)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

 

 

 

 

 

 

 

 

Haisam Hamie

2011

0

0

0

0

0

0

Long-Term Incentive Plan Awards

            We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.

Indemnification

            Pursuantrequest, to the Bylaws of thefullest extent permitted by Nevada law. Nevada law provides that a corporation we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position,such person if hesuch person acted in good faith and in a manner hesuch person reasonably believed to be in ouror not opposed to the best interest. interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful. 

We maywill also indemnify employees and agents in those circumstances where indemnification is permitted by applicable law. 

We are required to advance expenses, as incurred, to any indemnitee in connection with defending a proceeding. To the extentproceeding, except that the officer or directorsuch indemnitee shall undertake to repay such advances if it is successful on the merits inultimately determined that such person is not entitled to indemnification. 

We will not be obligated pursuant to our articles of incorporation and second amended and restated bylaws to indemnify a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. Withperson with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings to enforce a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intendedright to be to the fullest extent permitted by the laws of the State of Nevada.indemnification. 

 

            Regarding indemnification for liabilities arising under the Securities ActThe rights conferred in our articles of 1933, which may be permitted to directors or officers under Nevada law,incorporation and second amended and restated bylaws are not exclusive, and we are informed that,authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons. 




If you purchase shares of common stock in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressedthis offering, you will experience immediate dilution in the Act and is, therefore, unenforceable.

your investment. You will experience further dilution if we issue additional equity securities in future financing transactions.

39


PRINCIPAL STOCKHOLDERS

 

Purchasers of common stock in this offering will pay a price per share that exceeds the net tangible book value per share of our common stock. Investors participating in this offering will incur immediate and substantial dilution. After giving effect to our receipt of approximately $              million of estimated net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, from our sale of common stock in this offering at an assumed public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split), our pro forma as adjusted net tangible book value as of June 30, 2019, would have been $         million, or $        per share. This amount represents an immediate increase in net tangible book value of $                             per share of our common stock to existing stockholders and an immediate dilution in net tangible book value of $                             per share of our common stock to new investors purchasing shares of common stock in this offering. See the section entitled “Dilution” below for a more detailed illustration of the dilution you would incur if you purchase common stock in this offering.

If we issue additional common stock, or securities convertible into or exchangeable or exercisable for common stock, our stockholders, including investors who purchase shares of common stock in this offering, may experience additional dilution, and any such issuances may result in downward pressure on the price of our common stock. We also cannot assure you that we will be able to sell shares or other securities in any future offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.

Risks Related to the Reverse Split

Although the Reverse Split has increased the market price of our common stock,our stock price may decrease and we may not be able to list our common stock on a national securities exchange, in which case this offering may not be completed.

The Reverse Split increased the market price of our common stock such that we expect to meet the minimum bid price requirement of a national securities exchange. However, the ongoing effect of the Reverse Split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies in similar circumstances have been varied. It is possible that the market price of our common stock going forward and prior to completion of this offering will not permit us to be in compliance with the applicable minimum bid or price requirements. If we are unable meet the minimum bid or price requirements, we may be unable to list our shares on a national securities exchange, in which case this offering may not be completed.

We cannot assure you that we will be able to continue to comply with the minimum bid price requirement and other standards of the national securities exchange on which our common stock may become listed.

There can be no assurance that the market price of our common stock will remain at the level required for continuing compliance with the minimum bid price requirement of the national securities exchange on which our common stock may become listed. It is not uncommon for the market price of a company’s common stock to decline in the period following table sets forth,a reverse stock split. If the market price of our common stock declines, the percentage decline may be greater than would have occurred in the absence of the Reverse Split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet or maintain the minimum bid price requirement of the national securities exchange on which our common stock may become listed. In addition to specific listing and maintenance standards, we expect any national securities exchange on which our common stock may become listed will have broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect to the listing of our common stock.

Furthermore, even if the market price of our common stock continues to comply with the minimum bid price requirement, we cannot assure you that we will be able to comply with the other standards that we are required to meet in order to maintain a listing of our common stock on a national securities exchange. Our failure to meet these requirements may result in our common stock being delisted from such national securities exchange, irrespective of our compliance with the minimum bid price requirement.

There are risks associated with the Reverse Split.

There can be no assurance that the Reverse Split will achieve the benefits that we hope it will achieve. In addition, there are certain risks associated with the Reverse Split. For example, we now have additional authorized shares of common stock that the Board could issue in the future without stockholder approval, and such additional shares could be issued, among other purposes, in financing transactions or to resist or frustrate a third-party transaction that is favored by a majority of the independent stockholders. This could




have an anti-takeover effect, in that additional shares could be issued, within the limits imposed by applicable law, in one or more transactions that could make a change in control or takeover of us more difficult.




SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. Some of the statements in the section captioned “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and elsewhere in this prospectus contain forward-looking statements. In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these terms.

These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our products candidates; 

the evolving coffee preferences of North American coffee consumers; 

the size and growth of the markets for our products and services; 

our commercialization, marketing, and manufacturing capabilities and strategy; 

our ability to compete with companies producing similar beverage products; 

our expectation that our existing capital resources will not be sufficient to fund our operations for our operations for at least the next 12 months; 

regulatory developments in the U.S. and in non-U.S. countries; 

our ability to retain key scientific or management 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 controls; 

our ability to develop innovative new products; 

our financial performance; and 

our anticipated use of the net proceeds from this offering. 

In addition, you should refer to the “Risk Factors” section of this prospectus for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 You should read this prospectus and the totaldocuments that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance




and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.




USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $           million, or approximately $              million if the underwriters exercise their over-allotment option in full, assuming a public offering price of $11.00 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for working capital and general corporate purposes.

Our management will have broad discretion to allocate the net proceeds to us from this offering and investors will be relying on the judgment of our management regarding the application of the proceeds from this offering. We reserve the right to change the use of these proceeds as a result of certain contingencies such as competitive developments, the results of our marketing efforts, acquisition and investment opportunities and other factors. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

Each $1.00 increase (decrease) in the assumed public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split), would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming the number of shares owned beneficiallyoffered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of 1.0 million shares in the number of shares offered by us, together with a concurrent $1.00 increase in the assumed public offering price of $11.00 per share, would increase the net proceeds to us from this offering by approximately $                    million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a decrease of 1.0 million shares in the number of shares offered by us together with a concurrent $1.00 decrease in the assumed public offering price of $11.00 per share, would decrease the net proceeds to us from this offering by approximately  million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.




DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business and do not intend to declare or pay any cash dividends in the foreseeable future. As a result, you will likely need to sell your shares of common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them. Payment of cash dividends, if any, in the future will be at the discretion of our Board and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board may deem relevant.




CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2019:

On an actual basis, retroactively adjusted to give effect to the Reverse Split; and 

As adjusted to give effect to the sale of         shares of common stock in this offering assuming a public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. 

The information in this table is illustrative only and our capitalization following the closing of the offering will be adjusted based upon the actual public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the information contained in “Use of Proceeds,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the financial statements and the notes thereto included elsewhere in this prospectus.

As of June 30, 2019

Actual

As Adjusted

Cash and cash equivalents

$3,061,430 

Stockholders’ equity:

Common stock, $0.00001 par value per share; 100,000,000 shares authorized, actual and as adjusted; 13,587,580 shares issued and outstanding, actual; and            shares issued and outstanding, as adjusted

136 

Additional paid-in capital

31,035,225 

Accumulated deficit

(26,043,919)

Accumulated other comprehensive loss

(66,002)

Noncontrolling interest

146,746 

Total stockholders’  equity

$5,072,186 

Total capitalization

$8,133,616 

A $1.00 increase or decrease in the assumed public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split), would increase or decrease, as appropriate, our cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $     million, assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a 100,000 share increase or decrease in the number of shares offered by us, based on the assumed public offering price of $11.00 per share, would increase or decrease our cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $    million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ over-allotment option were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital and stockholders’ equity as of June 30, 2019, would be $                       million, $                           million, and $                      million, respectively.

The number of shares of common stock to be outstanding immediately after this offering is based upon 13,587,580 shares outstanding as of June 30, 2019, and excludes the following:

1,787,334 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2019, with a weighted-average exercise price of $6.90 per share; 

1,544,333 shares of our common stock reserved for future grant or issuance under 2013 Plan; 

3,333,334 shares of our common stock reserved for future grant or issuance under the 2019 Plan; and 

300,000 shares of our common stock issuable upon the exercise of options that we expect to grant upon the pricing of this offering to our directors, executive officers and keycertain other employees individuallyat an exercise price equal to the public offering price of this offering. 




DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the assumed public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after the closing of this offering.

Our net tangible book value is the amount of our total tangible assets less our total liabilities. Net tangible book value per share is our net tangible book value divided by the number of shares of common stock outstanding as of June 30, 2019.  Our net tangible book value as of June 30, 2019 was $5,029,256, or $0.37 per share, based on 13,587,580 shares of our common stock outstanding as of June 30, 2019.

After giving effect to (i) the Reverse Split, and (ii) the sale and issuance by us of the shares of our common stock in this offering at the assumed public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split), and the receipt and application of the net proceeds, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2019 would have been approximately $          , or $           per share of common stock. This represents an immediate increase in pro forma net tangible book value of $           per share to our existing stockholders and an immediate dilution of $           per share to investors purchasing our common stock in this offering.

The following table illustrates this per share dilution:

Assumed public offering price per share

$           

Net tangible book value per share at June 30, 2019

$ 0.37   

Increase to net tangible book value per share attributable to investors purchasing our common stock in this offering

Pro forma net tangible book value per share as of June 30, 2019, after giving effect to this offering

Pro forma as adjusted net tangible book value per share

Dilution of pro forma net tangible book value per share to investors purchasing our common stock in this offering

Each $1.00 increase (decrease) in the assumed public offering price of $11.00 per share, which is the last reported sale price of our common stock on the OTCQB on October 22, 2019 (which does not give effect to the Reverse Split due to the absence of sale price data following the effectiveness of the Reverse Split), would increase (decrease) pro forma as adjusted net tangible book value per share to new investors by $               , and would increase (decrease) dilution per share to new investors in this offering by $               , assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million in the number of shares of common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately $                  per share and increase (decrease) the dilution to new investors by $                   per share, assuming the assumed public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share of our common stock after giving effect to this offering would be approximately $         per share, and the dilution in pro forma as adjusted net tangible book value per share to investors in this offering would be approximately $        per share of common stock.

The table and discussion above are based on 13,587,580 shares of common stock outstanding as of June 30, 2019, and excludes the following:

1,787,334 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2019, with a weighted-average exercise price of $6.90 per share; 

1,544,333 shares of our common stock reserved for future grant or issuance under the 2013 Plan; 

3,333,334 shares of our common stock reserved for future grant or issuance under the 2019 Plan; and 

300,000 shares of our common stock issuable upon the exercise of options that we expect to grant upon the pricing of this offering to our directors, executive officers and certain other employees at an exercise price equal to the public offering price of this offering. 




To the extent that any outstanding options are exercised, new investors will experience further dilution.




SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus and our consolidated financial statements and the accompanying notes appearing at the end of this prospectus. We have derived the statements of operations data for the years ended September 30, 2018 and 2017 and the balance sheet data as of September 30, 2018 and September 30, 2017 from our audited financial statements included elsewhere in this prospectus. We have derived the statements of operations data for the nine months ended June 30, 2019 and 2018 and the balance sheet data as of June 30, 2019 from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of results to be expected for any period in the future and the results for the nine months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year or any other period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Nine months ended

June 30,

 

 

Fiscal Year ended

September 30,

 

 

  

2019

 

 

2018

 

 

2018

 

 

2017

 

Consolidated statement of operations data:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net

  

$

1,304,566

  

 

$

1,018,849

  

 

$

1,388,972

  

 

$

1,628,410

  

Gross profit

  

 

380,663

  

 

 

319,352

  

 

 

67,217

  

 

 

309,178

  

Net loss

  

 

(13,416,696

 

 

(2,020,682

 

 

(3,569,592

 

 

(1,776,190

Net loss attributable to NuZee, Inc.

  

 

(13,436,197

 

 

(2,025,712

 

 

(3,577,171

 

 

(1,767,139

Basic and diluted loss per common share

  

(1.01

)  

 

 $

(0.17

)  

 

(0.29

)  

 

(0.16

)  

Basic and diluted weighted average number of shares of common stock outstanding

  

 

13,353,005

 

 

 

12,101,746

 

 

 

12,234,107

 

 

 

10,711,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

As of June 30,

 

 

As of September 30,

 

 

  

2019

 

 

2018

 

 

2017

 

Consolidated balance sheet data:

  

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

  

$

3,061,430

  

 $

1,806,666

  

 

$          347,327

  

Working capital

  

 

3,303,163

 

 

1,778,849

 

 

 

552,144

  

Total assets

  

 

6,056,516

 

 

2,982,512

 

 

 

1,254,255

  

Total current liabilities

  

 

720,356

 

 

476,067

 

 

 

350,380

  

Loan payable – net of current portion

  

 

263,974

 

 

88,063

 

 

 

133,644

  

Other noncurrent liabilities

  

 

 

 

6,317

 

 

 

9,610

  

Accumulated deficit

  

 

(26,043,919

 

(12,607,722

 

 

(9,030,551

Total stockholders’ equity

  

 

5,072,186

 

 

2,412,065

 

 

 

760,621

 




MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus. Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that  are based on current expectations and involve various risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements. We encourage you to review the information the “Special Note Regarding Forward Looking Statements” and “Risk Factors” sections in this prospectus.

Our unaudited financial statements are stated in United States Dollars (“$”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this prospectus. In this prospectus, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

Corporate Overview

Our Company

We are a specialty coffee company and, we believe, the leading single serve pour over coffee co-packer in the United States. Our mission is leverage our position as a group,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 single serve pour over coffee sales operations in Japan as well as manufacturing and sales operations in Korea. In addition, we plan to opportunistically leverage our strengths and relationships to grow our proprietary NuZee and Coffee Blenders brands in the United States and select international markets.

We believe we are the only commercial-scale producer of single serve drip cup coffee and that we have contractual protections and certain other advantages in place within the North American market, as outlined by the factors described below. As we have with Kraft Heinz, and in particular their Gevalia Kaffe brand, and Royal Cup Coffee & Tea, we intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve drip cup market in North America. We target existing large, high-margin companies and are paid per-package based on the number of single serve pour over drip cups produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for every single serve drip cup our co-packing customers sell in the North American market. While we financially benefit from the success of our manufacturing customers through the sales of their respective single serve drip cup products, we are also able to avoid the risks associated with owning and managing the product and its related inventory.  As these companies gain market acceptance of single serve drip cup coffee in North America, we plan to leverage that market expansion to further grow our own brands.

Our primary focus is the development of single serve pour over coffee 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, such as our recent expansion into the lodging market through our arrangement with Royal Cup Coffee & Tea, and positioning ourselves as the leading commercial-scale co-packer of single serve pour over coffee products. We may also look to co-package other products that are complementary to single serve pour over drip coffee and provides us with a deeper access to our customers, such as tea bag coffee. The competitive landscape for our services and products can be illustrated as follows:




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 present ownersrelated production of 5%the single serve pour over product at both our Vista, California facility and at our production operations in Korea. We plan to carry over this expertise to our recently announced Plano, Texas manufacturing facility, which will serve as our new single serve pour over co-packing hub and corporate headquarters to capture the location’s logistical advantages and lower cost structure.

Our sources of revenue

Co-packing

We operate as a third-party contract packager for the finished goods of other major companies operating in the coffee beverage industry. Under these arrangements, we produce and package coffee products according to our customers’ formulations and specifications. We currently focus on fostering co-packing arrangements with larger companies developing pour over coffee products. For example, we recently entered into co-packing agreements with Kraft Heinz, under their Gevalia Kafee® brand, and Royal Cup Coffee & Tea.

In addition to larger companies, we package for smaller companies that have significant growth potential. For example, we started packaging for Copper Cow in July 2017 and continue to do so today. Copper Cow started with smaller batch, single product SKUs but over the years has meaningfully increased order sizes as well as the number of SKUs. We are continually looking for new exciting companies to work with and grow with like Copper Cow.

A select list of our current co-packing customers include: Gevalia Kafee (Kraft Heinz), Royal Cup Coffee & Tea, Copper Cow Coffee, Alumbre Coffee, C&C Hawaii Coffee, Lion Coffee, Idyllwild Coffee and Virgin Islands Coffee.

NuZee branded products

We have developed products and brands for the primary reason of providing completed finished products to showcase to potential co-packing customers. Our products effectively serve as a sort of “sample” to potential customers that include high quality packaging and coffee. We have received indications of interest from some potential customers in co-packing single serve coffee under the customer’s brand using coffee sourced by us as opposed to the customer providing the coffee, which is how we typically co-pack for customers.

Barista.Our Barista line of products is a high end product line that, in addition to showcasing our production expertise, also includes what we believe to be some of the best coffee available in a single serve application in the world. We plan to sell Barista via traditional retail channels that do not use “pay for placement” distributors. We also have a number of potential co-packing opportunities in which our customers would contract for us to replicate one or more of our total outstanding shares. The table also reflects whatBarista products with their ownership will be assuming completionfoil and packing, providing further evidence of the salehigh-quality nature of all sharesthis line and coffee. We expect the Barista product line to be our flagship products that are both sold directly to consumers and used as a sales tool for co-packing customers. 




Twin Peaks.We currently sell our Twin Peaks single serve pour over coffee exclusively via Amazon, under Amazon’s accelerator program. This program commenced in April of 2019 and we expect that as Amazon and its customers become more familiar with single serve pour over coffee, we will increase our revenue for this offering.product. 

Pine Ranch.Pine Ranch is a tea bag-style coffee that is available in two distinct roasts: a medium roast called “Smooth Blend” and a dark roast called “Bold Blend”. We introduced this product line in the third quarter of 2019.  The stockholder listed below hasbrand is initially being sold to retailers and at wholesale, and we plan to offer it direct ownership of their sharesto consumers in 2020. Pine Ranch is available in  dispense boxes that are suitable for offices and possesses sole voting and dispositive power with respectretail stores. Pine Ranch is also a zero-landfill product that we can showcase to potential co-packing customers as an alternative to the shares.pour over format. We commenced production for our first tea bag style co-packing customer in October 2019. 

 

 

 

Name and Address

Beneficial Owner [1]

 

 

Number of Shares Before the Offering

 

Percentage of Ownership Before the Offering

Number of Shares After Offering Assuming all of the Shares are Sold

Percentage of Ownership After the Offering Assuming all of the Shares are Sold

Haisam Hamie

Edificio Ultramar Plaza.

Apt. #4A 47th Street

Panama City, Panama

4,000,000

100%

4,000,000

50.00%

[1]        The person named above may be deemed to be a "parent" and "promoter" of our company, within the meaning of such terms under the Securities Act of 1933, as amended, by virtue of his/its direct and indirect stock holdings. Mr. Hamie is the only "promoter" of our company.

Future sales by existing stockholderGeographic Concentration

 

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

For the nine months ended June 30, 2019, net revenues attributable to our operations in North America totaled $715,702, compared to $368,321 of net revenues attributable to our operations in North America during the nine months ended June 30, 2018. Additionally, as of June 30, 2019, $1,543,862 of our Property and equipment, net was attributable to our North American operations, compared to $508,711 attributable to our North American operations as of September 30, 2018.

For the nine months ended June 30, 2019, net revenues attributable to our operations in Asia totaled $588,864, compared to $650,528 of net revenues attributable to our operations in Asia during the nine months ended June 30, 2018. Additionally, as of June 30, 2019, $443,889 of our Property and equipment, net was attributable to our Asian operations, compared to $165,682 attributable to our Asian operations as of September 30, 2018.

Results of Operations

Comparison of Nine Months ended June 30, 2019 and 2018

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Nine months ended
June 30,

 

  

Change

 

 

  

2019

 

  

2018

 

  

Dollars

 

  

%

 

Revenue

  

$

1,304,566

  

  

$

1,018,849

  

  

$

285,717

  

  

 

28

For the nine months ended June 30, 2019, our revenue increased by $285,717, or approximately 28%, compared with the nine months ended June 30, 2018. This increase was primarily related to the increase in co-packing revenue from large well-established companies, partially offset by a shift away from sales of single cup pods and lower sales from our Japanese subsidiary.

Cost of sales and gross margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Nine months ended
June 30,

 

 

Change

 

 

  

2019

 

 

2018

 

 

Dollars

 

  

%

 

Cost of sales

  

$

923,903

  

 

$

699,497

  

 

$

224,406

  

  

 

32

Gross margin

  

$

380,663

  

 

$

319,352

  

 

$

61,311

  

  

 

19

Gross margin %

  

 

29

 

 

31

 

 

 

 

  

 

 

 

For the nine months ended June 30, 2019, we earned a total gross profit of 4,000,000$380,663 from sales of our products and co-packing services, compared to total gross profit of $319,352 for the nine months ended June 30, 2018.  The gross margin rate was 29% for the nine months ended June 30, 2019, and 31% for the nine months ended June 30, 2018. This decrease in margin is driven primarily by inefficiencies due to the ramp-up of large co-packing orders for new customers during this period compared to a more established business for single cup pods in the prior period.




Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Nine months ended
June 30,

 

  

Change

 

 

  

2019

 

  

2018

 

  

Dollars

 

 

%

 

Operating Expenses

  

$

13,668,299

  

  

$

2,330,605

  

  

$

11,337,694

 

 

 

486%

 

For the nine months ended June 30, 2019, our operating expenses totaled $13,668,299, compared to $2,330,605 for the nine months ended June 30, 2018, representing a 486% increase. This increase is primarily attributable to an increase in stock compensation expense of $10,202,043 and, to a lesser extent, an increase in employee costs, legal costs and the costs for consultants.

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Nine months ended
June 30,

 

  

Change

 

 

  

2019

 

  

2018

 

  

Dollars

 

  

%

 

Net Loss attributable to NuZee, Inc.

  

$

13,436,197

  

  

$

2,025,712

  

  

$

11,410,485

  

  

 

563

For the nine months ended June 30, 2019, we generated net losses attributable to NuZee, Inc. of $13,436,197 versus $2,025,712 for the nine months ended June 30, 2018. This loss was attributable primarily to increased operating expenses due to greater stock compensation expenses and to a lesser extent higher employee and related costs, legal costs, costs for consultants and lower margin rates, as described in further detail above.

Comparison of Twelve Months ended September 30, 2018 and 2017

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Twelve months ended
September 30,

 

  

Change

 

 

  

2018

 

  

2017

 

  

Dollars

 

  

%

 

Revenue

  

$

1,388,972

  

  

$

1,628,410

  

  

$

(239,438)

  

  

 

(1

5)% 

For the year ended September 30, 2018, our revenue decreased by $239,438, or approximately 15%, compared with the year ended September 30, 2017. This decrease was primarily related to inefficiencies and related increased costs associated with the shift in our focus away from our branded pour over coffee products and towards our co-packing services.

Cost of sales and gross margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Twelve months ended
September 30,

 

 

Change

 

 

  

2018

 

 

2017

 

 

Dollars

 

  

%

 

Cost of sales

  

$

1,321,755

  

 

$

1,319,232

  

 

$

2,523

  

  

 

*

Gross margin

  

$

67,217

  

 

$

309,178

  

 

$

(241,961

)  

  

 

(78

%) 

Gross margin %

  

 

5

 

 

19

 

 

 

 

  

 

 

 

*Less than 1%

For the year ended September 30, 2018, we earned a total gross profit of $67,217 from sales of our products direct to consumers as well as to retailers, wholesalers and distributors, compared to a total gross profit of $309,178 for the year ended September 30, 2017. The gross margin rate was 5% for the twelve months ended September 30, 2018, and 19% for the twelve months ended September 30, 2017. This decrease in margin is driven primarily by inefficiencies associated with the shift in our focus away from our branded pour over coffee products and towards our co-packing services.

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Twelve months ended
September 30,

 

  

Change

 

 

  

2018

 

  

2017

 

  

Dollars

 

 

%

 

Operating Expenses

  

$

3,685,186

  

  

$

2,076,654

  

  

$

1,608,532

 

 

 

77%

 

For the twelve months ended September 30, 2018, our Company’s operating expenses totaled $3,685,186, compared to $2,076,654 for the twelve months ended September 30, 2017, representing a 77% increase. This increase is primarily attributable to an increase in




stock compensation expense of $700,681 and, to a lesser extent, an increase in employee costs, legal costs and the costs for consultants.

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Twelve months ended
September 30,

 

  

Change

 

 

  

2018

 

  

2017

 

  

Dollars

 

  

%

 

Net Loss attributable to NuZee, Inc.

  

$

3,577,171

  

  

$

1,767,139

  

  

$1,810,032

 

  

  

 

102

For the twelve months ended September 30, 2018, we generated net losses attributable to NuZee, Inc. of $3,577,171 versus $1,767,139 for the twelve months ended September 30, 2017. This loss was attributable primarily to increased costs associated with the shift in our focus towards our co-packing services and increased operating expenses due to increased stock compensation expenses, as described in further detail above.

Liquidity and Capital Resources

Since our inception in 2011, we have incurred significant losses, and as of June 30, 2019, we had an accumulated deficit of approximately $26.0 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. In the United States, we expect to incur additional losses as a result of the costs associated with operating as an exchange-listed public company following this offering.

To date, we have funded our operations primarily with proceeds from the private sale of shares of our common stock. Net proceeds from our sales of common stock were issuedand convertible notes total approximately $19.9 million to date.

Our principal use of cash is to fund our operations, which includes the commercialization of our pour over coffee products, the continuation of efforts to improve our products, administrative support of our operations and other working capital requirements.

We believe that the net proceeds of this offering, together with our existing cash balances, will be sufficient to cover our cash needs for at least the next 12-24 months. We may 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. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. 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 sole officerstockholders.

