SECURITIESAND EXCHANGE COMMISSION WASHINGTON,D.C. 20549
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
CommissionFile No. 333-176684
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Nevada 38-3849791
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(Stateor other jurisdiction of incorporation or organization)
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(I.R.S.Employer Identification Number)
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(Addressof principal executive offices) (zip code)
(Registrant’stelephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Titlesof eachclass Nameof eachexchange on which registered
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None N/A
Indicateby check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo ¨
Indicateby check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xNo ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Largeaccelerated filer |
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| Acceleratedfiler |
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Non-acceleratedfiler |
| ¨ | (Donot check if smaller reporting company) |
| Smallerreporting company |
| x |
Indicatebycheckmarkwhethertheregistrantisa shell company(asdefinedinRule12b-2of theExchange Act). Yes ¨ No x
APPLICABLEONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THEPRECEDING FIVE YEARS:
Indicateby check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Actof1934subsequent tothe distribution of securities undera plan confirmed by acourt. Yes ¨ No ¨
(APPLICABLEONLY TO CORPORATE REGISTRANTS)
Indicatethe number of shares outstanding of each of the registrant’s classes of common stock,as of the latest practicable date. As of February 5, 2015 NuZee, Inc. had 27,443,718shares of common stock outstanding.
Item1. Financial Statements.
(a) Balance Sheets at Decemeber 31, 2014 (Unaudited) and September 30, 2014.
(b) Statement of Operations for the threemonths ended December 31, 2014 and 2013 (Unaudited).
(c) Statement of Cash Flows for the three months ended December 31, 2014 and 2013 (Unaudited).
(d) Notes toFinancialStatements (Unaudited).
Item4. Controls and Procedures
Item1. Legal Proceedings Item 1A. Risk Factors
PARTII.
Item2. UnregisteredSales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item4. Mine Safety Disclosures
Item 5. OtherInformation
Item6. Exhibits
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ThisQuarterly Report on Form 10-Q of NuZee, Inc.contains “forward-looking statements” that may state our management’s plans, future events, objectives, current expectations, estimates,forecasts, assumptions or projections about the company and its business. Any statement in this report that is not a statement of historical fact is a forward-looking statement, andin some cases, words such as “believes,” “estimates,” “projects,” “expects,” “intends,” “may,” “anticipates,” “plans,” “seeks,” and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual outcomes and results to differ materially fromthe anticipated outcomes or results. These statements are not guarantees of future performance, and undue reliance should not be placed on these statements. It is important to note that our actual results could differ materially from whatis expressed in our forward-looking statements due to the risk factors described in the section of our Form 10-K filed on February 12,2015 entitled “Risk Factors.”
Weundertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
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PARTI.
Item1. Financial Statements.
Nuzee, Inc. BALANCE SHEETS (unaudited) | ||||
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| December 31, 2014 |
| September 30, 2014 | |
ASSETS |
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Current assets: |
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Cash | $ | 139,203 | $ | 238,160 |
Accounts receivable |
| 4,884 |
| 5,205 |
Inventories |
| 83,963 |
| 50,881 |
Prepaid expenses and deposits |
| 44,626 |
| 69,099 |
Total current assets |
| 272,676 |
| 363,345 |
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Equipment, net |
| 31,750 |
| 33,368 |
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Total assets | $ | 304,426 | $ | 396,713 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
| 38,381 |
| 43,384 |
Other current liabilities |
| 8,852 |
| 8,180 |
Total current liabilities |
| 47,233 |
| 51,564 |
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Stockholders' equity: |
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Preferred stock; 100,000,000 shares authorized, $0.00001 par value; 0 shares issued and outstanding |
| - |
| - |
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Common stock; 100,000,000 shares authorized, $0.00001 par value; 30,619,719 and 30,599,719 shares issued; |
| 306 |
| 306 |
Additional paid in capital |
| 5,160,674 |
| 4,968,609 |
Accumulated deficit |
| (4,821,047) |
| (4,518,766) |
Less: treasury stock, at cost (2,156,000 and 2,736,000 shares repurchased, |
| (82,740) |
| (105,000) |
Total stockholders' equity |
| 257,193 |
| 345,149 |
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Total liabilities and stockholders' equity | $ | 304,426 | $ | 396,713 |
The accompanying notes are an integral part of these unaudited financial statements.