As of June 30, 2019, we had a cash balance of $3,061,430.

Summary of Cash Flows

 

  

Nine Months Ended
June 30,

 

 

Twelve Months Ended
September 30,

 

 

  

2019

 

 

2018

 

 

2018

 

 

2017

 

Cash used in operating activities

  

$

(2,949,569

 

$

(1,828,320

 

$

(2,310,756

)

 

$

(1,397,828

Cash used in investing activities

  

(1,220,333

 

(391,855

 

(550,206

 

(35,297

Cash provided by financing activities

  

$

5,422,065

  

 

2,491,208

  

 

4,336,392

  

 

1,757,830

  

Effect of foreign exchange on cash

  

$

2,601

  

 

$

(2,792

)  

 

$

(16,901

 

$

(17,991

)  

Net increase in cash

 

$

1,254,764

  

 

$

268,241

  

 

$

1,459,339

 

 

$

306,714

 

Operating Activities

We used approximately $2,949,569 and director, all of which are restricted securities, as defined in Rule 144 of the Rules and Regulations of the SEC promulgated under the Securities Act. Under Rule 144, the shares can be publicly sold by affiliates, subject to volume restrictions and restrictions on the manner of sale, commencing six months after their acquisition, provided the Company was not a shell company when the shares were issued or prior thereto.  A shell company is a corporation with no or nominal assets or its assets consist solely$1,828,320 of cash in operating activities during the nine months ended June 30, 2019 and no or nominal operations.  Accordingly, Mr. Hamie,2018, respectively, principally to fund our sole stockholder, may not resell his shares under Rule 144operating losses. We incurred additional net losses of approximately $11,396,014 for the Actnine months ended June 30, 2019 as compared to the nine months ended June 30, 2018.

We used approximately $2,310,756 and $1,397,828 of cash in operating activities during the years ended September 30, 2018 and 2017, respectively, principally to fund our operating loss. The increase in cash used in operating activities of approximately $912,928 was primarily attributable to the increase in net loss of $1,810,032 for the year ended September 30, 2018 as compared to the year ended September 30, 2017.




Investing Activities

We used approximately $1,220,333 and $391,855 of cash in investing activities during the nine months ended June 30, 2019 and 2018, respectively, principally to fund the purchase of equipment.

We used approximately $550,206 and $35,297 of cash in investing activities during the years ended September 30, 2018 and 2017, respectively, principally to fund the purchase of equipment. For the year ended September 30, 2017, we acquired approximately $201,676 of cash as part of a periodbusiness acquisition, partially offset by approximately $50,000 of one year from the date we are no longer a shell company andcash invested in an unconsolidated affiliate.

Financing Activities

Historically, we have filed a Form 8-K withfunded our operations through the SEC and disclosed the information required by Item 5.06 thereof.

            Shares purchased in this offering will be immediately resalable. The resaleissuance of shares could have a depressive effect on the market price should a market develop for our common stock.  There is no assurance a market will ever develop for our common stock.

 

            ThereCash provided from financing activities increased from $2,491,208 during the nine month period ended June 30, 2018 to $5,422,065 during the nine month period ended June 30, 2019. During the nine months ended June 30, 2019, we issued 337,028 shares of common stock which generated net cash proceeds of approximately $5,335,192. During the nine months ended June 30, 2018, we issued 1,043,545 shares of common stock which generated net cash proceeds of approximately $2,528,662.

Cash provided from financing activities increased from $1,757,830 for the year ended September 30, 2017 to $4,336,392 for the year ended September 30, 2018. During the year ended September 30, 2018, we issued 1,602,989 shares of common stock which generated net cash proceeds of approximately $4,542,659. During the year ended September 30, 2017, we issued 344,180 shares of common stock which generated net cash proceeds of approximately $860,045, and sold 588,747 shares of treasury stock which generated net cash proceeds of $900,783.

Off-Balance Sheet Arrangements

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

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”).  This preparation 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.  While there are a number of significant accounting policies affecting our financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

Revenue Recognition

We determine revenue recognition through the following steps in accordance with FASB Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers”, which we adopted as of October 1, 2018 on a modified retrospective basis:

identification of the contract, or contracts, with a customer; 

identification of the performance obligations in the contract; 

determination of the transaction price; 

allocation of the transaction price to the performance obligations in the contract; and 

recognition of revenue when, or as, we satisfy a performance obligation. 

Revenue is no public tradingrecognized 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.




Cost of Sales

The Company records the cost of the materials used in creating the good as well as direct labor cost used to produce the good. The Company also includes write-offs for all past due and unsellable inventories as well as loss on inventory due to obsolescence in cost of sales.

Inventories

Inventories are stated at the lower of cost or net realizable value.  Cost is being measured using the weighted average cost method.  We regularly review whether the realizable value of our inventory is lower than its book value.  If our valuation shows that the realizable value is lower than book value, we take a charge to expense and directly reduce the value of the inventory.

The Company estimates its reserves for inventory obsolescence by examining its inventories on a quarterly basis to determine if there are indicators that the carrying values exceed net realizable value. Indicators that could result in additional inventory write downs include age of inventory, damaged inventory, slow moving products and products at the end of their life cycles.  While management believes that the reserve for obsolete inventory is adequate, significant judgment is involved in determining the adequacy of this reserve.




OUR BUSINESS

Overview

Our Company

We are a specialty coffee company and, we believe, the leading single serve pour over coffee co-packer in the United States. Our mission is 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 single serve pour over coffee sales operations in Japan as well as manufacturing and sales operations in Korea. In addition, we plan to opportunistically leverage our strengths and relationships to grow our proprietary NuZee and Coffee Blenders brands in the United States and select international markets.

We believe we are the only commercial-scale producer of single serve drip cup coffee and that we have contractual protections and certain other advantages in place within the North American market, as outlined by the factors described below. As we have with Kraft Heinz, and in particular their Gevalia Kaffe brand, and Royal Cup Coffee & Tea, we intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve drip cup market in North America. We target existing large, high-margin companies and are paid per-package based on the number of single serve pour over drip cups produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for every single serve drip cup our co-packing customers sell in the North American market. While we financially benefit from the success of our manufacturing customers through the sales of their respective single serve drip cup products, we are also able to avoid the risks associated with owning and managing the product and its related inventory.  As these companies gain market acceptance of single serve drip cup coffee in North America, we plan to leverage that market expansion to further grow our own brands.

We may also consider co-packaging other products that are complementary to single serve pour over drip coffee and provides us with a deeper access to our customers, such as tea bag coffee.

What is single serve pour over coffee?

Single serve pour over coffee, or hand drip coffee, is a traditional and time-honored technique that pours hot water onto ground coffee with a filter. Proponents of drip coffee believe this method makes better coffee. Single serve pour over coffee uses the same technique without a machine, with the coffee flowing straight into a cup using only hot water and the prepacked coffee filter. The image below compares our single serve pour over coffee to other varieties of hot beverages.

Revolutionizing the single serve coffee market in North America

Prior to the success of coffee pods within the last two decades, coffee was primarily consumed at home and via traditional pot-based drip brewers and, to a lesser extent, instant coffee. Pot-based brewers are typically known for good quality coffee that produces multiple cups but not well-suited for single serve alternatives. In recent years with the advent of coffee pods and increased coffee consumption outside the home, the North American market has been focused on speed and convenience. Coffee pods addressed the need for a single serve coffee solution that was viewed as superior to instant coffee.  As coffee consumption has also moved outside the home in recent years, consumer preferences have also changed, leading to greater demand for higher quality coffee alternatives, particularly from younger consumers such as millennials.

Moreover, we believe the typical consumer is increasingly focused on the environmental impact of the product, as well as the taste and quality of the ingredients. We anticipate that pod-based, single serve coffee will face increasing pressure given their heavy reliance on the use of plastics. In our view, consumer preferences in North America have evolved over the last decade to substantially mirror those of Japanese consumers, who have traditionally focused on the taste, eco-footprint and quality of ingredients. Machine-based single serve coffee, which represents approximately 32% of the market in North America, we believe has an immaterial amount of market share in Japan. Single serve drip cups represent approximately 2.5 billion units annually in Japan.

The saturation of coffee pods in the North American market, coupled with changing tastes, provides our single serve drip cups with a substantial market opportunity in North America. Our single serve drip cup solution also has a number of advantages over other single serve coffee alternatives:

Our single serve drip coffee packaging is fully recyclable and does not use any plastics.  The majority of the packaging is paper based and biodegradable, while the foil used to package the filter for freshness is recyclable. 

Our solution is portable and does not require a machine. Therefore, the consumer investment required to try our product is very minimal (as opposed to machine based solutions). Single serve drip cups can easily travel and have a number of consume-later applications not available to machine based solutions (camping, travel, office, etc.). 




We believe single serve drip coffee is more hygienic than other, machine-based single serve alternatives. For example, the use of a machine requires cleaning and maintenance. If not periodically cleaned or if spent pods are not removed timely, the pods can lead to poor taste and bacterial growth. 

Unlike machine-based drip systems, the single serve drip coffee is brandable to the cup level. 

Why NuZee?

We seek to establish ourselves as the leading single serve pour over co-packer of single serve pour over coffee for the North American market, and to expand our own brands as single serve pour over coffee gains market acceptance. We believe that top tier brands that want to compete in the North American single serve pour over coffee market will demand the highest levels of quality from their suppliers. We further believe that, as a result of our exclusivity agreement, Level 2 SQF Certification from the Safe Quality Food Institute, operational knowledge and recently announced co-packing arrangements with Kraft Heinz and Royal Cup Coffee & Tea, we are the leader in the single serve pour over coffee market in North America. As a result, we feel we are well positioned to be the co-packer of choice for companies offering single serve pour over coffee products in the North American market.

We own sophisticated packing equipment developed by East Asian companies for pour over coffee production. We believe these manufacturers are the world leaders for supplying pour over coffee production. We have entered into a written exclusivity agreement with the premier supplier of the type of high-quality packing equipment we use for our products, FUSO Industries Co. Ltd. (“FUSO”), which we believe significantly restricts our North American competitors’ access to this equipment. While our agreement with FUSO provides for a six month cancelation provision, due to the development of our co-packing business over the past several years, we are currently in active negotiations with FUSO as we aim to extend the period of exclusivity and amend our agreement to modify or eliminate the rights to termination. While lower-grade equipment alternatives do exist, availability is extremely limited for the top-grade equipment that generates co-packing products to the exacting specifications we believe large, established companies will demand. For example, the current wait time for the production and delivery of co-packing machinery of the type we use in our Vista, California plant is approximately two years. We understand that as the single serve drip cup gains momentum in the North American market we will face increasing competition. However, we believe we have a significant head start against any new potential commercial manufacturers in that (i) we have an exclusive arrangement with the premier equipment manufacturer, (ii) we have, and continue to develop, manufacturing expertise on increasingly complex and larger orders, (iii) we have experience dealing with companies of all sizes and their specific requirements (from small roasters to international companies) and (iv) we have SQF Level 2 certification.

We received Level 2 SQF Certification from the Safe Quality Food Institute, which is a customary requirement to produce for large multi-national and international companies. Obtaining Level 2 SQF Certification may take more than a year to achieve. We are also certified as fair trade, organic, kosher and halal.

Our primary focus is the development of single serve pour over coffee 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, such as our recent expansion into the lodging market through our arrangement with Royal Cup Coffee & Tea, and positioning ourselves as the leading commercial-scale co-packer of single serve pour over coffee products. We may also look to co-package other products that are complementary to single serve pour over drip coffee and provides us with a deeper access to our customers, such as tea bag coffee. The competitive landscape for our services and products can be illustrated as follows:




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 the single serve pour over product at both our Vista, California facility and at our production operations in Korea. We plan to carry over this expertise to our recently announced Plano, Texas manufacturing facility, which will serve as our new single serve pour over co-packing hub and corporate headquarters to capture the location’s logistical advantages and lower cost structure.

Our sources of revenue

Co-packing

We operate as a third-party contract packager for the finished goods of other major companies operating in the coffee beverage industry. Under these arrangements, we produce and package coffee products according to our customers’ formulations and specifications. We currently focus on fostering co-packing arrangements with larger companies developing pour over coffee products. For example, we recently entered into co-packing agreements with Kraft Heinz, under their Gevalia Kafee® brand, and Royal Cup Coffee & Tea.

In addition to larger companies, we package for smaller companies that have significant growth potential. For example, we started packaging for Copper Cow in July 2017 and continue to do so today. Copper Cow started with smaller batch, single product SKUs but over the years has meaningfully increased order sizes as well as the number of SKUs. We are continually looking for new exciting companies to work with and grow with like Copper Cow.

A select list of our current co-packing customers include: Gevalia Kafee (Kraft Heinz), Royal Cup Coffee & Tea, Copper Cow Coffee, Alumbre Coffee, C&C Hawaii Coffee, Lion Coffee, Idyllwild Coffee and Virgin Islands Coffee.

NuZee branded products

We have developed products and brands for the primary reason of providing completed finished products to showcase to potential co-packing customers. Our products effectively serve as a sort of “sample” to potential customers that include high quality packaging and coffee. We have received indications of interest from some potential customers in co-packing single serve coffee under the customer’s brand using coffee sourced by us as opposed to the customer providing the coffee, which is how we typically co-pack for customers.

Barista.Our Barista line of products is a high end product line that, in addition to showcasing our production expertise, also includes what we believe to be some of the best coffee available in a single serve application in the world. We plan to sell Barista via traditional retail channels that do not use “pay for placement” distributors. We also have a number of potential co-packing opportunities in which our customers would contract for us to replicate one or more of our Barista products with their foil and packing, providing further evidence of the high-quality nature of this line and coffee. We expect the Barista product line to be our flagship products that are both sold directly to consumers and used as a sales tool for co-packing customers. 




Twin Peaks.We currently sell our Twin Peaks single serve pour over coffee exclusively via Amazon, under Amazon’s accelerator program. This program commenced in April of 2019 and we expect that as Amazon and its customers become more familiar with single serve pour over coffee, we will increase our revenue for this product. 

Pine Ranch. Pine Ranch is a tea bag-style coffee that is available in two distinct roasts: a medium roast called “Smooth Blend” and a dark roast called “Bold Blend”. We introduced this product line in the third quarter of 2019.  The brand is initially being sold to retailers and at wholesale, and we plan to offer it direct to consumers in 2020. Pine Ranch is available in  dispense boxes that are suitable for offices and retail stores. Pine Ranch is also a zero-landfill product that we can showcase to potential co-packing customers as an alternative to the pour over format. We commenced production for our first tea bag style co-packing customer in October 2019. 

Our business strategy

We intend to achieve our mission and further grow our business by pursuing the following strategies:

Continually grow our base of large national or international co-packing customers.We have recently announced a co-packing agreement with a large international company. We are in active discussions with a number of similar sized companies. We believe that, as the U.S. market continues to gain awareness of single serve pour over coffee, we will continue to grow our base of large domestic or international co-packing customers. 

Co-pack for smaller scale, rapidly growing, innovative coffee customers and capture their growth over time.In addition to co-packing for large domestic or international customers, we believe that select smaller scale, rapidly growing, innovative co-packing customers provide us with different opportunities versus larger customers. For example, smaller scale customers often possess better social media reach and their marketing campaigns have the ability to “go viral.” We believe by selectively choosing high quality smaller customers, we can benefit from growing market acceptable of single serve pour over coffee. 

Increase our production capacity in response to growing demand for co-packing.We have entered into a lease for our planned manufacturing hub in Plano, Texas. We have started to order equipment, begin the SQF Level 2 certification process and begin other processes to have the facility operational by our second fiscal quarter of the upcoming fiscal year (on or before March 31, 2020). At peak potential capacity, we project the Plano, Texas facility would provide 5 – 6 times the current production capacity of our Vista, California facility. We have started this effort in anticipation of growing demand for co-packing. 

Strategically grow and expand our international operations that are strategic to our vision.We plan to strategically grow our current international operations as well as potentially expand international if this growth or expansion is strategic to our vision. We believe the Korean market, albeit competitive, still has significant growth potential as well as strong market acceptance for coffee and single serve pour overs. As we look at other potential international manufacturing locations, we look for characteristics similar to the Korean and U.S. markets. 

Strategically increase the sales of our proprietary brands.We plan to continue to increase the sales of our proprietary brands without utilizing “pay for placement” distributors. We anticipate our direct sales of our proprietary products will benefit as we increase our co-packing revenues because our co-packing customers will help educate consumers on the benefits of single serve pour coffee. We plan to increase our effort on direct sales methodically and concurrently as we increase co-packing revenues and volume. 

Industry

Coffee consumption is at an all-time high. According to the USDA, global coffee consumption is forecast to reach a record 167.9 million bags in 2019/20 (a bag is equivalent to 60 kilograms). The United States is the country with the highest consumption with 26.8 million bags forecast for 2019/20, up from 23.6 million in 2014/15 (a 2.6 percent compound annual growth rate, or CAGR), according to the UDSA.




Picture 5 

In dollar terms, the global coffee market amounts to US$429.5 billion in 2019, and the market is expected to grow annually by 5.8 percent (CAGR 2019-2023). The United States is the largest market with US$80.9 billion generated in 2019, per a study conducted by Statista.

An estimated 63 percent of American adults drink coffee on a daily basis according to the National Coffee Association, and an increasing number of consumers seem to be seeking bolder and more unique coffee experiences. This is evidenced by more Americans’ gourmet coffee consumption reaching a 60/40 advantage over traditional non-gourmet coffee for the first time in the 69-year history of the National Coffee Association’s annual report on coffee consumption.

The “at home” segment continues to dominate coffee consumption, with 81 percent of volume consumption attributable to the at home market in 2019, representing a 20 percent revenue share. The market share of the at home segment has been relatively constant over the last few years and is expected to maintain a similar share of coffee consumption in 2019-2023, according to Statista.

Picture 1 

Single-serve coffee brewing has grown in popularity in recent years, and single-serve brewing machines were the second most popular brewing system after standard drip coffee makers, with 26 percent of American coffee drinkers using them in 2018, per a Statista study. Additionally, and according to an online survey by the National Coffee Association, 42 percent of US households owned a single-cup coffee brewing machine in 2019, up from 1 percent in 2005 and 15 percent in 2014.




Picture 2 

While consumers have been purchasing single-serve coffee machines to recreate the café style experience at home, there has been an increased focus on environmental sustainability and demand for eco-friendly products. The2019 Retail and Sustainability Survey by CGS showed that more than two-thirds of respondents consider sustainability when making a purchase and are willing to pay more for sustainable products.  In another recent survey of US and UK consumers by Globalwebindex, 42 percent of consumers said that products that have packaging made from recycled products and/or sustainable materials are important in their day-to-day shopping, and more than half said they have reduced the amount of disposable plastic they use in the past 12 months.  Greenpeace USA considered coffee pods as “one of the best examples of unnecessary single-use plastics that are polluting our planet” and the big producers of pods having been seeking eco-friendly alternatives. Sustainability is expected to continue to be a big trend in the coffee pod market, especially as some cities and local governments consider bans on the use of single-use plastic pods (akin to bans on plastic straws and plastic bags) and as consumers become increasingly concerned about throwing used plastic pods in landfills, according to Food Dive.

We believe that many of the prevalent industry trends – the continued consumption and market growth, the prevalence of “at home” consumption, the popularity of single-serve coffee brewing, the increased focus on unique coffee experiences, and consumers’ shift to eco-friendly and sustainable alternatives – will be favorable to our business.

Manufacturing

We lease a primary manufacturing facility in Vista, California located at 2865 Scott St Suite 107 which is used for the production of our Single Serve Pour Over Drip Cup line.  We also recently entered into a five year lease for a new manufacturing hub in Plano, Texas (just outside of Dallas), which we intend to be operational during the fourth calendar quarter of 2019. In Plano, we plan to have up to 20 packing machines (compared with four, expanding to six in Vista, California) and up to 30 employees.We also partner with three third-party manufacturers to manufacture finished products.  We have relationships based on purchase orders in place with suppliers and partners for all components required to deliver a finished NuZee branded product.  In particular, we have entered into exclusivity agreements, both written and oral, with certain East Asian companies regarding sophisticated packing equipment for pour over coffee production, including FUSO. Currently, the Company has not made any long-term commitments to any suppliers or production partners that will burden or impair the Company’s ability to operate, though the Company is in the process of renegotiating certain provisions of our agreement with FUSO, including the term and termination rights.

We purchase Green Whole Bean Coffee from Serengeti Trading Company located in Dripping Springs, TX on a contractual basis.  The green whole bean is then sent to our roaster at San Diego Coffee, Tea, & Spice, located in Oceanside, CA.

For our products that feature nutraceuticals, we send the raw products (roasted ground coffee and nutraceuticals) to Global Health Trax (“GHT”) for mixing into our proprietary blends.   We do not have a written agreement with GHT.   Rather, all services performed by GHT are on a purchase order basis.  After GHT mixes our coffees, the final product is shipped to us for our coffee blenders single serve drip cups and Twin Peaks pour over and boxed for retail sales. We are in the process of evaluating the future of our line of single cup pods. In the past GHT would ship our product to various co-packers we used for our single cup pods.




We have a purchase-order based relationship with Serengeti Trading Company (“Serengeti”), through which we purchase green whole bean coffee from Serengeti. From there, the coffee is sent to a roaster, where the coffee is roasted/ground/blended with nutraceuticals and then packaged into single serve pods and boxed for retail sales.

GHT also ships the blended coffee to our location for packing into our proprietary single serve consumer product, the “Drip Cup”.

We conduct business with multiple vendors of packaging material on a purchase order basis.

Machinery for production at our Vista location comes from some of the most respected vendors in the industry: Air compression equipment comes from Kaeser Compressor, manufactured in Germany with a local sales and support office in Los Angeles. Nitrogen generation equipment is manufactured by On-Site Gas Systems, and our Drip Cup production is produced on the leading Japanese manufacturer of packaging machines from FUSO. Nitrogen and air compression machinery is capable of handling expansion as the Company expands as well to minimize any ongoing capital expenditures for machinery.

Research and Development

We focus our research and development efforts on developing new innovative delicious tasting and functional beverages

Over the course of the last fiscal year we have maintained a modest R&D budget.  With the advent of the functional beverage and new product ideas, we plan to invest more to secure unique flavor and formula profiles but anticipates the out of pocket expense will not be significant as the Company has agreements with flavor and formula design partners to waive development fees in exchange for purchasing the flavorings and ingredients.

Intellectual Property

We currently own the following United States trademarks: “Coffee Blenders”, “It’s Coffee Reimagined”, “Nude Cup”, “Lean Cup”, “Think Cup”, “Relax Cup”, “Active Cup”, and “Twin Peaks”.  The Company intends to continue growing its trademark portfolio in the United States with other related slogans and brands as those products come closer to launch.

The Company further intends to expand its brand protections outside of the United States in line with its prospective international growth.  As of the date of this report, the Company had registered trademarks “Coffee Blenders”, “Nude Cup”, “Lean Cup”, “Think Cup”, “Relax Cup” and “Twin Peaks” in Japan; registered trademarks “Lean Cup”, “Think Cup” and “Twin Peaks” in Korea; and registered trademarks “Lean Cup”, “Think Cup”, “Relax Cup” and “Active Cup” in China.

We intend to aggressively protect, police and assert its intellectual property rights, including product designs, proprietary product research and concepts as well as its trademark portfolio.  Although asserting our rights may result in a substantial cost to the Company, our management strongly believes that the protection of our intellectual property rights is a key component of our operating strategy.  As a result of our continuing R&D efforts, we may decide to seek additional protection, if applicable, relating to its formulas, process know-how and proprietary flavors.

In exiting the Torque energy supplement product businesses we ceased using and abandon our registered TORQ and TORQ WRENCH trademarks acquired from the HydroPouch Corporation.  We also plan to not pursue or contest the use of NuZee as a product brand in association with water and skincare products as we are in the process of or have exited those businesses.

International operations

Japan

The Japanese market for single serve pour over coffee is mature and as such, we only have a sales operation in Japan that primarily sells single serve drip coffee via the JP Post catalog under the brand of Castillian Coffee. The JP Post catalog is traditional means of marketing via a physical catalog that is still very effective in Japan. We established our common stock. Japanese subsidiary in 2016. Castillian Coffee is one of the best-selling coffee brands on the JP Post catalog.

Korea

We established our Korean subsidiary in 2018. Our Korean subsidiary is in the early stages of business development of attracting potential customers for co-packing. We are one of many producers of single serve pour over coffee products in Korea and do not have any exclusive rights for this region. Our strategy is to leverage our Korean team’s business relationships to secure large co-packing agreements for the markets in Korea,  China and other Asian countries. We believe that our Korean subsidiary will be able to secure meaningful co-packing customers beginning in our 2020 fiscal year.




Competition

The beverage industry in general, and the coffee sector in particular, is extremely competitive.  The principal areas of competition include pricing, packaging, development of new products and flavors, and marketing campaigns.  Our Coffee Blenders product is competing directly with Green Mountain brands and licensed brands as well as 3rd party single pour over coffees.  Green Mountain brands have enjoyed broad, well-established national distribution through well-funded advertising, and product awareness. In addition, companies and brands manufacturing these products generally have far greater financial, marketing, and distribution resources than we do.

Important factors that will affect our ability to compete successfully include taste and functional delivery of our product, trade and consumer promotions, the development of new, unique functions in new and various packaging formats, attractive and unique promotions, branded product advertising, pricing, and the success of our distribution network.

We will also be competing to secure distributors who will agree to market our product over those of our competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets and search placement in online stores.

Our Coffee Blenders products will compete generally with all hot liquid refreshments, including specialty coffees and teas as well as nutraceutical beverages such as BulletProof Coffee, Green Mountain Wellness Coffee, Organo Gold Herbal Coffee, Nuvia Trim Coffee, South Beach Java, Javita, and NatureGift Instant Coffee.  As a result, we continue to look for significant niche markets where our close attention to customer requirements and superior performance are valued.

Our corporate structure

We have three international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”), NuZee JAPAN Co., Ltd (“NuZee JP”) and NuZee Investment Co., Ltd. (“NuZee INV”).NuZee KR and NuZee INV are wholly owned subsidiaries of the Company, and NuZee JP is a majority owned subsidiary of the Company.

Employees

As of September 30, 2019, we had a total of 19 full-time and part-time employees in the U.S. and five employees in Korea and three employees in Japan.

Our operations are overseen directly by management that engages our employees to carry on our business.  Our management oversees all responsibilities in the areas of corporate administration, product development, marketing, and research.  We intend to expand our current management to retain other skilled directors, officers, and employees with experience relevant to our business focus.  Our management’s relationships will provide the foundation through which we expect to grow our business in the future.  We believe that the skill-set of our core management team will be a primary asset in the development of our brands and trademarks.

We have never had a work stoppage, and none of our employees are represented by a labor organization or under any collective bargaining arrangements. We believe our relationships with our employees are good.

Governmental regulation

Our Coffee Blenders products are marketed and sold as conventional food or beverages for regulatory purposes.  Such products are regulated by the FDA.  Ingredients in such products must be approved food additives or “Generally Regarded as Safe”.  We intend to work with ingredient suppliers, manufacturers, and other trade partners that are compliant with the laws and regulation enforced by the FDA.  We have not received, nor are we aware of, any inquiries or other regulatory action from the FDA or any other governmental agency regarding our products and we believe we are in full compliance with all FDA regulations.

The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our products are subject to the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the Lanham Act, state consumer protection laws, competition laws, federal, state and local workplace health and safety laws, various federal, state and local environmental protection laws, and various other federal, state and local statutes and regulations.




Legal Proceedings; Product Liability

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. Currently, we are not a party to any material legal proceedings or subject to any material claims. 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.

Available Information

Our annual and quarterly reports, along with all other reports and amendments filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our website at www.mynuzee.com as soon as reasonably practicable after these materials are filed with or furnished to the SEC.  Our corporate governance policies, ethics code and board of directors’ committee charters are posted under the Investor Relations section of the website.  The information on our website is not part of this prospectus or any report we file with, or furnish to, the SEC.  The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.




MANAGEMENT

The following table sets forth the names, ages and positions of our executive officers, key employees and directors as of the date of this prospectus.

Name

Age

Position

Masateru Higashida

47

Chief Executive Officer, Secretary, Treasurer and Director (Chairman)

Travis Gorney

38

President and Chief Operating Officer

Shanoop Kothari(3)

46

Senior Vice President, Chief Financial Officer and Director

Kevin J. Conner(1)(3)

57

Director

J. Chris Jones(1)(2)(3)

64

Director

Allen S. Morton(1)(2)

68

Director

_______________

(1)Member of the audit committee.

(2)Member of the compensation committee.

(3)Member of the nominating and corporate governance committee.

Executive Officers

Masateru Higashida. Mr. Higashida has served as the Chief Executive Officer, Secretary, and Treasurer of the Company since October 2014, and as Chairman of the Board since April 2013. He previously also held the position of President of the Company from October 2014 until August 2017, and CFO from August 2014 until February 2019. Mr. Higashida previously founded multiple companies, including a Singapore-based investment company, and began his career in the financial industry in Nagoya, Japan.

Travis Gorney. Mr. Gorney has served as our President and COO since September 2017. He had previously served the Company as Senior VP of Sales and Marketing from January 2017 to August 2017 and as VP of Sales and Supply Chain Management from February 2016 to January 2017. Mr. Gorney became a full-time employee of the Company in April 2013, following two years of consulting for Mr. Higashida on a project concerning bottled spring water from New Zealand as well as a line of certified organic beauty products. From 2008 through the present, Mr. Gorney has acted as President and CEO of Left Coast Threads, Inc., a company that operates retail clothing stores. Previously, in 2004, Mr. Gorney formed Point Blank Beverage, Inc. where, as President and CEO, he developed a premium energy drink by the name of Torque. Mr. Gorney began his career in the beverage industry as national sales manager for a start-up independent energy beverage company named Rollin X, LLC, where he worked from 2002 until 2004.

Shanoop Kothari. Mr. Kothari has served as our Senior Vice President and Chief Financial Officer since March 2019 and has served on our Board since October 22, 2019. Prior to joining the Company, Mr. Kothari was Managing Director at B. Riley FBR, Inc.  (“FBR”) since 2014 and has been involved in providing a wide range of financial services to FBR’s oil and gas clients.  Before joining FBR, Mr. Kothari worked in the oil & gas industry as the CFO of a private refinery that was a joint venture with a small private equity firm and HollyFrontier, at Credit Suisse in energy investment banking, in finance for a publicly traded software company as well as in public accounting with Price Waterhouse. Mr. Kothari has 20+ years of accounting, finance and capital markets experience within organizations ranging from a handful of employees to multi-national organizations with tens of thousands of employees. Mr. Kothari holds a BA (Honors) in Accounting from Southern Methodist University and an MBA (High Honors) from Rice University. Mr. Kothari is also a licensed CPA / CIA and possesses Series 7 / 24 licenses.

Directors

Kevin J. Conner. Mr. Conner has served on our Board since October 22, 2019. Mr. Conner is currently Managing Director of Conner & Associates, a restructuring & turnaround servicing firm he founded in 1991. Mr. Conner has held senior management and board seats of public & private companies along with being the Chair of the Conner & Associates’ SEC audit practice. Mr. Conner is frequently retained as a qualified expert witness in matters before both Federal and State courts, including both corporate governance and general business matters. Mr. Conner holds an MS in Taxation from Philadelphia University and a BS in Accounting from West Chester University of Pennsylvania along with being licensed to practice as a CPA in the State of New York and the Commonwealth of Pennsylvania.

J. Chris Jones. Mr. Jones has served on our Board since October 22, 2019. Mr. Jones currently serves as the Managing Director of Haddington Ventures, LLC, a venture fund manager and advisor Mr. Jones co-founded in 1998, where he focuses on acquisitions, financing and administrative issues of portfolio companies. While at Haddington, Mr. Jones has served on over 12 boards of directors of portfolio companies, including multiple companies that were ultimately acquired by publicly traded companies, such as Lodi Gas Storage, which was sold to Buckeye Partners, and Bear Paw Energy, which was sold to Northern Border Partners. Prior to the formation of Haddington, Mr. Jones served as Vice President and Chief Financial Officer of Tejas Power Corporation (“TPC”), a




publicly traded company, from 1985 until his appointment as Senior Vice President and Chief Operating Officer in 1995.  He also served as a Director of Market Hub Partners, L.P., TPC’s natural gas storage joint venture with Dayton Power & Light, New Jersey Resources, NIPSCO and Public Service Electric and Gas. Prior to his association with TPC, Mr. Jones served as Secretary/Treasurer, and later Chief Financial Officer of The Fisk Group, Inc., a U.S. and international electrical contracting subsidiary of Amec p.l.c., a publicly traded U.K. company.  He was employed with The Fisk Group from 1979 to 1985.  Mr. Jones began his professional career with the auditing firm Price Waterhouse in Houston, Texas in 1977.  He received his BBA degree in Accounting from the University of Texas at Austin in 1977.

Allen S. Morton. Mr. Morton has served on our Board since October 22, 2019. Mr. Morton is presently retired. From April 2013 to September 2018, Mr. Morton served as the Senior Managing Director, Head of Energy and Natural Resources Group of B. Riley FBR, Inc. From July 2013 until January 2014, he served as a director at Aly Energy Services, Inc., prior to which he served in multiple roles, including Managing Director, at RBC Capital Markets from March 2001 until June 2012. Mr. Morton received a BA in economics from Williams College and an MBA from New York University.

Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics that is applicable to NuZee, Inc. and to all our directors and officers and persons performing similar functions, including our principal executive officer and principal financial officer. A copy of the Company’s Code of Ethics may be obtained on our website at mynuzee.com/code-of-business-ethics/. We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above. The inclusion of our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

Board Leadership Structure and Role in Risk Oversight

Mr. Masateru Higashida is the chairman of the Board and our Chief Executive Officer. We believe that the Chief Executive Officer is best situated to serve as chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having a single leader eliminates the potential for confusion and provides clear leadership for the Company. We believe that this leadership structure has served the Company well. Our Board has overall responsibility for risk oversight. The Board has delegated responsibility for the oversight of specific risks to Board committees as follows:

The Audit Committee oversees our risk policies and processes relating to the financial statements and financial reporting processes, as well as key credit risks, liquidity risks, market risks and compliance, and the guidelines, policies and processes for monitoring and mitigating those risks. 

The Compensation Committee oversees the compensation of our chief executive officer and our other executive officers and reviews our overall compensation policies for employees. 

The Nominating Committee oversees risks related to our governance structure and processes. 

Director Independence

We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the Board be independent. However, our Board has undertaken a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board has determined that Messrs. Conner, Jones and Morton, representing three of our five directors, are “independent directors” as defined under SEC rules. Messrs. Higashida and Kothari are not considered independent due to their service as executive officers of the Company.

Committees of the Board of Directors

Our Board has established an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our Board is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.

Audit Committee

Our audit committee is composed of Messrs. Conner, Jones and Morton. Mr. Conner serves as the chairperson of our audit committee.  Our Board has determined that each member of our audit committee meets the requirements for independence and




financial literacy under the applicable rules and regulations of the SEC. Our Board has also determined that Mr. Conner is an “audit committee financial expert” as defined in the rules of the SEC and has the financial sophistication typically required under the listing standards of a national securities exchange. The responsibilities of our audit committee will include, among other things:

selecting and hiring the independent registered public accounting firm to audit our financial statements; 

overseeing the performance of the independent registered public accounting firm and taking those actions as it deems necessary to satisfy itself that the accountants are independent of management; 

reviewing financial statements and discussing with management and the independent registered public accounting firm our annual audited and quarterly financial statements, the results of the independent audit and the quarterly reviews, and the reports and certifications regarding internal control over financial reporting and disclosure controls; 

preparing the audit committee report that the SEC requires to be included in our annual proxy statement; 

reviewing the adequacy and effectiveness of our internal controls and disclosure controls and procedures; 

overseeing our policies on risk assessment and risk management; 

reviewing related party transactions; and 

approving or, as required, pre-approving, all audit and all permissible non-audit services and fees to be performed by the independent registered public accounting firm. 

Our audit committee will operate under a written charter, to be effective prior to the completion of this offering, which satisfies the applicable rules and regulations of the SEC.

Compensation Committee

Our compensation committee is composed of Messrs. Jones and Morton. Mr. Morton serves as the chairperson of our compensation committee. Our Board has determined that each member of our compensation committee meets the requirements for independence under the applicable rules and regulations of the SEC. Each member of the compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. The purpose of our compensation committee will be to oversee our compensation policies, plans and benefit programs and to discharge the responsibilities of our Board relating to compensation of our executive officers. The responsibilities of our compensation committee will include, among other things:

reviewing and approving or recommending to the Board for approval compensation of our executive officers and directors; 

overseeing our overall compensation philosophy and compensation policies, plans and benefit programs for service providers, including our executive officers; 

reviewing, approving and making recommendations to our Board regarding incentive compensation and equity plans; and 

administering our equity compensation plans. 

Our compensation committee will operate under a written charter, to be effective prior to the completion of this offering, which satisfies the applicable rules and regulations of the SEC.

Corporate Governance and Nominating Committee

The corporate governance and nominating committee is composed of Messrs. Conner, Jones and Morton. Mr. Jones serves as chairperson of our corporate governance and nominating committee. Our Board has determined that all members of our nominating and corporate governance committee meet the requirements for independence under the applicable rules and regulations of the SEC. The responsibilities of our nominating and corporate governance committee will include, among other things:

identifying, evaluating and selecting, or making recommendations to our Board regarding, nominees for election to our Board and its committees; 

evaluating the performance of our Board and of individual directors; 

considering and making recommendations to our Board regarding the composition of our Board and its committees; and 

developing and making recommendations to our Board regarding corporate governance guidelines and matters. 




Our nominating and corporate governance committee will operate under a written charter, to be effective prior to the completion of this offering, which satisfies the applicable rules and regulations of the SEC.




EXECUTIVE AND DIRECTOR COMPENSATION

Our named executive officers for the year ended September 30, 2019, consisting of our principal executive officer and the next two most highly compensated executive officers, were:

Masateru Higashida, Chief Executive Officer, Secretary, and Treasurer; 

Travis Gorney, President and ChiefOperatingOfficer; and 

Shanoop Kothari, Senior Vice President and Chief Financial Officer. 

Summary Compensation Table

The following table provides information regarding the compensation of our named executive officers during the years ended September 30, 2019 and September 30, 2018. 

Name and Principal Position

Year

 

Salary
($)

 

Bonus
($)

 

Option
Awards
($)(4)

 

Total
($)

Masateru Higashida(1)

2019

 

180,000

 

120,000

 

0

 

300,000

CEO, Secretary, Treasurer

2018

 

180,000

 

67,500

 

0

 

247,500

Travis Gorney(2)

2019

 

120,000

 

40,000

 

0

 

160,000

President, COO

2018

 

120,000

 

48,835

 

0

 

168,835

Shanoop Kothari(3)

2019

 

125,337

 

0

 

0

 

125,337

Senior VP and CFO

 

 

 

 

 

 

 

 

 

(1) Masateru Higashida was appointed as the Company’s President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and Chief Operating Officer (“COO”) on August 19, 2014.  Mr. Higashida resigned as the Company’s President and COO on August 28, 2017, and he was no longer acting as CFO as of February 12, 2019.

(2)Travis Gorney was appointed as the Company’s President & Chief Operating Officer effective as of September 1, 2017.

(3)Shanoop Kothari was appointed as the Company’s Senior Vice President and Chief Financial Officer effective as of February 12, 2019.

(4)Amounts listed in this column represent the aggregate fair value of the awards computed as of the grant date of each award in accordance with Financial Accounting Standards Board Accounting Standards Codification No. 718, Compensation-Stock Compensation, or FASB ASC Topic 718, rather than amounts paid to or realized by the named individual. See the notes to our consolidated financial statements for a discussion of assumptions made in determining the grant date fair value and compensation expense of our stock options. These amounts do not necessarily correspond to the actual value that the named executive officers may realize upon exercise.

Narrative to Summary Compensation Table

There are no outstandingarrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.  Our directors and executive officers may receive stock options at the discretion of our board of directors in the future.  We do not have any material bonus or warrantsprofit sharing plans pursuant to purchase,which cash or securitiesnon-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time.  We have no plans or arrangements in respect of remuneration received or that may be convertiblereceived by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

Outstanding Equity Awards at Fiscal Year End

The following table sets forth information regarding outstanding equity awards held by our named executive officers as of September 30, 2019:




 

 

 

Option Awards

Name and Principal Position

Grant Date

 

Number of Securities Underlying Unexercised Options Exercisable
(#)

 

Number of Securities Underlying Unexercised Options Unexercisable
(#)

 

Option
Exercise Price
($)

 

Option Expiration Date

Masateru Higashida

07/20/2017

 

202,667

 

304,000(1)

 

1.68

 

07/20/2027

Travis Gorney

06/30/2015

 

32,667

 

 

1.80

 

02/23/2026

 

02/01/2016

 

16,000

 

 

1.80

 

02/01/2026

 

07/11/2016

 

 

106,667(2)

 

2.64

 

07/11/2026

 

01/01/2017

 

8,000

 

 

1.53

 

01/01/2027

Shanoop Kothari

04/01/2019

 

 

200,000(3)

 

19.50

 

04/01/2029

(1) The options are subject to vesting over five years from the date of the grant, with 20% becoming exercisable on each anniversary of the date of the grant.

(2) The options vest in their entirety on December 31, 2021.

(3)  The options vest, subject to Mr. Kothari’s continued employment, as follows: (a) 33,333 options vest upon the Company’s completion of sales of $15 million of its equity securities in capital raising transactions on or before December 31, 2019; (b) 16,667 options vest upon the Company’s completion of sales of $2 million of its equity securities in capital raising transactions to U.S. investors on or before December 31, 2019; (c) 16,667 options vest upon the Company’s completion of a strategic acquisition of a business with a purchase price of not less than $25 million; and (d) 133,333 options vest upon the Company’s listing on any tier of the Nasdaq Stock Market on or before December 31, 2020.

Executive Employment Arrangements

Agreement with Mr. Higashida

On August 15, 2017, we entered into an Executive Employment Agreement with Mr. Higashida setting forth the terms of his employment. Pursuant to the agreement, Mr. Higashida serves as our common stock. ThereChief Executive Officer, Treasurer and Secretary and as a member of the Board.

Pursuant to the agreement, Mr. Higashida is entitled to an annual base salary, currently set at $180,000, and an annual bonus opportunity in an amount determined each year by the Board of Directors. The payment of the annual bonus is determined by our Board of Directors based upon our achievement of goals and objectives for the relevant year. For Mr. Higashida’s salary and bonus information for 2019, see “— Summary Compensation Table.” Mr. Higashida is also eligible to participate in any equity compensation plan of the Company, including the 2013 Plan and the 2019 Plan, and to receive future equity awards at the Board’s discretion. For awards outstanding as of September 30, 2019, see “— Outstanding Equity Awards at Fiscal Year-End.” Mr. Higashida also participates in all of our employee benefit programs for which he is eligible and receives reimbursement for his reasonable business expenses, including travel expenses.

Pursuant to his employment agreement with us, if Mr. Higashida resigns for “good reason” or his employment is terminated by us without “cause,” each as defined in the agreement, Mr. Higashida is entitled to receive payment equal to (i) his accrued but unpaid salary for the period through the date of his resignation or termination, plus (ii) an amount equal to one holderand one-half times his annual base salary, plus (iii) an amount equal to one and one-half times the amount of recordbonus he received during the previous calendar year, plus (iv) reimbursement for premiums paid to continue Mr. Higashida’s health, dental and vision insurance pursuant to the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”) until the of earlier of 18 months or the date on which Mr. Higashida becomes eligible to participate in a group medical plan sponsored by any other employer. For purposes of Mr. Higashida’s agreement, “good reason” means (a) the material breach by the Company of any of its obligations under the agreement, (b) the change of Mr. Higashida’s office, title or responsibilities, or any action by us resulting in the material diminution of Mr. Higashida’s position, duties or authorities, or (c) the relocation of our common stock. The record holderprincipal executive offices or the requirement that Mr. Higashida relocate anywhere outside of San Diego County, California, in each case without Mr. Higashida’s written consent, and “cause” means Mr. Higashida’s (x) gross negligence, gross neglect or willful misconduct in the performance of his duties resulting in a material adverse effect on us, (y) conviction for, deferred adjudication of or plea of no contest to a felony, or (z) material breach of any material provision of the agreement.

Also under the agreement, if within 12 months following a change in control of the Company Mr. Higashida resigns for “good reason” or his employment is terminated by us without “cause,” Mr. Higashida is entitled to receive payment equal to (i) his accrued but unpaid salary for the period through the date of his resignation or termination, plus (ii) the value of any accrued and unused paid time off, plus (iii) an amount equal to two times the amount of bonus he received during the previous calendar year, plus (iv) reimbursement for premiums paid to continue Mr. Higashida’s health, dental and vision insurance pursuant to COBRA until the of earlier of 18 months or the date on which Mr. Higashida becomes eligible to participate in a group medical plan sponsored by any other employer.




If Mr. Higashida dies during the term of the agreement, Mr. Higashida’s estate is entitled to receive payment equal to (i) Mr. Higashida’s accrued but unpaid salary for the period through the date of his death, plus (ii) the value of any accrued and unused paid time off, plus (iii) a salary continuance for 12 months.

If Mr. Higashida becomes incapable of performing the duties and services required of him under the agreement on a full-time basis due to accident, physical or mental illness, or other circumstance which renders him mentally or physically incapable, we may terminate Mr. Higashida’s employment for such disability. In such event, Mr. Higashida is entitled to receive the same payment as he would if he were terminated without cause as described above.

Agreement with Mr. Gorney

On August 15, 2017, we entered into an Employment Agreement with Mr. Gorney setting forth the terms of his employment. Pursuant to the agreement, Mr. Gorney serves as our sole officerPresident and director, who own 4,000,000 restrictedChief Operating Officer.

Pursuant to the agreement, Mr. Gorney is entitled to an annual base salary, currently set at $120,000, and a quarterly bonus opportunity based on us achieving target adjusted gross sales for the preceding quarter, in an amount determined by the Board of Directors for each applicable quarter. Mr. Gorney is also eligible for an annual bonus opportunity in an amount determined each year by the Board of Directors based on a percentage of the Company’s net profits. For Mr. Gorney’s salary and bonus information for 2019, see “— Summary Compensation Table.”

Under the agreement, Mr. Gorney is also eligible to participate in any equity compensation plan of the Company, including the 2013 Plan and the 2019 Plan, and to receive future equity awards at the Board’s discretion. For awards outstanding as of September 30, 2019, see “— Outstanding Equity Awards at Fiscal Year-End.” Mr. Gorney also receives 10 days of paid vacation per year under the agreement and reimbursement for his pre-approved business expenses, including travel expense. Mr. Gorney is further eligible for any additional benefits available to our employees, including health and profit sharing plans or other benefits.

In the event Mr. Gorney’s employment is terminated, regardless of whether such termination is for cause or otherwise, Mr. Gorney is entitled to receive his accrued but unpaid salary for the period through the effective date of his termination, plus any appropriate benefits mandated by COBRA.

Agreement with Mr. Kothari

On March 31, 2019, we entered into an Employment Agreement with Mr. Kothari setting forth the terms of his employment. Pursuant to the agreement, Mr. Kothari serves as our Senior Vice President and Chief Financial Officer.

Pursuant to the agreement, Mr. Kothari is entitled to an annual base salary, currently set at $225,000, and an annual bonus opportunity based on us achieving certain performance milestones established by the Chief Executive Officer and President, in an amount up to $75,000.  For Mr. Kothari’s salary and bonus information for 2019, see “— Summary Compensation Table.”

Under the agreement, Mr. Kothari received options to purchase 200,000 shares of our common stock that vest as follows: (a) 33,333 options vest upon the Company’s completion of sales of $15 million of its equity securities in capital raising transactions on or before December 31, 2019; (b) 16,667 options vest upon the Company’s completion of sales of $2 million of its equity securities in capital raising transactions to U.S. investors on or before December 31, 2019; (c) 16,667 options vest upon the Company’s completion of a strategic acquisition of a business with a purchase price of not less than $25 million; and (d) 133,333 options vest upon the Company’s listing on any tier of the Nasdaq Stock Market on or before December 31, 2020. Mr. Kothari is also eligible to participate in any equity compensation plan of the Company, including the 2013 Plan and the 2019 Plan, and to receive future equity awards at the Board’s discretion. For awards outstanding as of September 30, 2019, see “— Outstanding Equity Awards at Fiscal Year-End.” Mr. Kothari also receives 10 days of paid vacation per year under the agreement and reimbursement for his pre-approved business expenses, including travel expense. Mr. Kothari is further eligible for any additional benefits available to our employees, including health and profit sharing plans or other benefits.

In the event Mr. Kothari’s employment is terminated, regardless of whether such termination is for cause or otherwise, Mr. Kothari is entitled to receive his accrued but unpaid salary for the period through the effective date of his termination, plus any appropriate benefits mandated by COBRA.

Director Compensation

We did not pay cash or any other compensation to our directors during the years ended September 30, 2019 and 2018. Other than as set forth elsewhere in this section, we do not have any agreements for compensating our directors for their services in their capacity as




directors, although such directors are expected in the future to receive stock options to purchase shares of our common stock as awarded by our Board.

Non-Employee Director Compensation Policy

We intend to compensate our non-employee Board members at a rate of $2,000 per month plus an additional $3,000 per meeting attended in person beginning November 2019, subject to Board approval. We have agreed to reimburse Board members for any reasonable expenses incurred by them in connection with any travel requested by and on behalf of our Company.

Equity Incentive Plans

NuZee, Inc. 2013Stock Incentive Plan

On November 11, 2013, our Board adopted the 2013 Plan for the purposes of promoting the long-term success of the Company and the creation of stockholder value by (a) enhancing the Company’s ability to attract and retain the services of qualified employees, officers, directors, consultants and other service providers, and (b) providing additional incentives for such persons to devote their utmost effort and skill to the advancement and betterment of the Company by providing an opportunity to participate in the ownership of the Company. The 2013 Plan provides for the grant of stock options, restricted share awards, and stock appreciation rights. This summary is qualified in its entirety by the detailed provisions of the 2013 Plan, which is filed as an exhibit hereto.

Administration

The 2013 Plan shall be administered by the Board or a committee consisting exclusively of two or more directors of the Company, who shall be appointed by the Board. The Board may also delegate to an officer of the Company the authority to designate recipients of awards under the 2013 Plan, and the amount of such awards, subject to parameters established by the Board. The Board or a committee thereof will have the authority to interpret the 2013 Plan, grant stock options, restricted share awards and stock appreciation rights, and make all other determinations necessary or advisable for the administration thereof.

Eligibility

Employees of the Company (or certain entities affiliated with the Company) are eligible to receive incentive stock options (as such term is defined in Section 422 of the Code) under the 2013 Plan. Employees of the Company (or certain entities affiliated with the Company), directors, consultants providing services to the Company, certain entities affiliated with the Company, or business ventures in which the Company or its affiliate has a significant ownership interest, are eligible to receive stock options that do not qualify as incentive stock options, restricted stock awards, and stock appreciation rights under the 2013 Plan.

Shares Reserved for Issuance under the 2013 Plan

We have reserved 3,333,334 shares of common stock for issuance under the 2013 Plan, of which 1,544,333 shares remain available for future issuance.