F-1
Nuzee, Inc. STATEMENTS OF OPERATIONS (unaudited) | ||||||
Three Months Ended | Three Months Ended | |||||
Revenues | $ 41,016 | $ - | ||||
Cost of sales | 35,517 | - | ||||
Gross Profit (loss) | 5,499 | - | ||||
Operating expenses | 306,980 | 1,402,880 | ||||
Loss from operations | (301,481) | (1,402,880) | ||||
Other income | - | 143 | ||||
Other expense | 800 | - | ||||
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Net loss | $ (302,281) | $ (1,402,737) | ||||
Basic and diluted loss per common share | $ (0.01) | $ 0.05 | ||||
Basic and diluted weighted average number of | 28,099,371 | 31,135,757 | ||||
The accompanying notes are an integral part of these unaudited financial statements.
F-2
Nuzee, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | |||||||
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Three months Ended |
| Three months Ended | |||||
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Operating activities: |
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Net loss | $ | (302,281) | $ | (1,402,737) | |||
Adjustments to reconcile net loss to net cash used by operating activities: |
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Depreciation | 1,618 |
| 468 | ||||
Option expense | 17,992 |
| 1,053,755 | ||||
Warrant expense | 9,134 |
| - | ||||
Change in operating assets and liabilities: |
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Accounts receivable | 321 |
| 13,195 | ||||
Inventories | (33,082) |
| (35,421) | ||||
Prepaid expenses and deposits | 24,473 |
| (46,023) | ||||
Accounts payable | (5,004) |
| 4,538 | ||||
Other current liabilities | 672 |
| (9,563) | ||||
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Net cash used by operating activities | (286,157) |
| (421,788) | ||||
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Investing activities: |
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Purchase of equipment | - |
| (1,927) | ||||
Net cash used by investing activities | - |
| (1,927) | ||||
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Financing activities: |
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Proceeds from insuance of common stock | 13,200 |
| - | ||||
Proceeds from insuance of treasury stock | 174,000 |
| - | ||||
Net cash provided by financing activities | 187,200 |
| - | ||||
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Net change in cash | (98,957) |
| (423,715) | ||||
Cash, beginning of period | 238,160 |
| 1,110,661 | ||||
Cash, end of period | $ | 139,203 | $ | 686,946 | |||
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Non-cash investing and financing activities: |
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Forgiveness of related party receivable | $ | - | $ | 139,661 | |||
Forgiveness of debt | $ | - | $ | (50,000) | |||
Cancellation of common stocks | $ | - | $ | (89,661) | |||
The accompanying notes are an integral part of these unaudited financial statements.
F-3
Nuzee,Inc.
NOTESTO FINANCIAL STATEMENTS
(Unaudited)
December 31, 2014
1. BASIS OF PRESENTATION AND SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES
Theaccompanying unaudited interim financial statements of Nuzee, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the initial period ended September 30, 2014 as filed with the 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 consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.
GoingConcern
Theaccompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as agoing concern. The Companyhas had recurring losses, large accumulateddeficits, is dependent on the shareholder to provide additional funding for operating expenses and has no recurring revenues. These items raise substantial doubt about the Company’s ability to continue as a going concern.
During November 2014, the Company paid $9,000 for consultation charge of Lotus Cup to an entity, From East Holdings Co., Ltd., controlled by the Company’s major shareholder
3. INTELLECTUAL PROPERTY
The Company has been granted licenses to use the trademarks CEREBOOST and SVETOL in Company materials and on product packaging. Pursuant to the Trademark License Agreements dated October 11, 2013, the agreement may be terminated by either party, without cause, upon 30 days written notice. Additionally, if the Company fails to purchase the annual minimum amount (500 kg) of product from the licensor for any 12 month period, the licensor may terminate the Company’s license upon 15 days written notice.
During November 2014, the Company resold 130,000 shares of treasury stock at $0.30 per share, for an aggregate purchase price of $39,000.
During December 2014, the Company resold 450,000 shares of treasury stock at $0.30 per share, for an aggregate purchase price of $135,000.
During December 2014, the Company sold 20,000 shares of common stock at $0.66 per share, for an aggregate purchase price of $13,200.
DuringOctober 2013 the Company granted 3,471,665 options to employee. The right to exercise these options shall vest and become 25% exercisable on the first anniversary of when granted, with the exception that 100% of options issued to one employee vested immediately. The remaining options shall vest and become exercisable ratably over the next 36 months, with the exception that options issued to 2 employees shall vest and become exercisable over 18 months and option issued to one employee shallvest and become exercisable as of the effective date of the Option Agreement. The exercise price is $0.48 per share and will expire ten years from the grant date, unless terminated earlier as provided by the Option Agreements.