Term, Termination, and Amendments

Unless previously terminated, the 2013 Plan will terminate 10 years after the its adoption by the Board, except that awards that are granted under the 2013 Plan prior to its termination will continue to be administered under the 2013 Plan in accordance with their respective terms.

The Board may amend, alter, suspend or terminate the 2013 Plan from time to time. However, the 2019 Plan may not be amended, altered, suspended or terminated in any manner that substantially affects or impairs the rights of any recipient of an outstanding award under the 2013 Plan without such recipient’s consent.

Types of Awards

The 2013 Plan authorizes the issuance of stock options, restricted share awards and stock appreciation rights.

Additional Provisions

No benefit available under the 2013 Plan may be assigned, or award of options or stock appreciation rights assigned, transferred or otherwise disposed of, except in accordance with the laws of decent and distribution or, in the case of stock options, pursuant to a domestic relations order, without the consent of the administrator of the 2013 Plan.  Notwithstanding the foregoing, the administrator




may grant awards, other than incentive stock options, that are transferable by the participant during his or her lifetime, but only to the extent specifically provided in the award agreement entered into with such participant.

Tax Withholding

The Company has the power to withhold, or require a participant in the 2013 Plan to remit to the Company, an amount sufficient to satisfy any Federal, state, or local tax withholding requirements with respect to any award granted under the 2013 Plan. The administrator of the 2013 Plan may, to the extent permissible under applicable laws, permit a participant to satisfy any such obligation to pay taxes by (a) directing the Company to apply to such amounts any shares of common stock to which the recipient is entitled as a result of the exercise or vesting of an award granted under the 2013 Plan, (b) delivering to the Company shares of common stock already owned by the participant.

NuZee, Inc. 2019 Stock Incentive Plan

On September 18, 2019, our Board adopted the 2019 Plan for the purposes of promoting the long-term success of the Company and the creation of stockholder value by (a) encouraging employees, directors and consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of employees, directors and consultants with exceptional qualifications and (c) linking employees, directors and consultants directly to stockholder interests through increased stock ownership. Our stockholders approved the adoption of the 2019 Plan on October 22, 2019. The 2019 Plan provides for the grant of stock options and restricted shares. This summary is qualified in its entirety by the detailed provisions of the 2019 Plan, which is filed as an exhibit hereto.

Administration

The 2019 Plan shall be administered by a committee consisting exclusively of two or more directors of the Company, who shall be appointed by the Board. In addition, the composition of the committee shall satisfy such requirements as the SEC may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act and any other applicable law.  The Board will have the authority to construe and interpret the 2019 Plan, grant stock options and restricted share awards and make all other determinations necessary or advisable for the administration thereof. The Board may also delegate to a separate committee the administration of the 2019 Plan with respect to employees and consultants who are not considered officers of the Company, including the authority to grant and administer Awards to such employees and consultants.

Eligibility

Persons eligible to participate include employees, directors and consultants of the Company and its parent and subsidiary entities.

Shares Reserved for Issuance under the 2019 Plan

We have reserved 3,333,334 shares of common stock for issuance under the 2019 Plan, representing 3.3% of the Company’s authorized shares of common stock.

 

Term, Termination, and Amendments

40

Unless previously terminated, the 2019 Plan will terminate 10 years after the its adoption by the Board, except that awards that are granted under the 2019 Plan prior to its termination will continue to be administered under the terms of the 2019 Plan until the awards terminate, expire or are exercised.

The Board may amend, alter, suspend or terminate the 2019 Plan from time to time; provided, however, stockholder approval shall be required for any amendment to the extent necessary and desirable to comply with applicable laws. Additionally, the 2019 Plan may not be amended, altered, suspended or terminated in any manner that would impair the rights of any participant in the 2019 Plan without the written agreement of such participant.

Types of Awards

The 2019 Plan authorizes the issuance of stock options and restricted share awards.

Additional Provisions

No award or other right or interest of a participant under the 2019 Plan may be assigned or transferred for any reason during the participant’s lifetime, other than to the Company or any subsidiary or affiliate, and any attempt to do so shall be void and the relevant award shall be forfeited. Notwithstanding the foregoing, the administrator may grant awards, other than incentive stock options, that




are transferable by the participant during his or her lifetime, but only to the extent specifically provided in the award agreement entered into with such participant. No incentive stock option shall be transferable other than by will or the laws of descent and distribution.

Tax Withholding

The Company has the right to deduct or withhold from any payment owed to a participant an amount that is necessary in order to satisfy any amount required to be withheld under U.S. federal, state, local, foreign or other tax law as a result of the issuance of, or lapse of restrictions on, such common stock pursuant to an award, or otherwise require such participant to make provision for payment of any such withholding amount.  Subject to such conditions as may be established by the administrator, the administrator may permit a participant to (i) have common stock otherwise issuable under an award withheld to the extent necessary to comply with minimum statutory withholding rate requirements; (ii) tender back to the Company shares of common stock received pursuant to an award to the extent necessary to comply with minimum statutory withholding rate requirements for supplemental income; (iii) deliver to the Company previously acquired common stock; or (iv) have funds withheld from payments of wages, salary or other cash compensation due the participant.




CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In addition to the director and executive officer compensation arrangements discussed above in the sections titled “Management” and “Executive Compensation” the following is a description of each transaction since September 30, 2017, and each currently proposed transaction in which:

we have been or are to be a participant; 

the amount involved exceeded or will exceed the lesser of (i) $120,000 or (ii) 1% of the average of the Company’s total assets at year end for the last two completed fiscal years; and 

any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals or entities, had or will have a direct or indirect material interest. 

Mark Gorney, the father of Travis Gorney, our President and COO, is an hourly employee of the Company, and he received approximately $27,000 in compensation for his services during the year ended September 30, 2019. On April 1, 2019, Mark Gorney was also granted options to purchase 5,000 shares of our common stock at an exercise price of $19.50, which vest in four equal annual installments beginning on April 1, 2020. Mark Gorney also received approximately $23,300 in compensation for his services as an hourly employee of the Company during the year ended September 30, 2018.

Certain Family Relationships

There are no family relationships among any of our directors or executive officers.

Policies and Procedures for Related Party Transactions

Our audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed the lesser of (i) $120,000 or (ii) 1% of the average of the Company’s total assets at year end for the last two completed fiscal years, and in which a related person has or will have a direct or indirect material interest. The charter of our audit committee provides that our audit committee shall review and approve or disapprove in advance any related party transaction.

Control by Officers and Directors

Our officers and directors and their affiliates beneficially own, in the aggregate, approximately 38.6% of our outstanding common stock as of November 12, 2019. As a result, in certain circumstances, these stockholders acting together may be able to determine matters requiring approval of our stockholders, including the election of our directors, or they may delay, defer or prevent a change in control of us. See the section of this prospectus captioned “Security Ownership of Certain Beneficial Owners and Management” below.

Indemnification of Officers and Directors

We have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers, in addition to the indemnification provided for in our amended and restated articles of incorporation and second amended and restated bylaws. The indemnification agreements and our articles of incorporation and second amended and restated bylaws require us to indemnify our directors, executive officers and certain controlling persons to the fullest extent permitted by Nevada law.




SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of November 12, 2019, as adjusted to reflect the sale of common stock offered by us in this offering, for:

each person, or group of affiliated persons, who we know to beneficially own more than five percent (5%) of our common stock; 

each of our named executive officers; 

each of our directors and director nominees; and 

all of our executive officers and directors as a group. 

The percentage of beneficial ownership information shown in the table prior to this offering is based on 13,594,753 shares of common stock outstanding as of November 12, 2019, and assumes no participation in this offering by the parties below. The percentage of beneficial ownership shown in the table after this offering is based upon                  shares of common stock outstanding after the close of this offering, assuming the sale of                  shares of common stock by us in the offering and no exercise of the underwriters of their option to purchase up to an additional                 shares of our common stock in this offering.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than five percent (5%) of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of our common stock issuable pursuant to the exercise of stock options that are either immediately exercisable or exercisable within sixty (60) days of November 12, 2019, and restricted stock awards that are scheduled to vest within sixty (60) days of November 12, 2019. These shares are deemed to be outstanding and beneficially owned by the person holding those options and restricted stock units for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

Except as otherwise noted below, the address of each of the individuals and entities named in the table below is c/o NuZee, Inc., 1700 Capital Avenue, Suite 100, Plano, Texas 75074. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

 

Shares Beneficially
Owned Before
the Offering

 

Shares Beneficially
Owned After
the Offering

Name and Address of Beneficial Owner

Number

 

Percent

 

Number

 

Percent

Directors and Named Executive Officers:

 

 

 

 

 

 

 

Masateru Higashida

4,744,545

 

34.9%

 

 

 

 

Travis Gorney

506,667

 

3.7%

 

 

 

 

Shanoop Kothari

0

 

*

 

 

 

 

Kevin J. Conner

0

 

*

 

 

 

 

J. Chris Jones

0

 

*

 

 

 

 

Allen S. Morton

0

 

*

 

 

 

 

All directors and named executive officers as a group (6 persons)

5,251,212

 

38.6%

 

 

 

 

All other 5% Stockholders

 

 

 

 

 

 

 

Katsuyoshi Eguchi(1)

4-1002, Omori, Moriyama-ku

Nagoya-Shi, Aichi-ken, Japan

463-0021

902,739

 

6.6%

 

 

 

 

_______________

 

 

 

 

 

 

 

*Represents beneficial ownership of less than one percent (1%) of the outstanding common stock.

(1)Represents (i) 495,361 shares of our Common Stock held by Eguchi Holdings Co, Ltd., of which Mr. Eguchi is President, (ii) 124,444 shares of our Common Stock held by Torus International, of which Mr. Eguchi is a director, (iii) 276,267 shares of our Common Stock held by Mr. Eguchi in his personal capacity, and (iv) 6,667 shares of Common Stock held by family members of Mr. Eguchi. Mr. Eguchi also serves as the chief executive officer of NuZee JP, a majority owned subsidiary of the Company.




DESCRIPTION OF SECURITIESCAPITAL STOCK

Common Stock

 

            OurThis section summarizes our authorized commonand outstanding securities and certain of the provisions of our articles of incorporation and our second amended and restated bylaws.

General

The Company’s authorized capital stock consists of 200,000,000 shares of capital stock, par value $0.00001 per share, of which 100,000,000 shares ofare common stock, par value $0.00001 per share and 100,000,000 shares are preferred stock, par value $0.00001 per share. On October 28, 2019, we consummated the Reverse Split at a ratio of 1-for-3, which became effective on November 12, 2019. The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Split for all periods presented. The shares of common stock retained a par value of $0.00001 per share. Accordingly, the stockholders’ deficit reflects the Reverse Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Split. As of November 12, 2019, the Company had 13,594,753 shares of common stock outstanding held by approximately 468 stockholders of record, and no shares of preferred stock outstanding.

Common Stock

The holders of our common stock:

*

stock (i) have equal ratable rights to dividends if and when a dividend is declared by our board of directors;

*

are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs;

*

do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and

*

are entitled to one non-cumulative vote per share on all matters on which stockholders may vote.

            We refer you to dividends from funds legally available, therefore, when, as and if declared by our Board; (ii) are entitled to share in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and (iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote.  Reference is made to the Company’s Articles of Incorporation, BylawsBy-laws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of ourthe Company’s securities.

Preferred Stock

The Company has authorized 100,000,000 shares of preferred stock. There is no preferred stock outstanding. Our Board may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying, deterring or preventing a change in control. Such issuance could have the effect of decreasing the market price of the common stock. We currently have no plans to issue any shares of preferred stock.

Non-cumulative votingVoting

Holders of shares of our common stock do not have cumulative voting rights, which meansrights; meaning that the holders of more than 50%50.1% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in thatsuch event, the holders of the remaining shares will not be able to elect any of our directors. After

Registration Statement on Form S-8

As of November 12, 2019, no shares of our common stock were issuable upon the exercise of options or restricted stock awards issued pursuant to the 2019 Plan. Following the completion of this offering, is completed, assumingwe intend to file a registration statement on Form S-8 under the sale of all of theSecurities Act to register shares of our common stock Haisam Hamie, our sole officerissued or reserved for issuance under the 2019 Plan. The registration statement on Form S-8 will become effective immediately upon filing, and directors,shares covered by such registration statement will own approximately 50.00% of our outstanding shares.thereupon be eligible for sale in the public markets, subject to vesting restrictions, the lock-up agreements described above and Rule 144 limitations applicable to affiliates. See the section captioned “Executive compensation—Equity Inventive Plans” for additional information.

Dividends

Cash dividends

            As of the date of this prospectus, weWe have not paid any cash dividends to our stockholder.stockholders.  The declaration of any future cash dividend will be at the discretion of our board of directorsBoard and will depend upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions.  It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

Securities Authorized for Issuance under Equity Compensation Plans

Preferred StockAs of the date of this prospectus, we had issued 1,787,334 options to purchase shares of our common stock pursuant to the 2013 Plan. 1,544,333 shares of our common stock remain available for future grant or issuance under the 2013 Plan.




As of the date of this prospectus, we had issued no options to purchase shares of our common stock pursuant to the 2019 Plan. 3,333,334 shares of our common stock remain available for future grant or issuance under the 2019 Plan.

Anti-Takeover Effects of Nevada Law and our Articles of Incorporation and Second Amended and Restated Bylaws

 

Nevada law, our articles of incorporation, and our second amended and restatedbylaws contain certain provisions that have the effect of delaying, deferring or discouraging another party from acquiring control of us.  These provisions, which are summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board. We are authorizedbelieve that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock. The ability of our Board, without action by the stockholders, to issue up to 100,000,000 shares of preferred stock, which was previously authorized but remain undesignated, with a par valuevoting or other rights or preferences as designated by our Board could impede the success of $0.00001 per share. The termsany attempt to change control of the preferred shares are at the discretion of the board of directors. Currently no preferred shares are issuedus. These and outstanding.

Anti-takeoverother provisions

            There are no Nevada anti-takeover provisions that may have the affecteffect of deferring hostile takeovers or delaying changes in control or management of us.

Stockholder Meetings. Our second amended and restated bylaws provide that a special meeting of stockholders may be called only by stockholders holding at least ten percent (10%) of the voting shares of the Company, or by our president or a majority of the Board.

Stockholder Action by Written Consent. Nevada law provides that any action that may be taken at any annual or special meeting of the stockholders may be taken without a meeting if a consent thereto in writing is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Stockholders Not Entitled to Cumulative Voting. Our second amended and restated bylaws do not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.

Amendment of Charter and Bylaw Provisions. The amendment of any of the above provisions would require approval by holders of at least a majority of the total voting power of all of our outstanding voting stock.

The provisions of Nevada law, our articles of incorporation, and our second amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Listing

We intend to apply to list our common stock on a national securities exchange under the symbol “NUZE.”

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is V Stock Transfer, LLC. The transfer agent and registrar’s address is 18 Lafayette Place, Woodmere, NY 11598.




MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a general discussion of the material U.S. federal income tax consequences of the purchase, ownership and disposition of our common stock purchased in this offering. This discussion is for general information only, is not tax advice and does not purport to be a complete analysis of all the potential tax considerations. This discussion is based upon the provisions of the Code, existing and proposed Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all in effect as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought, and will not seek, any ruling from the Internal Revenue Service, or IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.

This summary does not address the tax considerations arising under the laws of any U.S. state, local or any non-U.S. jurisdiction, or under U.S. federal non-income tax laws, or the potential application of the Medicare contribution tax on net investment income. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

banks, insurance companies, regulated investment companies, real estate investment trusts or other financial institutions; 

persons subject to the alternative minimum tax; 

tax-exempt organizations or governmental organizations; 

U.S. shareholders of controlled foreign corporations and passive foreign investment companies 

Corporations that accumulate earnings to avoid U.S. federal income tax and personal holding companies; 

brokers or dealers in securities or currencies; 

traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; 

partnerships or other entities or arrangements classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein); 

persons that own, or are deemed to own, more than five percent of our common stock (except to the extent specifically set forth below); 

certain former citizens or long-term residents of the United States; 

persons whose functional currency is not the U.S. dollar; 

persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or engage in a wash sale or other risk reduction transaction or integrated investment; 

persons subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into account in an applicable financial statement within the meaning of 451(b) of the Code; 

persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; 

persons who hold or receive our common stock pursuant to conversion rights under convertible instruments; 

persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code; or 

persons deemed to sell our common stock under the constructive sale provisions of the Code. 

For the purposes of this discussion, a “U.S. holder” means a beneficial owner of our common stock that is, for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the United States, (b) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes), created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (d) a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. A “non-U.S. holder” is, for U.S. federal income tax purposes, a




beneficial owner of common stock that is not a U.S. holder or an entity or arrangement treated as a partnership for U.S. federal income tax purposes.

If a partnership or entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners in such partnerships, should consult their tax advisors.

You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or gift tax laws or under the laws of any state, local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty. In addition, significant changes in U.S. federal income tax laws were recently enacted. You should consult with your tax advisor with respect to such changes in U.S. tax law as well as potentially conforming changes in state tax laws.

U.S. Holders

Distributions

As described in the section captioned “Dividend Policy,” we have never paid cash distributions on our common stock and do not anticipate doing so in the foreseeable future.  In the event that we do make distributions on our common stock to a U.S. holder, those distributions generally will constitute dividends for U.S. tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a U.S. holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or exchange of our common stock as described below under the section titled “– Disposition of Our Common Stock.” Under current law, if certain requirements are met, a preferential U.S. federal income tax rate will apply to any dividends paid to a beneficial owner of our common stock who is an individual U.S. holder and meets certain holding period requirements.

Distributions constituting dividends for U.S. federal income tax purposes that are made to U.S. holders that are corporate shareholders may qualify for the dividends received deduction, or DRD, which is generally available to corporate shareholders. No assurance can be given that we will have sufficient earnings and profits (as determined for U.S. federal income tax purposes) to cause any distributions to be eligible for a DRD. In addition, a DRD is available only if certain holding periods and other taxable income requirements are satisfied.

Disposition of Our Common Stock

Upon a sale or other taxable disposition of our common stock, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted tax basis in the common stock. Capital gain or loss will constitute long-term capital gain or loss if the U.S. holder’s holding period for the common stock exceeds one year. The deductibility of capital losses is subject to certain limitations. U.S. holders who recognize losses with respect to a disposition of our common stock should consult their own tax advisors regarding the tax treatment of such losses.

Information Reporting and Backup Withholding

Information reporting requirements generally will apply to payments of dividends (including constructive dividends) on the common stock and to the proceeds of a sale or other disposition of common stock paid by us to a U.S. holder unless such U.S. holder is an exempt recipient, such as a corporation. Backup withholding will apply to those payments if the U.S. holder fails to provide the holder’s taxpayer identification number, or certification of exempt status, or if the holder otherwise fails to comply with applicable requirements to establish an exemption.

Backup withholding is not an additional tax. Rather, any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS. U.S. holders should consult their own tax advisors regarding their qualification for exemption from information reporting and backup withholding and the procedure for obtaining such exemption.




Non-U.S. Holders

Distributions

As described in the section captioned “Dividend Policy,” we have never paid cash distributions on our common stock and do not anticipate doing so in the foreseeable future. However, if we do pay cash distributions on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of common stock (see “– Disposition of Our Common Stock” below).

Subject to the discussion below on effectively connected income, backup withholding and foreign accounts, any distribution (including constructive distributions) that is treated as a dividend paid to a non-U.S. holder generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or, if the non-U.S. holder is a qualified beneficiary of a country with which the United States has an income tax treaty, such lower rate as may be specified by the applicable income tax treaty. In order to receive a reduced treaty rate of withholding, a non-U.S. holder generally must provide the applicable withholding agent with an IRS Form W-8BEN, IRS Form W-8BEN-E or other appropriate version of IRS Form W-8 certifying the non-U.S. holder’s entitlement to benefits under that treaty. You should consult your tax advisor concerning whether you may benefit from an applicable income tax treaty.

We generally are not required to withhold tax on dividends paid (or constructive dividends deemed paid) to a non-U.S. holder that are effectively connected with the holder’s conduct of a U.S. trade or business (or, if an income tax treaty is applicable, attributable to a permanent establishment or fixed base maintained by the holder in the United States) if a properly executed IRS Form W-8ECI stating that the dividends are so connected, is furnished to us (or, if stock is held through a financial institution or other agent, to the applicable withholding agent). Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits, subject to an applicable income tax treaty providing otherwise. In addition, a corporate non-U.S. holder receiving effectively connected dividends may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicable tax treaties that may provide for different rules.

If a non-U.S. holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent may then be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. withholding tax under an income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.

Disposition of our Common Stock

In general, subject to the discussion below under “– Backup Withholding and Information Reporting,” a non-U.S. holder generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale or other disposition of our common stock unless:

the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business (or, if  an income tax treaty is applicable, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States); 

the non-U.S. holder is a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or 

our common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or their holding period for, our common stock. 

We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, your common stock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock.




A non-U.S. holder described in the first bullet above will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates and in the manner applicable to U.S. persons, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. holder described in the second bullet above will be subject to tax at 30% (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for the year (provided such holder has timely filed U.S. federal income tax returns with respect to such losses). You should consult any applicable income tax or other treaties that may provide for different rules.

Backup Withholding and Information Reporting

Generally, we must report annually to the IRS the amount of distributions (including constructive distributions) on our common stock paid to each non-U.S. holder, their name and address, and the amount of tax withheld, if any. A similar report will be sent to the applicable non-U.S. holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the non-U.S. holder’s country of residence.

Payments of dividends (including constructive dividends) or of proceeds on the disposition of our common stock made to a non-U.S. holder may be subject to information reporting and backup withholding at a current rate of 24% unless the non-U.S. holder establishes an exemption, for example, by properly certifying their non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that a holder is a U.S. person.

Under current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of any broker, U.S. or foreign, except that such requirements may be avoided if the non-U.S. holder provides a properly executed and appropriate IRS Form W-8 or otherwise meets documentary evidence requirements for establishing non-U.S. holder status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the U.S. through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a U.S. person that has not provided a properly executed form W-9 to the broker or the broker has been notified by the IRS that it should withhold (generally, because the taxpayer has provided an incorrect TIN or failed to properly report income). For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.

Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, you may be able to obtain a refund or credit from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Foreign Account Tax Compliance Act

Sections 1471-1474 of the Code (colloquially known as the Foreign Account Tax Compliance Act, or “FATCA”) and the rules and regulations promulgated thereunder generally impose withholding tax at a rate of 30% on U.S. source dividends (including constructive dividends) and other items of U.S. source fixed or determinable annual or periodic income as defined under Section 1473 of the Code and regulations promulgated thereunder if paid to a foreign financial institution  (“FFI”) (as specially defined under the FATCA rules), unless the FFI enters into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of the FFI (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. The U.S. government has entered into inter-governmental agreements (“IGA’s”) with a number of jurisdictions.  Where an IGA is applicable, its terms may substantially modify the application of the FATCA reporting rules; however, all such agreements will ultimately grant the U.S. government substantial information concerning the U.S. account holders of the FFI.  In addition, FATCA also imposes a U.S. federal withholding tax of 30% on U.S. source dividends (including constructive dividends) on our common stock if paid to a ”non-financial foreign entity” (as specially defined under these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends (including constructive dividends) on our common stock. FATCA withholding also applies to gross proceeds from the sale or other disposition of our common stock; however, proposed regulations would eliminate withholding on such proceeds.  IRS stated in the preamble to these proposed regulations that taxpayers may rely on the proposed regulations until final regulations are issued. You should consult your tax advisors regarding the possible implications of FATCA on your investment in our common stock.




The preceding discussion of U.S. federal tax considerations is for general information only. It is not tax advice. Each prospective investor should consult its tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common, including the consequences of any proposed change in control.applicable laws.




UNDERWRITING

 

41


Reports

            After we completeIn connection with this offering, we will enter into an underwriting agreement with The Benchmark Company, LLC as representative for the underwriters in this offering. Each underwriter named below has severally agreed to purchase from us, on a firm commitment basis, the number of shares of common stock set forth opposite its name below, at the public offering price, less the underwriting discount set forth on the cover page of this prospectus.

UnderwriterNumber of shares

The Benchmark Company, LLC

Total:

The underwriting agreement will provide that the underwriters are obligated to purchase all of the common stock offered by this prospectus, other than those covered by the over-allotment option, if any shares of common stock are purchased. The underwriters are offering the shares when, as and if issued to and accepted by them, subject to a number of conditions. These conditions include, among other things, the requirements that no stop order suspending the effectiveness of the registration statement be in effect and that no proceedings for this purpose have been initiated or threatened by the SEC.

The representative of the underwriters has advised us that the underwriters propose to offer our common stock to the public at the offering price set forth on the cover page of this prospectus and to selected dealers at that price less a concession of not more than $          per share. The underwriters and selected dealers may re-allow a concession to other dealers, including the underwriters, of not more than $                 per share. After completion of the public offering of the shares of common stock, the offering price, the concessions to selected dealers and the reallowance to their dealers may be changed by the underwriters.

We have been advised by the representative of the underwriters that the underwriters intend to make a market in our securities but that they are not obligated to do so and may discontinue making a market at any time without notice.

In connection with the offering, the underwriters or certain of the securities dealers may distribute prospectuses electronically.

Over-allotment Option

We have granted a 45-day option to the underwriters, exercisable one or more times in whole or in part, to purchase up to an additional           shares of common stock on the same terms as the other shares being purchased by the underwriters from us, underwriting discounts and commissions to cover over-allotments, if any. The underwriters may exercise this option only to cover over-allotments made in connection with this offering. If the underwriters exercise this option in whole or in part, then the underwriters will be committed, subject to the conditions described in the underwriting agreement, to purchase the additional offered securities in proportion to each of their commitments set forth in the prior table.

Underwriters’ Compensation

Except as disclosed in this prospectus, the underwriters have not received and will not receive from us any other item of compensation or expense in connection with this offering considered by the Financial Industry Regulatory Authority, Inc. (“FINRA”), to be underwriting compensation under its rule of fair price.

Discount

The underwriting discount is equal to the public offering price per share, less the amount paid by the underwriters to us per share. The underwriting discount was determined through an arms’ length negotiation between us and the underwriters.

We have agreed to sell the shares of common stock to the underwriters at the initial offering price of $    per share, which represents the initial public offering price of the shares of common stock set forth on the cover page of this prospectus less a 7% underwriting discount.

The following table shows the public offering price, total underwriting discounts and commissions to be paid to the underwriters, the non-accountable expense allowance, and the net proceeds to us. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase           additional common shares.




Total

Per share

Without Over-Allotment Option

With Over-Allotment Option

Public offering price

$

$

$

Underwriting discounts and commissions

$

$

$

Non-accountable expense allowance

$

$

$

Net proceeds to us

$

$

$

Expense Reimbursement

We have agreed to pay a non-accountable expense allowance to the underwriters equal to 1.0% of the gross proceeds received in this offering. In addition to the non-accountable expense allowance, we have also agreed to pay or reimburse the underwriters for certain of the underwriters’ out-of-pocket expenses relating to the offering, including all reasonable fees and expenses of the underwriters’ outside legal counsel, which shall not exceed in the aggregate $150,000. All fees already paid shall be reimbursable to us to the extent not actually incurred. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $600,000.

Warrants

Upon the closing of this offering, we have agreed to sell to the underwriters a warrant to purchase up to 5% of the number of shares of common stock sold in this offering. The warrant will be exercisable at a per share and warrant exercise price equal to 100% of the public offering price per share sold pursuant to this offering, subject to standard anti-dilution adjustments for share splits and similar transactions. The warrant will be exercisable at any time, and from time to time, in whole or in part, during the period from the effective date of the offering, which period shall not extend further than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(i). The warrant is also exercisable on a cashless basis. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(g)(1). Except as permitted by Rule 5110(g)(1), the underwriters (or permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate the warrants or the securities underlying the warrants, nor will any, of them engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the option or the underlying securities for a period of 180 days from the date of effectiveness of the registration statement of which this prospectus forms a part or the commencement of sales under this prospectus. Although the warrants and the underlying shares have been registered in the registration statement of which this prospectus forms a part, we have also agreed on only one occasion to register all of such underlying common shares at such time as we become eligible to file a resale registration statement on Form S-3. These registration rights apply to all of the securities directly and indirectly issuable upon exercise of the warrants, and shall expire on the fifth anniversary of the effective date of the registration statement of which this prospectus forms a part. We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants, other than underwriting commissions incurred and payable by the holders.

Lock-up Agreements

We have agreed with the underwriters that we will not, without the prior consent of The Benchmark Company, LLC, as representative of the underwriters, directly or indirectly sell, offer, contract or grant any option to sell, pledge, transfer, or otherwise dispose of or enter into any transaction which may result in the disposition of any common stock or securities convertible into, exchangeable or exercisable for any common stock for a period of six months after the closing of this offering.

In addition, each of our executive officers and directors and our primary stockholder have agreed with the underwriters not to directly or indirectly sell, offer, contract or grant any option to sell, pledge, transfer (excluding intra-family transfers, transfers to a trust for estate planning purposes or to beneficiaries of officers, directors and shareholders upon their death), or otherwise dispose of or enter into any transaction which may result in the disposition of any common stock or securities convertible into, exchangeable or exercisable for any common stock, without the prior written consent of The Benchmark Company, LLC, as representative of the underwriters, for a period of six months after the closing date of this offering.




Stabilization

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares than they are obligated to purchase under the underwriting agreement, creating a short position in our common stock. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares of common of stock over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number of shares in the over-allotment option. To close out a short position or to stabilize the price per share of our common stock the underwriters may bid for, and purchase, common stock in the open market. The underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of the common stock available for purchase in the open market as compared to the price at which it may purchase the common stock through the over-allotment option. If the underwriters sell more than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased common stock sold by or for the account of such underwriter in stabilizing or short covering transactions.

Finally, the underwriters may bid for, and purchase, common stock in market making transactions, including “passive” market making transactions as described below.

The foregoing transactions may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on a national securities exchange or otherwise.

In connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market making transactions in common stock on a national securities exchange immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:

a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers; net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common share during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and 

passive market making bids must be identified as such. 

Passive market making may stabilize or maintain the market price of our common stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time.

Indemnification

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to furnishmake in respect of those liabilities.

Participation in Future Offerings

Until twelve months from the closing of the offering, the underwriters shall have a right of first refusal to act on our behalf as lead or managing underwriters or exclusive financial advisors for any offering of securities, merger, acquisition or similar transaction.




Determination of Offering Price

Prior to this offering, there has not been a public market for our shares. The public offering price of the shares offered by this prospectus has been determined by negotiation between us and the underwriters. Among the factors considered in determining the public offering price of the shares were:

our history and our prospects; 

our financial information and historical performance; 

the industry in which we operate; 

the status and development prospects for our products and services; 

the experience and skills of our executive officers; and 

the general condition of the securities markets at the time of this offering. 

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the common stock. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that the common stock can be resold at or above the public offering price.

Listing

We intend to apply to list our common stock on a national securities exchange under the symbol “NUZE.”

Electronic Distribution

A prospectus in electronic format may be made available on websites or through other online services maintained by the underwriters of this offering, or by its affiliates. Other than the prospectus in electronic format, the information on the underwriters’ website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters in their capacity as underwriters, and should not be relied upon by investors.

Other Relationships

The underwriters have informed us that they do not expect to confirm sales of our common stock offered by this prospectus to any accounts over which they exercise discretionary authority.

Some of the underwriters and their affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They may in the future receive customary fees and commissions for these transactions.

In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers.

Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Selling Restrictions Outside the United States

Notice to Prospective Investors in Canada

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The




purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering. The common shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the common shares must be made in accordance with an annual report. Further, weexemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Notice to Prospective Investors in the United Kingdom

This prospectus is only being distributed to and is only directed at persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 within, and/or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) (all such persons together being referred to as “relevant persons”). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom who is not a relevant person should not act or rely on this prospectus or any of its contents.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the common shares may not be circulated or distributed, nor may the common shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Notice to Prospective Investors in the People’s Republic of China

This prospectus may not be circulated or distributed in China and the common shares may not be offered or sold, and will not voluntarily send youoffer or sell to any person for re-offering or resale directly or indirectly to any resident of China except pursuant to applicable laws, rules and regulations of China. For the purpose of this paragraph only, China does not include Taiwan and the special administrative regions of Hong Kong and Macau.

Notice to Prospective Investors in Hong Kong

The common shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an annual report. Weoffer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to our common shares be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to our common shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Taiwan, the Republic of China

The common shares have not been and will not be registered with the Financial Supervisory Commission of the Republic of China (“Taiwan”), pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in any manner which would constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or would otherwise require registration with or the approval of the Financial Supervisory Commission of Taiwan.




LEGAL MATTERS

The validity of the issuance of the shares of common stock offered hereby will be requiredpassed upon for us by Polsinelli PC, Los Angeles, California. Schiff Hardin LLP, Washington, DC, is representing the underwriters.

EXPERTS

The consolidated financial statements of NuZee, Inc. (the “Company”) as of September 30, 2018 and 2017 and for each of the two years in the period ended September 30, 2018 included in this prospectus have been so included in reliance on the report (which includes an explanatory paragraph relating to file reportsNuZee’s ability to continue as a going concern as described in Note 2 to the financial statements) of MaloneBailey, LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under section 15(d)the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the Securities Act. The reports will beregistration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock and public warrants, we refer you to the registration statement, including the exhibits filed electronically. The reports we will be required to file are Forms 10-K, 10-Q, and 8-K.

Where You Can Find Additional Information

            You may read copiesas a part of the registration statement. Statements contained in this prospectus concerning the contents of any materials we file withcontract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the SEC atregistration statement, please see the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. You may obtain information on the operation of the Public Reference Roompublic reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet sitewebsite that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

We file annual, quarterly and special reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings will contain copiesalso be available to the public on, or accessible through, our corporate website at www.mynuzee.com. You may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the reportsSEC. The information we file electronically. The address forwith the Internet siteSEC or contained on or accessible through our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part.




NUZEE, INC.

www.sec.govINDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2018 and 2017

Page

Audited Annual Financial Statements

Report of Independent Registered Public Accounting FirmF-2

Financial Statements:

Consolidated Balance SheetsF-3

Consolidated Statements of OperationsF-4

Consolidated Statements of Comprehensive LossF-5

Consolidated Statements of Changes in Stockholder’s EquityF-6

Consolidated Statements of Cash FlowsF-7

Notes to Consolidated Audited Financial StatementsF-8

Unaudited Interim Financial Statements

Financial Statements:

Consolidated Balance Sheets (unaudited)F-25

Consolidated Statements of Operations (unaudited)F-26

Consolidated Statements of Comprehensive Income (Loss) (unaudited)F-27

Consolidated Statements of Changes in Stockholder’s Equity (Deficit) (unaudited)F-28

Consolidated Statements of Cash Flows (unaudited)F-30

.  Notes to Consolidated Unaudited Financial Statements (unaudited)F-32




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

NuZee, Inc.

Vista, California

 

Stock transfer agent

            Our stock transfer agent for our securities will beAspen Stock Transfer, 6623 Las Vegas Blvd. South #255, Las Vegas, NV  89119; the telephone number is 702-463-8832.

CERTAIN TRANSACTIONS

            On July 15, 2011, we issued a total of 4,000,000 shares of restricted common stock to Haisam Hamie, our sole officer and director in consideration of $15,000. We are currently using these funds to pay the expenses relating to this offering.

LITIGATION

            We are not a party to any pending litigation and none is contemplated or threatened.

EXPERTS

            Our financial statements for the period from inception to July 31, 2011, included in this prospectus have been audited by MaloneBailey, LLP, 10350 Richmond Ave, Suite 800, Houston, Texas 77042, telephone 713-343-4200, as set forth in its report included in this prospectus. Its report is given upon its authority as an expert in accounting and auditing.



42


LEGAL MATTERS

            The Law Office of SD Mitchell & Associates, PLC.  1410 Washington Drive, Stafford, Virginia 22554, telephone (248) 515-6035 passedOpinion on the legality of the shares being offered in this prospectus.

(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)FINANCIAL STATEMENTSFinancial Statements

 

We have audited the accompanying consolidated balance sheets of NuZee, Inc. and its subsidiaries (collectively, the “Company”) as of September 30, 2018 and 2017, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

43


    Our fiscal year end is July 31.  We will provide auditedThe accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to our stockholders on an annual basis; the statements will be audited by a firm of Certified Public Accountants. 
Our audited financial statements, the Company has suffered recurring losses from inceptionoperations that raises substantial doubt about its ability to July 15, 2011 (inception) through January 31, 2012 immediately follow:

INDEX

Balance Sheets at January 31, 2012 (unaudited)

F-1

Statements of Expenses for the quarter ended January 31, 2012 and the period from inception through January 31, 2012 (unaudited)

F-2

Statements of Cash Flows for the quarter ended January 31, 2012 and the period from inception through January 31, 2012 (unaudited)

F-3

NOTES TO UNAUDITED FINANCIAL STATEMENTS

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-5

Balance Sheet

F-6

Statement of Expenses

F-7

Statement of Stockholders' Equity

F-8

Statement of Cash Flows

F-9

NOTES TO THE FINANCIAL STATEMENTS

F-10

continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 


HAVANA FURNISHINGS INC.

(A Development Stage Company)  

BALANCE SHEETS  

(Unaudited)

 

 

 

 

 

 

 

January 31,
2012

 

 

July 31,

2011

ASSETS   

 

 

 

 

 

 

         CURRENT ASSETS 

 

 

 

 

 

           Cash and cash equivalents

1,937

 

$

8,000

         Total current assets

 

1,937

 

 

8,000

 

 

 

 

         Total assets   

1,937

 

$

8,000

 

LIABILITIES AND STOCKHOLDERS’ EQUITY   

 

 

 

 

 

          

 

 

 

 

 

CURRENT LIABILITIES 

 

 

 

 

 

Accounts payable

$

870

 

$

1,000

Related party payable

 

5,010

 

 

-

Total current liabilities

$

5,880

 

$

1,000

 

 

 

 

 

 

         STOCKHOLDERS’ EQUITY (LOSS)

 

 

 

 

 

           Preferred stock, 100,000,000 shares authorized,

           $0.00001 par value; 

           0 shares issued and outstanding 

 

 

 

-

 

 

 

-

           Common stock, 100,000,000 shares authorized,

           $0.00001 par value; 

          4,000,000 shares issued and outstanding 

 

 

 

40

 

 

 

 

40

           Additional paid-in capital 

 

14,960

 

 

14,960

           Deficit accumulated during development stage 

 

(18,943)

 

(8,000)

         Total stockholders’ equity (loss)

 

(3,943)

 

 

7,000

 

 

 

         Total liabilities and stockholders’ equity   

1,937

 

$

8,000

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company’s auditor since 2013.

Houston, Texas

February 8, 2019, except for Note 11 as to which the date is November 12, 2019




NuZee, Inc.

CONSOLIDATED BALANCE SHEETS

 

 

September 30, 2018

 

September 30, 2017

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$ 1,806,666   

 

$ 347,327   

Accounts receivable, net

 

144,632   

 

143,893   

Accounts receivable - Related party

 

222   

 

12,380   

Inventories, net

 

134,877   

 

266,620   

Other current assets

 

134,632   

 

102,926   

Other current assets - Related party

 

33,887   

 

29,378   

Total current assets

 

2,254,916   

 

902,524   

 

 

 

 

 

Property and equipment, net

 

674,393   

 

277,987   

 

 

 

 

 

Other assets:

 

 

 

 

Goodwill

 

17,112   

 

17,112   

Customer List, net

 

34,424   

 

45,899   

Other asset

 

1,667   

 

-   

Investment in unconsolidated affiliate

 

-   

 

10,733   

 

 

53,203   

 

73,744   

 

 

 

 

 

Total assets

 

$ 2,982,512   

 

$ 1,254,255   

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$ 268,283   

 

$ 104,973   

Loan payable - short term - Related party

 

-   

 

200   

Current portion of long-term loan payable

 

44,229   

 

44,681   

Other current liabilities

 

160,773   

 

126,687   

Other current liabilities - Related party

 

2,782   

 

1,089   

Deferred revenue

 

-   

 

72,750   

Total current liabilities

 

476,067   

 

350,380   

 

 

 

 

 

Non-current liabilities:

 

 

 

 

Loan payable - long term, net of current portion

 

$ 88,063   

 

$ 133,644   

Other noncurrent liabilities

 

6,317   

 

9,610   

 

 

94,380   

 

143,254   

 

 

 

 

 

Total liabilities

 

570,447   

 

493,634   

 

 

 

 

 

Stockholders’ equity :

 

 

 

 

Common stock; 100,000,000 shares authorized, $0.00001 par value; 13,194,591 and 11,573,513 shares issued

 

$ 132   

 

$ 116   

Additional paid in capital

 

14,957,491   

 

9,718,879   

Accumulated deficit

 

(12,607,722)  

 

(9,030,551)  

Accumulated other comprehensive loss

 

(30,967)  

 

(20,680)  

Total NuZee, Inc. shareholders’ equity

 

2,318,934   

 

667,764   

Noncontrolling interest

 

93,131   

 

92,857   

Total stockholders’ equity

 

2,412,065   

 

760,621   

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$ 2,982,512   

 

$ 1,254,255   

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



F-1

45


HAVANA FURNISHINGS INC.
(A Development Stage Company)

STATEMENTS OF EXPENSES

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months
Ended
January 31, 2012

 

Six Months Ended

January 31, 2012

     

Since
July 15, 2011 (Inception) to

January 31, 2012

EXPENSES  

 

 

Consulting fees

$

3,875

$

6,875

$

7,875

General and administrative

 

17

 

2,198

 

2,198

Legal and accounting fees

 

1,870

 

1,870

 

8,870

 

 

 

 

 

 

 

Total expenses

$

5,762

$

10,943

$

18,943

 

 

 

Net Loss 

(5,762)

$

(10,943)

$

(18,943)

 

 

 

Basic and diluted loss per common share 

(0.00)

$

(0.00)

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average number

 

 

 

 

 

 

of common shares outstanding 

 

4,000,000

 

4,000,000

 

 

NuZee, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Year Ended
September 30 ,2018

 

Year Ended
September 30 ,2017

Revenues, net

 

$ 1,388,972   

 

$ 1,628,410   

Cost of sales

 

1,321,755   

 

1,319,232   

   Gross Profit

 

67,217   

 

309,178   

 

 

 

 

 

Operating expenses

 

3,685,186   

 

2,076,654   

Loss from operations

 

(3,617,969)  

 

(1,767,476)  

 

 

 

 

 

Other income

 

63,484   

 

40,764   

Equity in loss of unconsolidated affiliate

 

(10,733)  

 

(39,267)  

Other expense

 

(1,906)  

 

(3,235)  

Interest expense

 

(2,468)  

 

(6,976)  

Net loss

 

(3,569,592)  

 

(1,776,190)  

Net income (loss) attributable to noncontrolling interest

 

7,579   

 

(9,051)  

Net loss attributable to NuZee, Inc.

 

($3,577,171)  

 

($1,767,139)  

 

 

 

 

 

Basic and diluted loss per common share

 

$ (0.29)  

 

$ (0.16)  

 

 

 

 

 

Basic and diluted weighted average number of common stock outstanding

 

12,234,107   

 

10,711,788

 

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



F-2


NuZee, Inc.

46CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


HAVANA FURNISHINGS INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOW

(Unaudited)

 

 

Six Months Ended
January 31, 2012

 

 

From

July 15, 2011 (Inception) to January 31, 2012

 

 

 

 

    

 

CASH FLOWS FROM OPERATING ACTIVITIES 

 

 

 

 

 

         Net loss 

(10,943)

 

$

(18,943)

         Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Accounts payable

 

(130)

 

 

870

Net cash used in operating activities 

 

(11,073)

 

 

(18,073)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES 

 

 

 

 

         Proceeds from issuance of common stock 

 

-

 

 

15,000

Related party payable

 

5,010

 

 

5,010

Net cash provided by financing activities 

 

5,010

 

 

20,010

 

 

 

 

 

 

Net change in cash and cash equivalents 

 

(6,063)

 

 

1,937

 

 

 

 

 

 

Cash and cash equivalents, beginning of period 

 

8,000

 

 

-

 

 

 

 

 

 

Cash and cash equivalents, end of period 

1,937

 

$

1,937

 

 

 

 

 

 

SUPPLEMENTAL CASHFLOW DISCLOSURES 

 

 

 

 

 

 

 

 

 

 

 

         Interest paid 

-

 

$

-

         Income taxes paid 

-

 

$

-

 

 

NuZee, Inc.

 

Noncontrolling Interests

 

Total

For the year ended September 30, 2018 and 2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

Net income (loss)

 

$ (3,577,171)  

 

$ (1,767,139)  

 

$ 7,579   

 

$ (9,051)  

 

$ (3,569,592)  

 

$ (1,776,190)  

 

 

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency translation

 

(10,287)  

 

(20,680)  

 

(7,305)  

 

(8,863)  

 

(17,592)  

 

(29,543)  

Total other comprehensive loss, net of tax

 

(10,287)  

 

(20,680)  

 

(7,305)  

 

(8,863)  

 

(17,592)  

 

(29,543)  

Comprehensive loss

 

$ (3,587,458)  

 

$ (1,787,819)  

 

$ 274   

 

$ (17,914)  

 

$ (3,587,184)  

 

$ (1,805,733)  

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.
F-3statements




47

HAVANA FURNISHINGS INC.NuZee, Inc.

(A Development Stage Company)CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

Notesfor the period from October 1, 2016 to September 30, 2018

 

 

 Common Stock

 

Additional Paid-in Capital

 

 Treasury Stock

 

Accumulated Deficit

 

Non-controlling Interest

 

 OCI

 

Total Stockholders’ Equity

Shares

 

Amount

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2016

 

10,384,984

 

$ 104 

 

$ 6,909,730  

 

(600,281)

 

$ (69,109)

 

$ (7,263,412)

 

$ -

 

$ -

 

$ (422,687)

Common stock issued for cash

 

344,180

 

 

860,042   

 

-

 

 

-

 

-

 

-

 

860,045

Treasury stock issued for cash

 

-

 

 

833,002   

 

588,747

 

67,781

 

-

 

-

 

-

 

900,783

Treasury stock issued for service

 

-

 

 

13,551   

 

11,534

 

1,328

 

-

 

-

 

-

 

14,879

Common stock issued for

     conversion of note payable

 

461,438

 

 

705,995   

 

-

 

-

 

-

 

-

 

-

 

706,000

Stock option expense

 

-

 

 

138,098   

 

-

 

-

 

-

 

-

 

-

 

138,098

Stock issued for NuZee JP acquisition

 

382,911

 

4

 

258,461   

 

-

 

-

 

-

 

110,771

 

-

 

369,236

NuZee JP foreign currency gain(loss)

 

-   

 

-   

 

-

 

-

 

-

 

(8,863)

 

(20,680)

  

(29,543)

 

Net loss

 

-

 

 

-   

 

-

 

-

 

(1,767,139)

 

(9,051)

 

-

 

(1,776,190)

Balance September 30, 2017

 

11,573,513

 

$ 116

 

$ 9,718,879

 

-

 

-

 

(9,030,551)

 

92,857

 

(20,680)

 

760,621

Common stock issued for cash

 

1,602,989

 

16

 

4,542,643

 

-

 

-

 

-

 

-

 

-

 

4,542,659

Common stock issued for service

 

11,534

 

-

 

14,880

 

-

 

-

 

-

 

-

 

-

 

14,880

Stock issuance costs

 

6,556

 

-

 

(157,690)

 

-

 

-

 

-

 

-

 

-

 

(157,690)

Stock option expense

 

-

 

-

 

838,779

 

-

 

-

 

-

 

-

 

-

 

838,779

NuZee  foreign currency gain(loss)

 

-

 

-

 

-   

 

-

 

-

 

-

 

(7,305)

 

(10,287)

 

(17,592)

Net loss

 

-

 

-

 

-   

 

-

 

-

 

(3,577,171)

 

7,579

 

-

 

(3,569,592)

Balance September 30, 2018

 

13,194,591

 

$ 132

 

$14,957,491

 

-

 

-

 

(12,607,722)

 

93,131

 

(30,967)

 

2,412,065

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




NuZee, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

For the Year Ended

September 30, 2018

 

For the Year Ended

September 30, 2017

Operating activities:

 

 

 

 

Net loss

 

$ (3,569,592)  

 

$ (1,776,190)  

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

Depreciation and Amortization

 

163,323   

 

87,392   

Loss on disposition of equipment

 

1,906   

 

-   

Stock option expense

 

838,779   

 

138,098   

Common stock issued for services

 

14,880   

 

14,879   

Interest expense

 

-   

 

2,615   

Inventory impairment

 

81,496   

 

9,086   

Allowance for sales return

 

83,030   

 

86,487   

Equity in loss of unconsolidated affiliate

 

10,733   

 

39,267   

Change in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(85,041)  

 

(165,614)  

Accounts receivable - Related party

 

12,033   

 

35,174   

Inventories

 

49,111   

 

140,784   

Prepaid expenses and other current assets

 

(33,781)  

 

31,564   

Other current assets - Related party

 

(4,807)  

 

(29,378)  

Accounts payable

 

161,645   

 

(159,859)  

Accounts payable - Related party

 

1,704   

 

-   

Accrued expenses and other current liabilities

 

38,047   

 

80,648   

Other current liabilities - Related party

 

-   

 

1,089   

Deferred revenue

 

(74,222)  

 

66,130   

Net cash used by operating activities

 

(2,310,756)  

 

(1,397,828)  

 

 

 

 

 

Investing activities:

 

 

 

 

Purchase of equipment

 

(550,206)  

 

(186,973)  

Acquisition of investment in unconsolidated affiliate

 

-   

 

(50,000)  

Net cash acquired from business acquisition

 

-   

 

201,676   

Net cash used by investing activities

 

(550,206)  

 

(35,297)  

 

 

 

 

 

Financing activities:

 

 

 

 

Proceeds from issuance of common stock

 

4,542,659   

 

860,045   

Stock issuance cost

 

(157,690)  

 

-   

Payments on capital lease

 

(3,259)  

 

(7,866)  

Proceeds from issuance of Loan - short term - Related party

 

341,000   

 

572,306   

Repayment of loans - short term - Related party

 

(341,200)  

 

(617,106)  

Proceeds from issuance of Loan - short term

 

-   

 

87,268   

Repayment of loans - short term

 

(45,118)  

 

(37,600)  

Proceeds from issuance of treasury stock

 

-   

 

900,783   

Net cash provided by financing activities

 

4,336,392   

 

1,757,830   

 

 

 

 

 

Effect of foreign exchange on cash and cash equivalents

 

(16,091)  

 

(17,991)  

 

 

 

 

 

Net change in cash

 

1,459,339   

 

306,714   

 

 

 

 

 

Cash, beginning of period

 

347,327   

 

40,613   

Cash, end of period

 

$ 1,806,666   

 

$ 347,327   

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

Cash paid for interest

 

$ 3,909   

 

$ 2,649   

Cash paid for taxes

 

$ 800   

 

$ 800   

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

Acquisition of NuZee JP Co., Ltd through issuance of common shares

 

$ -   

 

$ 258,465   

Conversion of note payable to common stock

 

$ -   

 

$ 606,000   

Conversion of note payable to common stock - Related party

 

$ -   

 

$ 100,000   

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




NuZee, Inc

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

1. ORGANIZATION

NuZee, Inc. (the “Company”, “we”, “our”) was incorporated on November 9, 2011 in Nevada. The Company is a start-up organization which markets and distributes consumer products primarily in the Unaudited Financial Statementsbeverage segment. Additionally, while the Company primarily intends to purchase its proprietary products and resell, the Company may also engage in contract manufacturing where the Company purchases raw materials and retains a contract converter to process the raw materials into finished products for resale.

NOTE 1.

On August 16, 2016, the Company entered into a Share Exchange Agreement with NuZee JAPAN Co., Ltd (“NuZee JP”) and its shareholders whereby the Company would exchange 382,911 shares of its common stock, par value $0.00001 per share, for seventy percent (70%) of the issued and outstanding common stock of NuZee JP.  The acquisition of NuZee JP closed on October 3, 2016.

NuZee JP was incorporated on December 16, 2013 in Aichi, Japan and is a start-up organization which markets and distributes consumer products primarily in the beverage segment. NuZee JP primarily intends to purchase and resell its proprietary products directly to consumers through its website portal as well as through online stores such as Rakuten and Japan Post online shop.

On June 8, 2018, the Company started business in South Korea as NuZee KOREA Ltd. (“NuZee KR”).

On September 11, 2018, NuZee Investments Co, Ltd. (“NuZee INV”) was founded in Japan as a wholly owned subsidiary of the Company.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects and have been consistently applied in preparing the accompanying financial statements.

Earnings per Share

Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. The Company incurred a net loss for the years ended September 30, 2018 and 2017, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

Going Concern and Capital Resources

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

As of September 30, 2018, the Company had cash (operating capital) of $1,806,666. The Company has not attained profitable operations since inception.

 

The accompanying unaudited interimconsolidated financial statements of Havana Furnishings Inc. (“Havana Furnishings” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had limited revenues, recurring losses, an accumulated deficit and is dependent on its majority shareholder to provide additional funding for operating expenses. These items raise substantial doubt as to the Company’s ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.




Use of Estimates

In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair value is an estimate of the exit price, representing the amount that would be received to, sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction cost. Fair value measurement under generally accepted accounting principles provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3: Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.

The carrying amounts of cash, accounts receivable, accounts payable, accrued liabilities and short-term debt approximate fair value because of the short-term nature of these instruments. The carrying amount of long-term debt approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September 30, 2018 and 2017.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. From time to time, the Company may or may not maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.

Accounts Receivable

Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. The Company recognized $169,517 and $86,487 of allowance as of September 30, 2018 and 2017, respectively.  The allowance mainly represents the estimated chargebacks from retailers.

Major Customers

For the years ended September 30, 2018 and 2017, revenue was primarily from major customers disclosed below. Besides those revenues, there were $99,203 accounts receivable owed from customer M and $12,564 accounts receivable owed from customer CC as of September 30, 2018.




For the year ended September 30, 2018:

 

 

 

 

 

 

 

Customer Name

 

Sales Amount

 

% of Total Revenue

Customer M

 

$ 898,330   

 

64 %

Customer CC

 

$ 109,146   

 

8 %

 

 

 

 

 

For the year ended September 30, 2017:

 

 

 

 

 

 

 

Customer Name

 

Sales Amount

 

% of Total Revenue

Customer PO

 

$ 536,511   

 

33 %

Customer N

 

$ 489,058   

 

30 %

Lease

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

NuZee JP is the lessee of certain equipment under a capital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $7,864 as of September 30, 2018. The capital lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under capital lease as of September 30, 2018 for each of the remaining years are as follows:

2019

 

$ 4,271   

2020

 

4,271   

2021

 

1,068   

Total Minimum Lease Payments

 

$ 9,610   

The Company leases office spaces under leases with terms ranging from month to month to 32 months.  Rent expense included in general and administrative expense for the years ended September 30, 2018 and 2017 was $74,001 and $88,903 respectively.

Future minimum rents as of September 30, 2018 for each of the remaining years are as follows:

2019

 

$ 85,253   

2020

 

59,833   

Total Minimum Lease Payments

 

$ 145,086   

Principles of Consolidation

The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiary which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated in the consolidation.

The Company consolidates its subsidiary in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation.

The Company has three subsidiaries:NuZee JP, NuZee KR and NuZee INV.NuZee KR and NuZee INV are wholly owned subsidiaries of the Company, and NuZee JP is a majority owned subsidiary of the Company.




Foreign Currency Translation

The financial position and results of operations of the Company’s foreign subsidiary is measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of such subsidiary has been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustment recorded to other comprehensive loss amounted to $10,287 and $20,680 as of September 30, 2018 and 2017, 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. Foreign currency transaction (gains) losses included in the consolidated statements of operations totaled $(17,192) and $3,235 for the years ended September 30, 2018 and 2017, respectively.

Equity Method

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheets and consolidated statements of operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption ‘‘Equity in loss of unconsolidated affiliate’’ in the consolidated statements of operations. The Company’s carrying value in an equity method investee company is reflected in the caption ‘‘Investment in unconsolidated affiliate’’ in the Company’s consolidated balance sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Goodwill

The Company evaluates goodwill on an annual basis or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, management performs the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount, by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss.

Revenue Recognition

The Company recognizes revenue only when all of the following criteria have been met:

Persuasive evidence of an arrangement exists; 

Delivery has occurred or services have been rendered; 

The fee for the arrangement is fixed or determinable; and 

Collectability is reasonably assured. 

Persuasive Evidence of an Arrangement—the Company documents all terms of an arrangement in a written contract signed by partial customer prior to recognizing revenue. For those customers do not have signed contracts with us, we did business with them based on purchase orders received, which include online orders.




Delivery Has Occurred or Services Have Been Rendered —The Company performs delivery of all products to customers and recognize revenue upon shipment or ultimate delivery to customers’ delivery sites depending on the terms of the sale.

Collectability Is Reasonably Assured—The Company determines that collectability is reasonably assured prior to recognizing revenue. Collectability is assessed on a customer by customer basis based on criteria outlined by management. New customers are subject to a credit review process, which evaluates the customer’s financial position and ultimately its ability to pay. The Company does not enter into arrangements unless collectability is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured, revenue is recognized on a cash basis.

Return and Exchange Policy

The Company provides a 30-day money-back guarantee if a buyer is not satisfied with a product. All of the products are thoroughly inspected and securely packaged before they are shipped to ensure buyers receive the best possible product. If for any reason buyers are unsatisfied with the products, they can return them and the Company will exchange or refund the purchase minus any shipping charges. For the wholesale customers, return policies varies based on their specific agreements with customers. Under chargebacks agreements with the customers, the Company agrees to reimburse the seller for a portion of the costs incurred by the seller to advertise and promote certain of the Company’s products. The Company estimates, accrues and recognized such chargebacks. These amounts are included in the determination of net sales.

As of September 30 2018, the Company had $169,517 of sales allowances for estimated chargebacks and returns.  Revenue recognized is net of sales allowances.

Cost Recognition

Cost of products sold primarily consists of direct materials consumed in the manufacturing of primary coffee blender products. Cost of products sold also includes directly related labors’ salaries and other overhead cost.

Selling, General and Administrative Expense

Selling, general and administrative expense (SG&A) primarily consists of marketing expenses, research and development costs, administrative and other indirect overhead costs, depreciation expense and other miscellaneous operating items. Personnel expenses, occupying a majority portion of SG&A, were $787,723 and $741,550 for the years ended September 30, 2018 and 2017, respectively. Company covers shipping fees for wholesalers and distributors and the shipping and handling expenses are recorded under operating expenses in the consolidated statements of operations.

The Company expenses advertising costs when incurred. Advertising expense for the years ended September 30, 2018 and 2017 is as follows:

 

September 30, 2018

September 30, 2017

Advertising

$ 63,304   

$ 61,202   

The consolidated statements of cash flows are prepared using the indirect method, which reconciles net loss to cash flow from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net loss. The adjustments also remove cash flows arising from investing and financing activities, which are presented separately from operating activities.

Research and Development

Research and development expenses are expensed in the consolidated statements of operations as incurred in accordance with FASB ASC 730, Research and Development. Research and development expenses for the years ended September 30, 2018 and 2017 amounted to $18,166 and $18,908, respectively.

Inventory

Inventory, consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of cost or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory




levels at least quarterly and records a valuation allowance when appropriate. At September 30, 2018 and 2017, the carrying value of inventory of $134,877 and $266,620 respectively, reflected on the consolidated balance sheets is net of this adjustment.

 

 

September 30,

2018

 

September 30,

2017

Raw materials

 

$ 30,200   

 

$ 111,043   

Work in process

 

-   

 

5,535   

Finished goods

 

104,677   

 

159,128   

Less - Inventory reserve

 

-   

 

(9,086)  

Total

 

$ 134,877   

 

$ 266,620   

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation. The Company generally depreciates property and equipment on a straight-line basis over the estimated useful lives of the assets after the assets are placed in service except for NuZee KR which uses the declining balance method. Office equipment is depreciated over a 3-year life, furniture over a 7-year life, and other equipment over a 5-year life. Depreciation expense for the years ended September 30, 2018 and 2017 was $151,848 and $75,917 respectively. Repair and maintenance costs are expensed as incurred. Expenditures associated with upgrades and enhancements that improve, add functionality, or otherwise extend the life of property and equipment that exceed $1,000 are capitalized. Property and equipment as of September 30, 2018 and 2017 consist of:

 

 

September 30,

2018

 

September 30,

2017

Furniture & Fixture

 

$ 25,642   

 

$ 31,514   

Machinery & Equipment

 

806,374   

 

323,706   

Vehicles

 

44,657   

 

44,657   

Leasehold Improvements

 

56,809   

 

-   

Software

 

14,807   

 

14,807   

Less - Accumulated Depreciation

 

(273,896)  

 

(136,697)  

Net Property and Equipment

 

$ 674,393   

 

$ 277,987   

Samples

The Company distributes samples of its products as a component of its marketing program. Costs for samples are expensed at the time the samples are shipped and recorded under operating expenses in the consolidated statements of operations.

Long-Lived Assets

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicated that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances.

Intangible Assets

Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible asset consists of customer list which, recognized as a result of the acquisition of NuZee JP, has an estimated useful life of 5 years.




As of September 30, 2018, the intangible assets consist of:

 

 

September 30, 2018

 

 

Gross Carrying

Amount

 

Accumulated

Amortization

 

Net Carrying

Amount

Amortized intangible assets:

 

 

 

 

 

 

Customer List

 

$ 57,374   

 

($22,950)  

 

$ 34,424   

Total

 

$ 57,374   

 

($22,950)  

 

$ 34,424   

No significant residual value is estimated for the intangible asset. Aggregate amortization expense for the years ended September 30, 2018, and September 30, 2017, totaled $11,475 and $11,475, respectively. The following table represents the total estimated amortization of intangible assets for the next five years:

For the Year Ending September 30

 

Estimated Amortization Expense

2019

 

$ 11,475   

2020

 

$ 11,475   

2021

 

$ 11,474   

Income Taxes

In accordance with ASC 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of September 30, 2018 and 2017.

Related parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Stock-based Compensation

We account for share-based awards issued to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period, which is normally the vesting period. Share-based compensation to directors is treated in the same manner as share-based compensation to employees, regardless of whether the directors are also employees. We account for share-based compensation to persons other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. We estimate the fair value of share-based payments using the Black Scholes option-pricing model for common stock options and warrants and the closing price of our common stock for common share issuances. We recognized forfeitures as they occurred.




Comprehensive income/loss

Comprehensive income/loss is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income/loss are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income/loss pertain to foreign currency translation adjustments.

Non-controlling Interests

Non-controlling interests represent third-party ownership in the net assets of the Company’s consolidated subsidiary and are presented as a component of equity.

Segment Information

ASC Topic 280, “Disclosures about Segments of an Enterprise and Related Information,” established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to stockholders. Management has determined that the Company operates in one business segment, which is the commercialization and development of functional beverages.

Recent Accounting Pronouncements

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations.  The collective guidance is effective for interim and annual periods in the first annual period beginning after December 15, 2017, with early adoption permitted.  The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  The Company has adopted this Topic 606 on its ongoing financial reporting since October 1, 2018 on a modified retrospective basis, and the impact of this pronouncement will not have a material impact to the Company’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases.  The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the consolidated balance sheet.   The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.  The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted.  In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.  The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to reduce complexity in accounting standards involving several aspects of the accounting for employee share-based payment transactions, including (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments will be effective for consolidated financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early adoption is permitted.  Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding




requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method, amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively, and amendments related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. The Company has adopted ASU No. 2016-09 with no impact on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments should be applied using a retrospective transition method, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will adopt ASU No. 2016-15 on its consolidated financial statements starting from October 1, 2018. The Company believes that the adoption of ASU No. 2016-15 will not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250).  The ASU adds SEC disclosure requirements for both the quantitative and qualitative impacts that certain recently issued accounting standards will have on the consolidated financial statements of a registrant when such standards are adopted in a future period.  Specifically, these disclosure requirements apply to the adoption of ASU No. 2014- 09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Company believes the impact of these amendments on its consolidated financial statements in the future will not be material.

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

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

3. ACQUISITION

NuZee JAPAN Co., Ltd

On August 16, 2016, the Company entered into a Share Exchange Agreement with NuZee JP and its shareholders whereby the Company would exchange 382,911 shares of its common stock, par value $0.00001 per share, for seventy percent (70%) of the issued and outstanding common stock of NuZee JP.  The Company’s issued shares had an acquisition date fair value of $258,465. The remaining thirty percent (30%) of NuZee JP’s issued and outstanding common stock is, and will be at the closing, owned by NuZee JP’s current President and Chairman of its Board of Directors.  The reason for this acquisition is to extend our market shares as well as obtain more business opportunities in both USA and Japan market. This transaction closed on October 3, 2016.

The Company applied the acquisition method to the business combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The following table shows the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:




Acquisition of NuZee JAPAN Co., Ltd.

Assets acquired:

Cash

$ 201,676   

Accounts receivable

60,770   

Inventories

233,845   

Other current assets

76,524   

Customer list

57,374   

Property and equipment

16,677   

Goodwill

17,112   

Total assets acquired

663,978   

Less liabilities assumed

Accounts payable and accrued liabilities

(153,820)  

Loan payable

(140,922)  

Total liabilities assumed

(294,742)  

Less non-controlling interest

(110,771)  

Net assets acquired from NuZee JP acquisition

258,465   

4. INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company has an investment in an equity method affiliate which has main businesses related to the production, sale, import and export of coffee & beans, tea & tea leaf, healthy foods and drinks.

The following table is a reconciliation of the Company’s investment in equity affiliate as presented on the consolidated balance sheet as of September 30, 2018:

INVESTMENT IN AFFILIATE

2018

Beginning of Period

$ 10,733   

Equity in net income (loss) of unconsolidated affiliate

$ (10,733)  

End of period

$ -   

5. LOANS

On June 30, 2016, NuZee JP entered into a loan agreement with Tono Shinyo Kinko Bank. The Company borrowed the sum of approximately $145,758 to be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The loan is unsecured and guaranteed by a director. The outstanding balance on the loan at September 30, 2018 amounted to $72,572. On January 27, 2017, NuZee JP entered into a loan agreement with Nihon Seisaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The outstanding balance on the loan at September 30, 2018 amounted to $59,720.




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

 

 

Tono Shinyo Kinko Bank

Nihon Seisaku Kouko 

 

 

 

 

2019

 

$ 26,390   

$ 17,839   

2020

 

26,390   

17,840   

2021

 

19,792   

17,840   

2022

 

-   

6,201   

2023

 

-   

-   

Total Loan Payment

$ 72,572   

$ 59,720   

6. GEOGRAPHIC CONCENTRATIONS

The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis. The revenues earned and long-lived assets in Japan increased due to the acquisition of NuZee JP.

Information about the Company’s geographic operations for 2018 and 2017 are as follows:

Net Revenue:

2018

 

2017

North America

400,177   

 

458,041   

 

 

 

 

Japan

968,662   

 

1,170,368   

 

 

 

 

South Korea

20,133   

 

-   

 

1,388,972   

 

1,628,410   

 

 

 

 

Property and equipment, net:

2018   

 

2017   

North America

508,711   

 

266,522   

 

 

 

 

Japan

7,864   

 

11,465   

 

 

 

 

South Korea

157,818   

 

-   

 

674,393   

 

277,987   

7. RELATED PARTY TRANSACTIONS

Loans

During February 2015, the Company issued a secured convertible promissory note in the sum of $600,000 to Masateru Higashida, the Company’s major shareholder.  Interest was calculated at the annual rate of zero percent (0%) for the period until April 2016.  During March 2016, the Company and Masateru Higashida decided to extend the repayment date to March 31, 2017 so that Company has more funds for production and marketing to fulfill customers’ requirements, which is in the best interest of the Company and its shareholders. The annual rate of repayment is at an interest rate of one percent (1%) for the period until March 31, 2017. This promissory note will convert to 392,157 shares of the Company’s common stock at $1.53 per share if the Company is unable to pay back the note by then. The conversion feature was evaluated as a derivative and the Company determined that derivative accounting did not apply.

On March 31, 2017, Masateru Higashida (Lender, a/k/a the “Seller”) deemed it beneficial to engage in a private sale (the “Sale”) and to sell the Amended Note to Kenichi Miura (the “Purchaser”) upon the terms and conditions of the Convertible Note Purchase Agreement. The Amended Note shall continue to bear interest on the principal amount at the annual interest rate of one percent (1%) per year; and the Amended Note shall continue to be convertible in whole or in part to shares of the Corporation’s common stock, at the election of the Lender (now at the election of Purchaser), at a price of $1.53 per share, on or after March 31, 2017. On March 31, 2017, Kenichi Miura exercised his right to convert the Amended Note to shares of the Corporation’s common stock (the “Conversion”), at the price of $1.53 per share, in accordance with the terms and conditions of the Convertible Note Purchase




Agreement, thus equating to a conversion of $606,000 (i.e., $600,000 principal, plus $6,000 in accrued interest) to the equivalent 396,079 shares of the Corporation’s common stock.

During March 2016, the Company borrowed the sum of $100,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before March 31, 2017 at an interest rate of one percent (1%). The Company accrued interest of $230 for the years ended September 30, 2017. The Company had a balance of $45,000 at September 30, 2016 and paid back $45,000 of this short-term loan during the year ended September 30, 2017.  As of September 30, 2017, the loan had principal and accrued interest balances of $0 and $492, respectively.

During August 2016, the Company borrowed the sum of $100,000 unsecured short-term loan from Masateru Higashida to be repaid on or before August 31, 2017 at an interest rate of one percent (1%). During March 2017, the Company borrowed the sum of $44,000 unsecured short-term loan from Masateru Higashida to be repaid on or before March 14, 2018 at an interest rate of one percent (1%). During June 2017, the Company borrowed the sum of $1,200 unsecured short-term loan from Masateru Higashida to be repaid on or before June 14, 2018 at an interest rate of one percent (1%). The Company accrued interest of $443 for the year ended September 30, 2017. The Company paid back $145,000 of the short term loan during the year ended September 30, 2017.  As of September 30, 2018, the loan had principal and accrued interest balances of $0 and $0, respectively.

During December 2016, the Company borrowed the sum of $18,384 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before December 14, 2017 at an interest rate of one percent (1%). Between February and March 2017, the Company borrowed the sum of $14,440 short-term loan from NuZee Co., Ltd to be repaid on or before March 23, 2018 at an interest rate of one percent (1%). During June 2017, the Company borrowed 5,500,000 JPY ($47,361) and $150,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before June 30, 2018 at an interest rate of one percent (1%). During August 2017, the Company borrowed the sum of $30,000unsecured short term loan from NuZee Co., Ltd. For the year ended the September 30, 2017, the Company accrued interest of $334. The Company paid back the full principal amount of the loans as of September 30, 2017.   As of September 30, 2017, the loans had principal and accrued interest balances of $0 and $272, respectively.

During February 2017, the Company borrowed the sum of $4,000 unsecured short-term loan from Travis Gorney to be repaid on or before February 14, 2018 at an interest rate of one percent (1%). The Company paid back the total principal amount of $4,000 and accrued interest of $5 on March 31, 2017.

During March 2017, the Company borrowed the sum of $100,000 secured short-term loan from Takayuki Nagashima to be repaid on or before June 30, 2017 at an interest rate of one percent (1%). On or about May 9, 2017, the Board of Directors amended the terms of the bridge loan in order to permit Takayuki Nagashima to convert the loan and to receive a (“Note”) evidencing his right, exercisable at this election, to convert, his loan to shares of the Corporation’s stock at $1.53 per share at any time upon reasonable notice to the Corporation. On or about May 9, 2017, Takayuki Nagashima exercised his right to convert the Amended Note to shares of the Corporation’s common stock at the price of $1.53 per share, thus equating to a conversion of $100,000 (i.e., $100,000 principal) to the equivalent 65,359 shares of the Corporation’s common stock. There is $0 and $121 interest balance left as of September 30, 2018 and September 30, 2017, respectively.

During April, 2017, the Company borrowed the sum of $50,000 unsecured short-term loan from Eguchi Holdings Co.,Ltd (“EHCL”) and the sum of $50,000 unsecured short-term loan from Eguchi Steel Co.,Ltd (“ESCL”) to be repaid on or before June 30,2017 at an interest rate of one percent (1%). Both of the two short-term loans as well as incurred interests have been paid back as of September 30, 2017.

During July, 2017, NuZee JP borrowed the sum of $62,921 unsecured short-term loan from Katsuyoshi Eguchi. Interest was calculated at the annual rate of zero percent (0%). As of September 30, 2017, NuZee JP paid back the full principal amount.

During the year ended September 30, 2018, the Company borrowed the sum of $2,000 unsecured short-term loan from Masateru Higashida to be repaid on or before December 31, 2018 at an interest rate of one percent (1%). The Company fully paid the loan during the year ended September 30, 2018.

During the year ended September 30, 2018, the Company borrowed the sum of $154,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before October 31, 2018 at an interest rate of one percent (1%) and the sum of $185,000 unsecured short-term loan to be repaid on or before January 31, 2019 at an interest rate of one percent (1%). The Company fully paid these loans as of September 30, 2018.

All convertible promissory note payable and short-term loans are related party transactions since Masateru Higashida is the Company’s major shareholder and he holds 100% ownership of NuZee Co., Ltd. Travis Gorney is an officer of the Company and Takayuki Nagashima is the co-owner of the equity method affiliate. Katsuyoshi Eguchi is a director and the minority owner of NuZee




JP. EHCL and ESCL are controlled by Katsuyoshi Eguchi. Masateru Higashida, NuZee Co., Ltd, Travis Gorney, Takyuki Nagashima, EHCL, ESCL and Katsuyoshi Eguchi are related parties of the Company.

Sales, Purchases and Operating Expenses

For the years ended September 30, 2018 and 2017, NuZee JP sold their products to EHCL, and the sales to them totaled approximately $3,420 and $49,703, respectively. The corresponding accounts receivable balance from EHCL was $222 and $6,100 as of September 30, 2018 and 2017 respectively.

For the years ended September 30, 2018 and 2017, sales made by NuZee JP to NuZee Co., Ltd., totaled $0 and $488,670, respectively. The corresponding accounts receivable balance was $0 and $6,280 as of September 30, 2018 and 2017, respectively.

For the years ended September 30, 2018 and 2017, sales made by NuZee JP to ESCL amounted to $0 and $932, respectively. The corresponding accounts receivable balance was both $0 as of September 30, 2018 and 2017.

NuZee JP purchased goods from EHCL totaling to $0 and $15,535 as of September 30, 2018 and September 30, 2017 respectively. The corresponding accounts payable balance to them was $0 and $1,089 as of September 30, 2018 and 2017 respectively.

EHCL leased an employee to NuZee JP with no fee during year ended September 30, 2018.

NuZee JP had a professional expense of $39,544 to EHCL for the audit related fee paid by them on behalf of the Company. The Company fully paid off the liability as of September 30, 2017.

NuZee JP leased an employee to NuZee Co., Ltd. for Contlus during October 2016 to January 2017 for $10,936 and sold greeting cards to NuZee Co., Ltd. for $7,418 during the year ended September 30, 2017. The related receivables outstanding was $437 and $14,020 as of September 30, 2018 and September 30, 2017 respectively.

NuZee JP leased an employee to Contlus. During the years ended September 30, 2017 and 2018, NuZee JP billed $24,973 and $18,612 for this arrangement, respectively, and $15,361 remains outstanding as of September 30, 2017. Contlus is the Company’s related party as the Company holds 50% of their issued shares. Contlus has payable balance of $33,450 as of September 30, 2018.

During the year ended September 30, 2018, Contlus ceased all operations. NuZee JP transferred outstanding receivable of $33,450 to NuZee INV during the year ended September 30, 2018.

Rent

During October 2016, NuZee JP entered into a rental agreement of an office space with NuZee Co., Ltd.   The Company agrees to pay $1,169 per month for the office on the last day of each month. There is no set expiration date on the agreement. The Company recognized rent expense of $13,999 during the year ended September 30, 2018 from this lease and had an outstanding payable to NuZee Co., Ltd of $1,446 as of September 30, 2018.

During September 2016, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company agrees to pay $1,213 per month for the office and the warehouse on the last day of each month. There is no set expiration date on the agreement. EHCL charged total rent of $7,478 for the year ended September 30, 2018. NuZee JP has an outstanding payable to EHCL of $1,336 as of September 30, 2018.

During February 2015, the Company entered into a rental agreement of a warehouse with ESCL. The Company agrees to pay $449 per month for the warehouse on the last day of each month. There is no set expiration date on the agreement.

8. COMMON STOCK

During the year ended September 30, 2017, the Company sold 344,180 shares of common stock at prices ranging from $1.53 to $3.00 per share for an aggregate purchase price of $860,045.

On March 31, 2017,Kenichi Miura exercised his right to convert the Amended Note to shares of the Corporation’s common stock(the “Conversion”), at the price of $1.53 per share, in accordance with the terms and conditions of the Convertible Note Purchase Agreement, thus equating to a conversion of $606,000 (i.e., $600,000 principal, plus $6,000in accrued interest) to the equivalent 396,079 shares of the Corporation’s common stock.




During the year ended September 30, 2017, the Company sold 588,747 shares of treasury stock at $1.53 per share, for an aggregate purchase price of $900,783.

During May 2017, the Company agreed to amend Nagashima Takayuki’s $100,000 short-term loan to a convertible loan with a conversion price of $1.53 per share.  Nagashima Takayuki then converted this loan to 65,359 shares of the Company’s common stock.

During August 2017, the Company issued 11,534 shares of treasury stock at $1.29 per share, for services and recognized stock compensation expense of $14,879.

During year ended September 30, 2018, the Company sold 1,602,989 shares of common stock at prices ranging from $1.53 to $3.60 per share, for aggregate purchase price of $4,542,659.  The Company incurred stock issuance costs of $157,690 which includes the fair value of 6,556 shares, amounting to $23,600, issued to settle fees owed to a consultant.

During year ended September 30, 2018, the Company issued 11,534 shares with a fair value of $14,880 to a consultant for services received.

9. STOCK OPTIONS

During July 2016, the Company issued 106,667 options to an employee. The right to exercise these options shall vest and become exercisable on December 31, 2021. The exercise price is $2.64 per share and will expire ten years from the grant date, unless terminated earlier as provided by the option agreements.

During January 2017, the Company issued 28,000 options to employees. The right to exercise these options shall vest and become exercisable on January 2018. The exercise price is $1.20-$1.53 per share and will expire ten years from the grant date, unless terminated earlier as provided by the option agreements.

During July 2017, the Company issued 723,333 options to employees and 143,334 options to non-employees. The right to exercise these options shall vest and become exercisable on January 2018. The exercise price is $1.53-$1.68 per share and will expire ten years from the grant date, unless terminated earlier as provided by the option agreements.

During June 2018, the Company issued 133,334 options to an employee. The right to excise these options shall vest and become exercisable on July 2019 over a period of 5 years. The exercise price is $3.96 per share and will expire ten years from the grant date, unless terminated earlier as provided by the option agreements.

During August 2018, the Company issued 50,000 options to employees and 200,000 options to non-employees. The right to excise these options shall vest and become exercisable on September 2019 over a period of 5 years. The exercise price is $3.60 per share for the non-employee options and $3.96 per share for the employee options. The options will expire ten years from the grant date for non-employee and 6.5 years for employee, 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 a representative peer group of small public companies in their industry segment as the Company has a limited stock history.  The expected term of options granted was determined using the simplified method under SAB 107 and represents the mid-point between the vesting term and 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 twelve months ended September 30, 2018 and 2017, respectively:

For employees

 

September 30, 2018

 

September 30, 2017

Risk-free interest rate

 

2.58% - 2.61%

 

1.43% - 1.75%

Expected option life

 

6.5 years

 

5.5 - 6.5 years

Expected volatility

 

94.2% - 95.1%

 

97.6% - 99.1%

Expected dividend yield

 

0.00%

 

0.00%

Exercise price

 

$3.96

 

$1.20 - $1.68

 

 

 

 

 

For non-employees

 

September 30, 2018

 

September 30, 2017

Risk-free interest rate

 

2.27 – 2.82%

 

2.27%

Expected option life

 

10 years

 

10 years

Expected volatility

 

115.70% - 120.6%

 

115.70%

Expected dividend yield

 

0.00%

 

0.00%

Exercise price

 

$3.60

 

$1.53

The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expense of $838,779 and $138,098 for the years ended September 30, 2018 and 2017. Unamortized option expense as of September 30, 2018, for all options outstanding amounted to approximately $2,250,000. These costs are expected to be recognized over a weighted-average period of 3 years.

The following table summarizes stock option activity for the year ended September 30, 2018.

 

 

 

 

Weighted

 

Weighted

 

 

 

 

 

 

Average

 

Average

 

 

 

 

Number of

 

Exercise

 

Remaining

 

Aggregate

 

 

Shares

 

Price

 

Contractual Life (years)

 

Intrinsic Value

Outstanding at September 30, 2017

 

1,021,500

 

$ 1.74   

 

9.6   

 

17,425   

Granted

 

383,334

 

3.81   

 

 

 

 

Exercised

 

-   

 

-   

 

 

 

 

Expired

 

-   

 

-   

 

 

 

 

Forfeited

 

(90,834)

 

1.41   

 

 

 

 

Outstanding at September 30, 2018

 

1,314,000  

 

$ 2.34   

 

8.9   

 

4,407,160   

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2018

 

210,667   

 

$ 1.53   

 

7.9   

 

860,960   

The following table summarizes stock option activity for the year ended September 30, 2017.

 

 

 

 

Weighted

 

Weighted

 

 

 

 

 

 

Average

 

Average

 

 

 

 

Number of

 

Exercise

 

Remaining

 

Aggregate

 

 

Shares

 

Price

 

Contractual Life (years)

 

Intrinsic Value

Outstanding at September 30, 2016

 

191,000   

 

$ 2.10   

 

 

 

 

Granted

 

894,667   

 

1.62   

 

 

 

 

Exercised

 

-   

 

-   

 

 

 

 

Expired

 

(64,167)  

 

1.44   

 

 

 

 

Forfeited

 

-   

 

-   

 

 

 

 

Outstanding at September 30, 2017

 

1,021,500   

 

$ 1.74   

 

9.6   

 

17,425   

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2017

 

60,167   

 

$ 1.44   

 

8.4   

 

17,425   




A summary of the status of the Company’s unvested shares as of September 30, 2018 and 2017, are presented below:

Number of

Nonvested Shares

Nonvested shares at September 30, 2016

126,000   

Granted

894,667   

Exercised

-   

Forfeited

(40,000)  

Vested

(19,334)  

Nonvested shares at September 30, 2017

961,333   

Granted

383,334  

Exercised

-   

Forfeited

(80,000)  

Vested

(161,334)  

Nonvested shares at September 30, 2018

1,103,333   

10. INCOME TAX

As of September 30, 2018, and, 2017, there were no differences between financial reporting and tax bases of assets and liabilities. The Company will have tax losses available to be applied against future years’ income as result of the losses incurred. However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carry forward will not be realized through the reduction of future income tax payments. Accordingly, a 100% valuation allowance has been recorded for deferred income tax assets. Cumulative net operating loss carry forward is $11,680,849 and $8,710,253 as of September 30, 2018 and 2017, respectively, and will begin expiring in 2033. The earliest tax year which remains subject to examination is 2015.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company has made a reasonable estimate of the effects on existing deferred tax balances as a result of the Act. The Company used an effective tax rate of 30% to deferred tax assets because of this tax rule change.

Deferred tax assets consisted of the following as of September 30, 2018 and 2017:

 

2018

2017

Net Operating Losses

$ 3,504,255   

$ 3,048,589   

Valuation Allowance

(3,504,255)  

(3,048,589)  

11. SUBSEQUENT EVENTS

During October to December 2018, the Company sold 63,724 shares of common stock at $16.38 per share, for an aggregate purchase price of $1,043,769. In October 2018, the Company sold 3,334 shares of common stock at $3.60 per share, for an aggregate purchase price of $12,000.

Subsequent to September 30, 2018, the Company received $273,000 in the form of a stock sale. We have not yet received the signed subscription agreement related to this stock sale. We believe we will receive a signed agreement but there is a risk we may not receive the agreement and might have to return these funds.

On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019. All share and per share information included in these financial statements and notes thereto have been retroactively adjusted to give effect to the reverse stock split.




NuZee, Inc.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

                                                                                                                                         

 

     June 30, 2019     

 

September 30, 2018

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$ 3,061,430   

 

$ 1,806,666   

Accounts receivable, net

 

357,982   

 

144,632   

Accounts receivable - Related party

 

117   

 

222   

Inventories, net

 

289,856   

 

134,877   

Other current assets

 

279,566   

 

134,632   

Other current assets - Related party

 

34,568   

 

33,887   

Total current assets

 

4,023,519   

 

2,254,916   

 

 

 

 

 

Property and equipment, net

 

1,987,751   

 

674,393   

 

 

 

 

 

Other assets:

 

 

 

 

Goodwill

 

17,112   

 

17,112   

Customer List, net

 

25,818   

 

34,424   

Other asset

 

2,316   

 

1,667   

 

 

45,246   

 

53,203   

 

 

 

 

 

Total assets

 

$ 6,056,516   

 

$ 2,982,512   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$ 570,189   

 

$ 268,283   

Current portion of long-term loan payable

 

24,468   

 

44,229   

Other current liabilities

 

124,631   

 

160,773   

Other current liabilities - Related party

 

1,068   

 

2,782   

Total current liabilities

 

720,356   

 

476,067   

 

 

 

 

 

Non-current liabilities:

 

 

 

 

Loans payable - long term, net of current portion

 

263,974   

 

88,063   

Other noncurrent liabilities

 

-   

 

6,317   

 

 

263,974   

 

94,380   

 

 

 

 

 

Total liabilities

 

984,330   

 

570,447   

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

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

 

 

 

 

    13,587,580 and 13,194,591 shares issued

 

136   

 

132   

Additional paid in capital

 

31,035,225   

 

14,957,491   

Accumulated deficit

 

(26,043,919)  

 

(12,607,722)  

Accumulated other comprehensive loss

 

(66,002)  

 

(30,967)  

Total NuZee, Inc. shareholders’ equity

 

4,925,440   

 

2,318,934   

Noncontrolling interest

 

146,746   

 

93,131   

Total stockholders’ equity

 

5,072,186   

 

2,412,065   

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$ 6,056,516   

 

$ 2,982,512   

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




NuZee, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

                                                                                                                          

 

Three Months Ended
 June 30, 2019

 

Three Months Ended
 June 30, 2018

 

Nine Months Ended
 June 30, 2019

 

Nine Months Ended
 June 30, 2018

Revenues

 

$ 585,202   

 

$ 271,317   

 

$ 1,304,566   

 

$ 1,018,849   

Cost of sales

 

469,045   

 

173,088   

 

923,903   

 

699,497   

Gross Profit

 

116,157   

 

98,229   

 

380,663   

 

319,352   

 

 

 

 

 

 

 

 

 

Operating expenses

 

9,514,003   

 

731,827   

 

13,668,299   

 

2,330,605   

Loss from operations

 

(9,397,846)  

 

(633,598)  

 

(13,287,636)  

 

(2,011,253)  

 

 

 

 

 

 

 

 

 

Other income

 

10,158   

 

7   

 

14,424   

 

9,058   

Equity in loss of unconsolidated affiliate

 

-   

 

-   

 

-   

 

(10,733)  

Other expense

 

(4,768)  

 

(5,751)  

 

(140,805)  

 

(5,754)  

Interest expense

 

(1,471)  

 

(521)  

 

(2,679)  

 

(2,000)  

Net loss

 

(9,393,927)  

 

(639,863)  

 

(13,416,696)  

 

(2,020,682)  

Net income (loss) attributable to noncontrolling interest

 

12,576   

 

(6,124)  

 

19,501   

 

5,030   

Net loss attributable to NuZee, Inc.

 

($9,406,503)  

 

$ (633,739)  

 

($13,436,197)  

 

$ (2,025,712)  

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$ (0.70)  

 

$ (0.05)  

 

($1.01)  

 

$ (0.17)  

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average number of common stock outstanding

 

13,412,541   

 

12,443,590   

 

13,353,005   

 

12,101,746   

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




NuZee, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

                                                                        

 

NuZee, Inc.

 

Noncontrolling

Interests

 

Total

For the three months ended June 30

 

2019

2018

 

  2019 

2018

 

2019

 2018

Net income (loss)

 

$ (9,406,503)  

$ (633,739)  

 

$ 12,576   

$ (6,124)  

 

$ (9,393,927) 

$ (639,863) 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(43,416)  

(12,786)  

 

(18,607)  

(3,364)  

 

(62,023)  

(16,150)  

Total other comprehensive loss, net of tax

 

(43,416)  

(12,786)  

 

(18,607)  

(3,364)  

 

(62,023)  

(16,150)  

Comprehensive loss

 

$ (9,449,919)

$ (646,525)  

 

$ (6,031)  

$ (9,488)  

 

$ (9,455,950)

$ (656,013) 

                                                                        

 

NuZee, Inc.

 

Noncontrolling

Interests

 

Total

For the nine months ended June 30

 

          2019      

          2018     

 

2019

2018

 

2019

2018

Net income (loss)

 

$ (13,436,197) 

$ (2,025,712)  

 

$ 19,501   

$ 5,030   

 

$ (13,416,696) 

$ (2,020,682)  

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

(35,035)  

(3,081)  

 

34,114   

796   

 

(921)  

(2,285)  

Total other comprehensive income (loss), net of tax

 

(35,035)  

(3,081)  

 

34,114   

796   

 

(921)  

(2,285)  

Comprehensive income (loss)

 

$ (13,471,232)

$ (2,028,793)  

 

$ 53,615   

$ 5,826   

 

$ (13,417,617) 

$ (2,022,967)  

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




NuZee , Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

  

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

other

 

 

 

 

Common stock

 

paid-in

 

Accumulated

 

Noncontrolling

 

comprehensive

 

 

 

 

Shares

 

Amount

 

capital

 

deficit

 

interest

 

income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2018

 

13,194,591   

 

$ 132  

 

$ 14,957,491   

 

$ (12,607,722)  

 

$ 93,131   

 

$ (30,967)  

 

$ 2,412,065   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

116,891   

 

1   

 

1,494,804   

 

-   

 

-   

 

-   

 

1,494,805   

Common stock issued to settle payables

 

5,118   

 

-   

 

107,478   

 

-   

 

-   

 

-   

 

107,478   

Stock option expense

 

-   

 

-   

 

1,789,751   

 

-   

 

-   

 

-   

 

1,789,751   

NuZee foreign currency gain (loss)

 

-   

 

-   

 

-   

 

-   

 

4,855   

 

11,328   

 

16,183   

Net loss for the period

 

-   

 

-   

 

-   

 

(2,576,692)  

 

(11,714)  

 

-   

 

(2,588,406)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2018

 

13,316,600   

 

133   

 

18,349,524   

 

(15,184,414)  

 

86,272   

 

(19,639)  

 

3,231,876   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

13,870   

 

-   

 

228,204   

 

-   

 

-   

 

-   

 

228,204   

Stock issuance costs

 

 

 

 

 

(27,628)  

 

-   

 

-   

 

-   

 

(27,628)  

Common stock issued for services

 

50,000   

 

1   

 

37,499   

 

-   

 

-   

 

-   

 

37,500   

Common stock issued to settle payables

 

844   

 

-   

 

16,445   

 

-   

 

-   

 

-   

 

16,445   

Stock option expense

 

-   

 

-   

 

481,742   

 

-   

 

-   

 

-   

 

481,742   

NuZee foreign currency gain (loss)

 

-   

 

-   

 

-   

 

-   

 

47,866   

 

(2,947)  

 

44,919   

Net income (loss) for the period

 

-   

 

-   

 

-   

 

(1,453,002)  

 

18,639   

 

-   

 

(1,434,363)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2019

 

13,381,314   

 

134   

 

19,085,786   

 

(16,637,416)  

 

152,777   

 

(22,586)  

 

2,578,695   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

206,267   

 

2   

 

3,612,181   

 

-   

 

-   

 

-   

 

3,612,183   

Stock option expense

 

-   

 

-   

 

8,337,258   

 

-   

 

-   

 

-   

 

8,337,258   

NuZee foreign currency gain (loss)

 

-   

 

-   

 

-   

 

-   

 

(18,607)  

 

(43,416)  

 

(62,023)  

Net income (loss) for the period

 

-   

 

-   

 

-   

 

(9,406,503)  

 

12,576   

 

-   

 

(9,393,927)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019

 

13,587,580   

 

$ 136   

 

$ 31,035,225   

 

$ (26,043,919)  

 

$ 146,746   

 

$ (66,002)  

 

$ 5,072,186   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

other

 

 

 

 

Common stock

 

paid-in

 

Accumulated

 

Noncontrolling

 

comprehensive

 

 

 

 

Shares

 

Amount

 

capital

 

deficit

 

interest

 

income

 

Total

                                                                                        

 

                       

 

                       

 

                       

 

                       

 

                       

 

                       

 

                       

Balance September 30, 2017

 

11,573,513   

 

$ 116   

 

$ 9,718,879   

 

$ (9,030,551)  

 

$ 92,857   

 

$ (20,680)  

 

$ 760,621   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription receivable from issuance of common stock

 

100,000   

 

1   

 

152,999   

 

-   

 

-   

 

-   

 

153,000   

Common shares issued for cash

 

332,751   

 

3   

 

509,107   

 

-   

 

-   

 

-   

 

509,110   

Stock option expense

 

-   

 

-   

 

133,486   

 

-   

 

-   

 

-   

 

133,486   

Other comprehensive loss

 

-   

 

-   

 

-   

 

-   

 

(87)  

 

(203)  

 

(290)  

Net loss for the period

 

-   

 

-   

 

-   

 

(637,500)  

 

(6,056)  

 

-   

 

(643,556)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2017

 

12,006,264   

 

120   

 

10,514,471   

 

(9,668,051)  

 

86,714   

 

(20,883)  

 

912,371   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-   

Common shares issued for cash

 

367,843   

 

4   

 

1,082,196   

 

-   

 

-   

 

-   

 

1,082,200   

Stock option expense

 

-   

 

-   

 

116,023   

 

-   

 

-   

 

-   

 

116,023   

Other comprehensive gain

 

-   

 

-   

 

-   

 

-   

 

4,247   

 

9,908   

 

14,155   

Net income (loss) for the period

 

-   

 

-   

 

-   

 

(754,473)  

 

17,210   

 

-   

 

(737,263)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2018

 

12,374,107   

 

124   

 

$ 11,712,690   

 

$ (10,422,524)  

 

$ 108,171   

 

$ (10,975)  

 

$ 1,387,486   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 

242,951   

 

2   

 

$ 784,350   

 

-   

 

-   

 

-   

 

784,352   

Stock option expense

 

-   

 

-   

 

117,199   

 

-   

 

-   

 

-   

 

117,199   

Other comprehensive loss

 

-   

 

-   

 

-   

 

-   

 

(3,364)  

 

(12,786)  

 

(16,150)  

Net loss for the period

 

-   

 

-   

 

-   

 

(633,739)  

 

(6,124)  

 

-   

 

(639,863)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2018

 

12,617,058   

 

$ 126   

 

$ 12,614,239   

 

$ (11,056,263)  

 

$ 98,683   

 

$ (23,761)  

 

$ 1,633,024   

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




NuZee, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

                                                                                                          

 

Nine Months Ended

June 30, 2019

 

Nine Months Ended

June 30, 2018

 

 

 

 

 

Operating activities:

 

 

 

 

Net loss

 

$ (13,416,696)  

 

$ (2,020,682)  

Adjustments to reconcile net loss to net cash

 

 

 

 

used by operating activities:

 

 

 

 

Depreciation and Amortization

 

165,752   

 

103,587   

Option expense

 

10,608,751   

 

366,708   

Inventory impairment

 

27,983   

 

20,048   

Allowance for sales return

 

22,510   

 

4,438   

Loss on sale of assets

 

6,096   

 

-   

Loss on settlement of payable

 

91,684   

 

-   

Equity in loss of unconsolidated affiliate

 

-   

 

10,733   

Common stock issued for services

 

37,500   

 

-   

Change in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(235,860)  

 

1,020   

Accounts receivable - Related party

 

105   

 

11,985   

Inventories

 

(182,962)  

 

(119,119)  

Prepaid expense and other current assets

 

(144,934)  

 

(195,166)  

Other current assets - Related party

 

(681)  

 

29,871   

Other asset

 

(649)  

 

-   

Accounts payable

 

116,005   

 

35,474   

Deferred revenue

 

-   

 

(72,750)  

Other liabilities

 

(6,317)  

 

-   

Other current liabilities - related party

 

(1,714)  

 

1,768   

Accrued expense and other current liabilities

 

(36,142)  

 

(6,235)  

Net cash used by operating activities

 

(2,949,569)  

 

(1,828,320)  

 

 

 

 

 

Investing activities:

 

 

 

 

Purchase of equipment

 

(1,243,933)  

 

(391,855)  

Proceeds from sales of equipment

 

23,600   

 

-   

Net cash used in investing activities

 

(1,220,333)  

 

(391,855)  

 

 

 

 

 

Financing activities:

 

 

 

 

Proceeds from issuance of loan - Related party

 

-   

 

341,000   

Repayment of loans - Related party

 

-   

 

(341,200)  

Repayment of loans

 

(32,580)  

 

(34,571)  

Borrowing of loans

 

147,081   

 

-   

Payments on capital lease

 

-   

 

(2,683)  

Stock issuance cost

 

(27,628)  

 

-   

Proceeds from issuance of common stock

 

5,335,192   

 

2,528,662   

Net cash provided by financing activities

 

5,422,065   

 

2,491,208   

 

 

 

 

 

Effect of foreign exchange on cash and cash equivalents

 

2,601   

 

(2,792)  

 

 

 

 

 

Net change in cash

 

1,254,764   

 

268,241   

 

 

 

 

 

Cash, beginning of period

 

1,806,666   

 

347,327   

Cash, end of period

 

$ 3,061,430   

 

$ 615,568   

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

Cash paid for interest

 

$ 183   

 

$ 1,082   

Cash paid for taxes

 

$ -   

 

$ 800   

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

Stock issued to settle payables

 

$ 32,239   

 

-   

Equipment purchased through debt

 

$ 38,127   

 

-   

Equipment purchased on credit

 

$ 218,140   

 

-   

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




NuZee, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2019

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements of NuZee, Inc. (together with its subsidiaries, referred to herein as the “Company”, “we” or “NuZee”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and rules of the Securities and Exchange Commissions,Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Havana Furnishings’ Registration Statementthe Company’s annual report on Form 10-K for the year ended September 30, 2018 as filed with the SEC on Form S-1.SEC. In the opinion of management, all adjustments, consisting of normal 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 disclosures requireddisclosure contained in Havana Furnishings’ fiscal 2011the audited financial statements as reported in the annual report on Form 10-K have been omitted.

Reclassification

Certain amounts in the prior period financial statements have been omitted.

NOTE 2. GOING CONCERNreclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net loss. Reclassification adjustments are amounts reclassified to other expense that were recognized in operating expense in the previous period.

 

ThesePrinciples of Consolidation

The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiary, which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

The Company has three subsidiaries: NuZee JAPAN Co., Ltd (“NuZee JP”), NuZee KOREA Ltd (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”). NuZee KR and NuZee INV are wholly owned subsidiaries of the Company, and NuZee JP is a majority owned subsidiary of the Company.

Earnings per Share

Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. The Company incurred a net loss for the three months and nine months ended June 30, 2019 and 2018, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

Going Concern and Capital Resources

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

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

The accompanying consolidated financial statements have been prepared on a going concern basis,in accordance with GAAP, which implies Havana Furnishings will continue to meet its obligations and continue its operations forcontemplates continuation of the next fiscal year. Realization value may be substantially different from carrying values as shown and these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should Havana Furnishings be unable to continueCompany as a going concern. As of January 31, 2012, Havana FurnishingsThe Company has not generatedhad limited revenues, and hasrecurring losses, an accumulated losses of $18,943 since inception. The continuation of Havana Furnishings as a going concerndeficit and is dependent upon the continued financial support fromon its shareholders, the ability of Havana Furnishingsmajority shareholder to obtain necessary equity financing to continue operations, and the attainment of profitable operations.provide additional funding for operating expenses. These factorsitems raise substantial doubt regarding the Havana Furnishings’ ability to continue as a going concern.

NOTE 3. RELATED PARTY PAYABLE

As of January 31, 2012, the President has advanced funds of $5,010 to the Company. The amount is unsecured, non-interest bearing, and due on demand.

NOTE 4. SUBSEQUENT EVENT

On February 17, 2012, the Company’s president,Haisam Hamie, advanced the Company an additional $3,000 for working capital.  The amount is due on demand and has no terms of repayment, is unsecured, and bears no interest.

F-4


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors of

Havana Furnishings, Inc.

(a development stage company)

Carson City, Nevada


We have audited the accompanying balance sheet of Havana Furnishings, Inc. (a development stage company) (the “Company”) as of July 31, 2011 and the related statement of expenses, changes in stockholders’ equity and cash flows for the period from July 15, 2011 (inception) through July 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2011 and the results of its operations and its cash flows from July 15, 2011 (inception) through July 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has no revenues since inception and the Company’s sole officer and director is unwilling to loan or advance any additional capital to the Company, which raises substantial doubt about its ability to continue as a going concern.  Management’s plans regarding those matters are described in Note 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.




Major Customers

 

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

 

MALONEBAILEY, LLP

www.malone-bailey.com

Houston, Texas

September 2, 2011

Nine months ended June 30, 2019:

 

 

 

 

Customer Name

 

Sales Amount

 

% of Total Revenue

Customer A

 

$ 333,971   

 

26 %

Customer B

 

$ 254,765   

 

20 %

Customer C

 

$ 153,167   

 

12 %

Customer D

 

$ 109,618   

 

8 %

 

 

 

 

 

Nine months ended June 30, 2018:

 

 

 

 

Customer Name

 

Sales Amount   

 

% of Total Revenue   

Customer A

 

$ 590,304   

 

58 %

Customer B

 

$ 77,750   

 

8 %

 

F-5


HAVANA FURNISHINGS INC.

(A Development Stage Company)

BALANCE SHEET

July 31, 2011

 

 

 

 

  

July 31, 2011

 

 

ASSETS  

   

 

 

 

CURRENT ASSETS

   

 

Escrow deposit

$

8,000

 

 

TOTAL ASSETS  

$

8,000

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY  

   

 

 

 

CURRENT LIABILITIES

   

 

Accounts payable

$

1,000

 

 

TOTAL CURRENT LIABILITIES  

 

1,000

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

   

 

Preferred stock, 100,000,000 shares authorized,

$0.00001 par value;

   

 

none issued and outstanding

 

-

 

 

Common stock, 100,000,000 shares authorized,

$0.00001 par value;

   

 

4,000,000 shares issued and outstanding

 

40

 

 

Additional paid-in capital

 

14,960

 

 

Deficit accumulated during development stage

 

(8,000)

 

 

TOTAL STOCKHOLDERS' EQUITY

 

7,000

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

8,000

 

 

      
          

The accompanying notes are an integral part of these financial statements.
F-6


HAVANA FURNISHINGS INC.

(A Development Stage Company)

Statement of Expenses

For the period from July 15, 2011 (inception) to July 31, 2011

 

EXPENSES

   
    

Accounting and legal fees

$

7,000

 

Consulting fee

 

1,000

 
    

TOTAL EXPENSES

$

8,000

 
 

NET LOSS

$

(8,000)

 
 

NET LOSS PER COMMON SHARE, BASIC AND DILUTED

$

(0.00 )

 

WEIGHTED AVERAGE NUMBER OF COMMON STOCK SHARES

   

OUTSTANDING, BASIC AND DILUTED

 

4,000,000

 

The accompanying notes are an integral part of these financial statements.
F-7


HAVANA FURNISHINGS INC.

(A Development Stage Company)

Statement of Stockholders' Equity

For the period from July 15, 2011 (inception) to July 31, 2011

 
       

Deficit

   
     

Additional

 

Accumulated

 

Total

 
 

Common Stock

 

Paid-in

 

During Development

 

Stockholders'

 
 

Shares

 

Amount

 

Capital

 

Stage

 

Equity

 
   

Common Stock issued for cash on July 15,  

          

2011(inception) at $0.00001 per share  

4,000,000

$

40

$

14,960

$

-

$

15,000

 
   

Net loss

-

 

-  

 

-

 

(8,000)

 

(8,000)

 
   

Balance, July 31, 2011

4,000,000

$

40

$

14,960

$

(8,000)

$

7,000

 
                

The accompanying notes are an integral part of these financial statements.
F-8


HAVANA FURNISHINGS INC.

(A Development Stage Company)

Statement of Cash Flows

For the period from July 15, 2011 (inception) to July 31, 2011

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(8,000)

Adjustments to reconcile net loss to net cash used in operating activities:

Increase in accounts payable

1,000

Increase in escrow deposits

(8,000)

Net cash used in operating activities

(15,000)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the sale of common stock

15,000

NET CHANGE IN CASH

-

Cash, beginning of period

-

Cash, end of period

$

-

SUPPLEMENTAL CASH FLOW DISCLOSURES

Interest paid

$

-

Income taxes paid

$

-

The accompanying notes are an integral part of these financial statements.
F-9


HAVANA FURNISHINGS INC.
(A Development Stage Company)
Notes to the Financial Statements
Period From July 15, 2011 (Inception)
Through July 31, 2011

Note 1. Description of Business and Basis of Presentation

Nature of Business.Lease

HAVANA FURNISHINGS INC. (“we”, “our”, “Havana Furnishings” or the “Company”) was incorporated in the state of Nevada on July 15, 2011 for the purpose of selling restaurant and bar furnishings and accessories from Asia to retail customers in Panama at wholesale prices. The Company has elected July 31 as its fiscal year-end.

Note 2. Summary of Significant Accounting Policies

Use of Estimates.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basic and Diluted Earnings (Loss) Per Share.

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the year ended July 31, 2011, there were no potentially dilutive securities outstanding.

Cash and Cash Equivalents.

Havana Furnishings considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of July 31, 2011, we had no cash or cash equivalents.

Development Stage Company

 

The Company complies with Statementevaluates each lease for classification as either a capital lease or an operating lease. If substantially all of Financial Accounting Standard ASC 915-15the benefits and the Securities and Exchange Commission Exchange Act 7 for its characterizationrisks of ownership have been transferred to the Company as development stage.

F-10


Income Taxes:  

lessee, the Company records the lease as a capital lease at its inception. The Company accountsperforms this evaluation at the inception of the lease and when a modification is made to the lease. If the lease agreement calls for income taxes under ASC 740, "Accounting for Income Taxes." Deferred tax assets and liabilities are recognized fora scheduled rent increase during the future tax consequences attributable to differences betweenlease term, the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income inCompany recognizes the years in which those temporary differences are expected to be recovered or settled. The effectlease expense on deferred tax assets and liabilities of a change in tax rates is recognized in income instraight-line basis over the period that includes the enactment date. There was no current or deferred income tax expense or benefits from July 15, 2011 (inception) to July 31, 2011.

Recently Issued Accounting Pronouncements.lease term.

 

We do not expectNuZee JP is the adoptionlessee of recently issued accounting pronouncements to havecertain equipment under a significant impactcapital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $8,988 as of June 30, 2019. The capital lease liability is included in other current liabilities on our results of operations, financial position or cash flow.

Note 3. - Going Concernthe consolidated balance sheets.

 

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

2019

 

$1,498

2020

 

$5,992

2021

 

$1,498

Total Minimum Lease Payments

 

$8,988

On April 23, 2019, we entered into the “Third Amendment to Lease” with our current landlord in Vista California. Under the terms of this lease we added 2,134 square feet to our facility. After this expansion, we will have been prepared5,643 square feet spaced leased by the landlord with an additional 1,108 square feet subleased from another tenant (total 6,751 square feet). All of this space will co-terminate on a going concern basis, which implies Havana FurnishingsMay 31, 2020. The additional space will continue to meet its obligations and continue its operations for the next fiscal year. As of July 31, 2011, Havana Furnishings has not generated revenues since inception. Havana Furnishings has not commenced operations. These factors raise substantial doubt regarding Havana Furnishings’s ability to continue as a going concern. The continuation of Havana Furnishings as a going concern is dependent upon financial support from its stockholders, the ability of Havana Furnishings to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should Havana Furnishings be unable to continue as a going concern.

Note 4. - Stockholders’ Equityincrease our monthly rent by approximately $2,347.

 

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

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




2019

 

 

$80,709

2020

 

 

$234,908

2021

 

 

$159,923

2022

 

 

$163,516

2023

 

 

$167,216

2024

 

 

$127,539

Total Minimum Lease Payments

$933,811

Loans

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

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

On February 15, 2019 NuZee KR entered into equipment financing for production equipment with ShinHan Bank for $60,563. In June 28, 2019 NuZee KR purchased additional equipment and increased the loan with ShinHan Bank by $86,518. The financing has a term of 36 months at a rate of 4.33%. Principal payments began in July of 2019. The outstanding balance on this loan at June 30, 2019 amounts to $147,081.

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

 

Tono Shinyo Kinko Bank

Nihon Seisaku Kouko

 

 

Ford Motor Credit

ShinHan Bank

 

 

 

 

 

 

 

2019

$ 6,951   

$ 4,699   

 

 

$ 1,746   

$ 11,702   

2020

27,802   

18,793   

 

 

7,286   

47,797   

2021

20,852   

18,794   

 

 

7,500   

49,420   

2022

-   

6,528   

 

 

7,720   

38,162   

2023

-   

-   

 

 

7,947   

-   

2024

-   

-   

 

 

4,743   

-   

Total Loan Payment

$ 55,605   

$ 48,814   

 

 

$ 36,942   

$ 147,081   

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of October 1, 2018 on a modified retrospective basis. The adoption of Topic 606 does not have a material impact on our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations.

Foreign Currency Translation

The financial position and results of operations of each of the Company’s foreign subsidiary are measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of each such subsidiary have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of




stockholders’ equity unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustments comprising accumulated other comprehensive loss amounted to ($66,002) and ($30,967) as of June 30, 2019 and September 30, 2018, respectively.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Inventories

Inventory, consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of cost or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at least quarterly and records a valuation allowance when appropriate. At June 30, 2019 and September 30, 2018, the carrying value of inventory of $289,856 and $134,877 respectively, reflected on the consolidated balance sheets is net of this adjustment.

 

 

June 30, 2019

 

September 30, 2018

Raw materials

 

$ 35,505   

 

$ 30,200   

Finished goods

 

254,351   

 

104,677   

Total

 

$ 289,856   

 

$ 134,877   

Recent Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07 which simplifies several aspects of the accounting for non-employee transactions by stipulating that the existing accounting guidance for share-based payments to employees (accounted for under ASC Topic 718, “Compensation-Stock Compensation”) will also apply to non-employee share-based transactions (accounted for under ASC Topic 505, “Equity”). ASU 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, Havana Furnishings2018. The Company is currently evaluating the impact of the provisions of this ASU on its consolidated financial statements.

In February 2016, the FASB issued 4,000,000ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases.  The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the consolidated balance sheet.   The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.  The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted.  In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.  The Company is currently evaluating the impact of these amendments on its consolidated financial statements.

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

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and




Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.  The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments.  As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period.  The Company is currently evaluating the impact of this amendment on its consolidated financial statements.

2. GEOGRAPHIC CONCENTRATION

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

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

Geographic Concentrations

 

 

 

 

 

 

 

                                                      

Nine Months Ended

June 30, 2019

 

Nine Months Ended

June 30, 2018

Net Revenue:

 

 

 

North America

$ 715,702   

 

$ 368,321   

Japan

549,431   

 

650,528   

South Korea

39,433   

 

-   

 

$ 1,304,566   

 

$ 1,018,849   

 

 

 

 

Property and equipment, net:

June 30, 2019   

 

September 30, 2018   

North America

$ 1,543,862   

 

$ 508,711   

Japan

7,875   

 

7,864   

South Korea

436,014   

 

157,818   

 

$ 1,987,751   

 

$ 674,393   

3. RELATED PARTY TRANSACTIONS

Sales, Purchases and Operating Expenses

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

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

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

Rent

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

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

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




4. COMMON STOCK

During the nine months ended June 30, 2019, the Company sold 337,028 shares of common shares to its presidentstock at $0.004a weighted average price of $15.84 per share, for $15,000 cash.

Note 5. Commitments and Contingencies

On July 15, 2011, the Company agreed to pay Executive Consulting Services Group $1,000 per month until July 1, 2012. Executive Consulting Services Group advises us on matters relating to administrative and operational matters.

F-11


Note 6 - Income Taxes

Havana Furnishings, Inc. uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequencesan aggregate purchase price of temporary differences between the carrying amounts of assets and liabilities$5,335,192, as well as incurred $27,628 in stock issuance costs. The proceeds will be used for financial and income tax reportinggeneral corporate purposes. During the initial period ended July 31, 2011, Havana Furnishings incurred net losses and therefore has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is $8,000 at July 31, 2011, and will expire in the year 2031.

At July 31, 2011, deferred tax assets consisted of the following:

Deferred tax assets

 

2,720

Less: valuation allowance

 

(2,720)

Net deferred tax asset

$

0

F-12


Until _____________2012, ninety days after the date of this prospectus, all dealers effecting transactions in our registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.       OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

            The estimated expenses of the offering, all of which have been paid26,203 shares out of the funds by the initial investment337,028 shares were sold to Nuzee Co., Ltd for total purchase price of our sole officer and director for the purchase of our restricted common stock, are as follows: 

SEC Registration Fee

$

8

Accounting Fees and Expenses

 

5,000

Legal Fees and Expenses

 

3,000

Consulting Expenses

 

5,000

Transfer Agent Fees

 

1,992

TOTAL

$

15,000

ITEM 14.        INDEMNIFICATION OF DIRECTORS AND OFFICERS.

            The only statute, charter provision, bylaw, contract, or other arrangement under which any controlling person, director or officer of the Registrant is insured or indemnified in any manner

against any liability which he may incur in his capacity as such, is as follows:

1.

Section 5 of the Articles of Incorporation of the company, filed as Exhibit 3.1 to our registration statement filed herewith.

2.

Article VIII of the Bylaws of the company, filed as Exhibit 3.2 to our registration statement filed herewith.

3.

Nevada Revised Statutes, Chapter 78.

            The general effect of the foregoing is to indemnify a control person, officer or director from liability, thereby making the company responsible for any expenses or damages incurred by such control person, officer or director in any action brought against them based on their conduct in such capacity, provided they did not engage in fraud or criminal activity.

ITEM 15.       RECENT SALES OF UNREGISTERED SECURITIES.$459,855.

 

            Since inception,During the Registrant has soldnine months ended June 30, 2019, the following securities that were not registered under the Securities Act of 1933, as amended.

Name and Address

Date

Shares

Consideration

Haisam Hamie

Edificio Ultramar Plaza

Apt. #4A 47th Street

Panama City, Panama

July 15, 2011

4,000,000

$

15,000

WeCompany issued the foregoing restricted5,961 shares of common stock to our sole officer and director pursuantsettle payables amounting to $32,239. The Company recognized a loss on settlement of payables of $91,684 for the exemption from registration contained in Section 4(2)nine months ended June 30, 2019.

During the nine months ended June 30, 2019, the Company issued 50,000 shares of common stock to satisfy a previously committed service obligation of $37,500.

5.  STOCK OPTIONS

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

 

 

 

 

Weighted

 

Weighted

 

 

 

 

 

 

Average

 

Average

 

 

 

 

Number of

 

Exercise

 

Remaining

 

Aggregate

                                                            

 

     Shares     

 

     Price     

 

Contractual Life (years)

 

Intrinsic Value

Outstanding at September 30, 2018

 

1,314,000   

 

$ 2.34   

 

8.9   

 

$ 4,407,160   

Granted

 

473,334   

 

19.17   

 

 

 

 

Exercised

 

-   

 

-   

 

 

 

 

Expired

 

-   

 

-   

 

 

 

 

Forfeited

 

-   

 

-   

 

 

 

 

Outstanding at June 30, 2019

 

1,787,334   

 

$ 6.90   

 

8.6   

 

95,077,360   

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2019

 

244,000   

 

$ 1.92   

 

7.9   

 

$ 14,168,160   

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

A summary of the Securities Actstatus of 1933. 


ITEM 16.       EXHIBITS.  the Company’s nonvested options as of June 30, 2019, is presented below:

 

            The following exhibits are filed as part of this registration statement, pursuant to Item 601 of Regulation S-K.

Exhibit No.Nonvested options

 

Document Description

3.1*

Articles of Incorporation.

3.2*

Bylaws.

4.1*

Specimen Stock Certificate.

5.1*

Opinion of The Law Office of SD Mitchell & Associates, PLC.

10.1*

Consulting Agreement

23.1

Consent of MaloneBailey, LLP.

23.2*

Consent of The Law Office of SD Mitchell & Associates, PLC. – Filed As Exhibit 5.1

 

 

 

99.1*

 

Subscription Agreement

*  Previously Filed


ITEM 17.        UNDERTAKINGS.

A.

The undersigned Registrant hereby undertakes:

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to:

Number of

                                                                       

 

(a)

include any prospectus required by Section 10(a)(3) of the Securities Act;Nonvested Shares

Nonvested shares at September 30, 2018

1,103,333   

Granted

 

(b)

reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and473,334  

Exercised

 

(c)

include any additional or changed material information with respect to the plan of distribution.-   

(2)

That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4)

For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective.

(5)

For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Forfeited

 


(6)

For the purpose of determining liability under the Securities Act to any purchaser:-   

Vested

 

Each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.(33,333)  

(7)

For the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of securities:

Nonvested shares at June 30, 2019

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:1,543,334   

6. SUBSEQUENT EVENT

In July 2019, we sold 34,332 shares for $17.55 per share for an aggregate purchase price of $602,530 in private offerings pursuant to Regulation S, Regulation D or Section 4(a)(2) under the Securities Act.




On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019. All share and per share information included in these financial statements and notes thereto have been retroactively adjusted to give effect to the reverse stock split.

In October and November of 2019, we sold 111,738 shares of common stock for $17.85 per share for an aggregate purchase price of $1,994,138 in private offerings pursuant to Regulation S, Regulation D or Section 4(a)(2) under the Securities Act.




                          Shares

NUZEE, INC.

Common Stock

Prospectus

, 2019

The Benchmark Company







PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the registration of the common stock hereunder. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the securities exchange listing fee.

 

 

Amount to Be
Paid

 

SEC registration fee

 

$

1,568

 

FINRA filing fee

 

 

2,312

 

Securities exchange listing fee

 

 

*

 

Accountants’ fees and expenses

 

 

*

 

Transfer and registrar fees and expenses

 

 

*

 

Printing and engraving expenses

 

 

*

 

Legal fees and expenses

 

 

*

 

Miscellaneous expenses

 

 

*

 

Total

 

$

*

 

*To be filed by amendment

Item 14. Indemnification of Directors and Officers

The Company’s articles of Incorporation and second amended and restated bylaws provide that, to the fullest extent permitted by the laws of the State of Nevada, any person who was or is a party or is threatened to be made a party to any proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, trustee, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. For the avoidance of doubt, the foregoing indemnification obligation includes, without limitation, claims for monetary damages against an indemnitee to the fullest extent permitted under Chapter 78 of the Nevada Revised Statutes as in existence on the date hereof.

The indemnification provided shall be from and against expenses (including attorneys’ fees), judgment, fines and amounts paid in settlement actually and reasonably incurred by such indemnified person in connection with such action, suit or proceeding if such indemnified person acted in good faith and in a manner such person reasonably believed to be  in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe such indemnified person’s conduct was unlawful.

In the case of any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such indemnified person is or was a director, trustee, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable for gross negligence or willful misconduct in the performance of such indemnified person’s duty to the Company unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite circumstances of the case, such indemnified person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper.

The termination of any action or suit by judgment or settlement shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company.

To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any of our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.


II-1



Item 15. Recent Sales of Unregistered Securities

The following lists set forth information regarding all securities sold or granted by us within the past three years that were not registered under the Securities Act, and the consideration, if any, received by us for such securities:

(1)Between July 2016 and August 2017, we sold to private investors an aggregate of 382,657 shares of treasury stock in exchange for cash at a price per share of $1.53 for an aggregate purchase price of $585,465. 

(2)During August 2017, we sold to private investors an aggregate of 11,534 shares of treasury stock in exchange for cash at a price per share of $1.29 for an aggregate purchase price of $14,879. 

(3)Between August 2017 and September 2017, we issued and sold to private investors an aggregate of 117,343 shares of our common stock in exchange for cash at a price per share of $1.53 for an aggregate purchase price of $179,535. 

(4)Between October 2017 and December 2017, we issued and sold to private investors an aggregate of 432,752 shares of our common stock in exchange for cash at a price per share of $1.53 for an aggregate purchase price of $662,110. 

(5)Between January 2018 and March 2018, we issued and sold to private investors an aggregate of 14,510 shares of our common stock in exchange for cash at a price per share of $1.53 and an aggregate of 353,334 shares of our common stock in exchange for cash at a price per share of $3.00, for an aggregate purchase price of $1,082,200. 

(6) Between April 2018 and June 2018, we issued and sold to private investors an aggregate of 150,451 shares of our common stock in exchange for cash at a price per share of $3.00 and an aggregate of 92,500 shares of our common stock in exchange for cash at a price per share of $3.60, for an aggregate purchase price of $784,352. 

(7)Between July 2018 and September 2018, we issued and sold to private investors an aggregate of 559,444 shares of our common stock in exchange for cash at a price per share of $3.60 for an aggregate purchase price of $2,013,997. 

(8)Between October 2018 and December 2018, we issued and sold to private investors an aggregate of 116,891 shares of our common stock in exchange for cash at a price per share ranging from $3.60 to $16.38, for an aggregate purchase price of $1,494,805. 

(9)Between January 2019 and March 2019, we issued and sold to private investors an aggregate of 13,870 shares of our common stock in exchange for cash at a price per share of $16.44 for an aggregate purchase price of $228,204, and issued an aggregate of 50,844 shares of our common stock as payment for previously agreed services and to settle certain payables. 

(10)Between April 2019 and June 2019, we issued and sold to private investors an aggregate of 206,267 shares of our common stock in exchange for cash at a price per share of $17.52, for an aggregate purchase price of $3,612,183. 

(11)During July 2019, we issued and sold to private investors an aggregate of 34,332 shares of our common stock in exchange for cash at a price per share of $17.55 for an aggregate purchase price of $602,530. 

(12)Between October and November 2019, we issued and sold to private investors an aggregate of 111,738 shares of our common stock in exchange for cash at a price per share of $17.85, for an aggregate purchase price of $1,994,138. 

(13)Since October 1, 2016, we have granted stock options to purchase an aggregate of 1,751,333 shares of our common stock with an average exercise price of $6.85 per share to certain of our employees, directors, and service providers. 

Each of the foregoing issuances was made in a transaction not involving a public offering pursuant to an exemption from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated under the Securities Act. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.


II-2



Item 16. Exhibits and Financial Statement Schedules

(a)Exhibits

The following exhibits are filed as part of this registration statement:

Exhibit Number

 

(a)

Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 of this chapter;Description

1.1*

 

(b)

Any free writing prospectus relating to the offering prepared by or on behalfForm of the undersigned registrant or used or referred to by the undersigned registrant;Underwriting Agreement

3.1

 

(c)

The portionArticles of any other free writing prospectus relatingIncorporation of the Company, dated July 15, 2011 (incorporated by reference to Exhibit 3.1 to the offering containing material information about the undersigned registrant or its securities provided by orCompany’s Registration Statement on behalf of the undersigned registrant; andForm S-1 filed on September 6, 2011, SEC File Number 333-176684)

3.2

 

(d)

Any other communication that is an offer inCertificate of Amendment to Articles of Incorporation of the offering madeCompany, dated May 6, 2013 (incorporated by the undersigned registrantreference to Exhibit 3.01(b) to the purchaser.Company’s Current Report on Form 8-K filed on April 25, 2013, SEC File Number 333-176684)

3.3


B.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

C.

The undersigned Registrant hereby undertakes that:

 

(1)

For purposesCertificate of determining any liability under the Securities ActAmendment to Articles of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement asIncorporation of the time it was declared effective.Company, dated October 28, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 28, 2019, SEC File Number 000-55157)

3.4

 

(2)Second Amended and Restated Bylaws of the Company, dated April 22, 2016 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on April 28, 2016, SEC File Number 000-55157)

4.1*

For the purpose

Form of determining any liability under the Securities ActUnderwriter’s Warrant

5.1*

Opinion of 1933, each post-effective amendment that contains a formPolsinelli PC

10.1†

Executive Employment Agreement dated August 17, 2019, by and between NuZee, Inc. and Masateru Higashida

10.2†

Employment Agreement dated February 1, 2016, by and between NuZee, Inc. and Travis Gorney

10.3†

Employment Agreement dated March 31, 2019, by and between NuZee, Inc. and Shanoop Kothari

10.4†

NuZee, Inc. 2013 Stock Incentive Plan

10.5†

NuZee, Inc. 2019 Stock Incentive Plan

21.1

Subsidiaries of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offeringNuZee, Inc.

23.1

Consent of such securities at that time shall be deemed to be the initialbona fideoffering thereof.MaloneBailey, LLP

23.2*

Consent of Polsinelli PC (included in Exhibit 5.1)


*To be filed by amendment. 

Indicates management contract or compensatory plan. 

SIGNATURES(b) Financial Statement Schedules

 

No financial statement schedules are provided, because the information called for is not required or is shown either in the financial statements or the notes thereto.


II-3



Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: 

(i)To include any prospectus required by section 10(a)(3) of the Securities Act of 1933. 

(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. 

(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; 

(2)That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 

(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 

(4)For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.


II-4



SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amended registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the cityCity of Panama, Panama,Vista, State of California, on this 4the 12th day of May, 2012.November, 2019.

HAVANA FURNISHINGSNUZEE, INC.

 

 

By:

BY:

/s/ HAISAM HAMIEMasateru Higashida

 

 

Haisam Hamie, President, PrincipalName:

Masateru Higashida

Title:

Chief Executive Officer (Principal Executive Officer), Secretary, Treasurer, Principal Financial Officer, Principal Accounting Officer and sole member of the Board of Directors.Director

 

            KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Haisam Hamie as true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, therewith, with the Securities and Exchange Commission, and to make any and all state securities law or blue sky filings, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying the confirming all that said attorney-in-fact and agent, or any substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this amended Form S-1 Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates indicated:indicated.

 

Signature

Title

Title

Date

 

/s/ Masateru Higashida

November 12, 2019

Masateru Higashida

Chief Executive Officer (Principal Executive Officer), Secretary, Treasurer, and Director

 

 

HAISAM HAMIE

President, Principal Executive Officer, Principal

May 7, 2012

Haisam Hamie

Financial Officer, Principal Accounting Officer, Secretary, Treasurer and sole member of the Board of Directors


EXHIBIT INDEX

Exhibit No./s/ Shanoop Kothari

 

Document Description

 

3.1*

Articles of Incorporation.

3.2*

Bylaws.

4.1*

Specimen Stock Certificate.

5.1*

Opinion of The Law Office of SD Mitchell & Associates, PLC.

10.1*

Consulting Agreement

23.1

Consent of MaloneBailey, LLP.

23.2*

Consent of The Law Office of SD Mitchell & Associates, PLC. – Filed As Exhibit 5.1November 12, 2019

Shanoop Kothari

Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) and Director

 

 

99.1*/s/ Kevin J. Conner

 

Subscription Agreement

November 12, 2019

Kevin J. Conner

Director

/s/ J. Chris Jones

November 12, 2019

J. Chris Jones

Director

/s/ Allen S. Morton

November 12, 2019

Allen S. Morton

Director



*  Previously Filed