Thefair 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 historical trading in the company's stock. The expected term of options granted was determined using the simplified method under SAB 107 and represents one-half the exercise period. The risk-free rate is calculated using the U.S. Treasury yield curve, and is basedon the expected term of the option. The Company has estimated there will be no forfeitures.
TheBlack-Scholes option pricing model was used with the following weighted average assumptions for options granted during the three months ended December 31, 2014:
Risk-freeinterest rate 1% - 2% Expected option life 5-6 yearsExpected volatility 300%
Expecteddividend yield 0.0%
During the three months endedDecember 31, 2014, 2,978,124 options are exercisable and the Company recognized $17,992 of stock options expenses. Unamortized option expense as of December 31, 2014 for all options outstanding amounted to approximately $23,343.
F-4
During April, 2014, the Company granted 100,000 warrants to advisors. The right to exercise these warrants shall vest in equal eight quarterly installments over the twenty-four (24) months following the date their vesting begins, subject to their continued engagement as a service provider though each such date.The exercise price equal to the current fair market valueper share on the date of grantand will expire ten years from the grant date, unless terminated earlier as provided by the WarrantAgreements.
TheBlack-Scholes warrant pricing model was used with the following weighted average assumptions for options granted during the three months ended December 31, 2014:
Risk-freeinterest rate 2.53% Expected life 10 years
Expectedvolatility 300%
Expecteddividend yield 0.0%
During the three months ended December 31, 2014, 37,500 warrants are exercisable and the Company recognized $9,134 of warrant expenses.
During January 2015, the Company resold 140,000 shares of treasury stock at $0.30 per share, for an aggregate purchase price of $42,000.
During January 2015, the Company cancelled 1,160,000 shares of common stock.
F-5
Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Thefollowing plan of operation provides information which management believes is relevant to anassessment and understanding of our results of operations and financial condition. The discussion should be readalong with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate,anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward- looking statements. These forward-looking statements are subject to certain risk sand uncertainties that could cause actual results to differ materially from our predictions.
Planof Operations
ShortTerm Goals (9 Months)
Over the next 9 months, the Company’s growth plans include continuing efforts to:
· Build a targeted distribution network for our Coffee Blenders functional beverages by signing the retailers that serve the K-cup and Coffee replenishment channels;
· Increase awareness for Coffee Blenders through communications and sampling programs;
· Establish the Nuzee brands top 3 in their product categories consistent with our mission of providing natural products that work.
We have retained and plan to expend our sales and marketing team who can immediately contribute to our network of US and international channels as such seeding our product becomes a near term priority. We have already started developing working relationships with key online and national distributors who serve the coffee and single-serve pod consumers. We plan to accelerate our traction by using manufacturer representatives with food and beverage experience.
In order to build distribution the Company is first determining the total distribution launch cost among the potential channels as each has their own upfront and recurring cost structure. Under investigation are the following company directed channels:
· direct – coffeeblenders.com shopping via search and digital marketing
· e-commerce affiliates (such as Amazon)
· select health and wellness retailers
· key mass/grocery retailers
· Club/Other
Each of the above is compared using a host of costing parameters not limited to the following: product slotting fees, overall margin requirements, market development fees, return allowances, broadcast advertising and promotional marketing plans, in-store and channel detailing, product sampling and customer demoing as well as transportation and logistics cost, cross dock fees, shelf-life expiration swaps, and initial and recurring inventory loading levels.
In conjunction with the above channel assessment, the Company is also exploring custom and private labeling whereby the company licenses the product formulation, trademarks, and other assets in two ways:
1. Multi-Level Marketing (MLM) Firms – for example manufacturer on behalf of “Amway” for product extensions of their Great Value and Equate private brands.
2. Product Brands – for example license to “Maxwell House” the Coffee Blender product as a new product line extension to expand their single-serve business.
TheCompany plans going forward include the following milestones:
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Milestone | Timing | Est. Cost/Funding Source |
1. Finalize Products & Pricing - New Product Functions and Versions | December – February (Phase I) March-May (Phase II) | $25,000 (Phase I) $20,000 (Phase II) Previous Sale of Equities |
2. Staff (retain and expand) | February - June | $20,000-30,000/Mo. Recurring Previous Sale of Equities |
3. Launch Market and Promotion Plan - PR - Sampling - Advertising | January – Ongoing | $500,000-$750,000 Annual Previous and Future Sale of Equities + Product Contribution |
4. Explore OEM/Private Label Opportunities | March – Ongoing | n/a |
Ifwe are unable to receive funding our plans will be dramatically and negatively impacted such that we will prioritize go to market strategies based on reduced operations and available capital.
LongTerm Goals (Five Years)
TheCompany believes that there willbe significant expansion opportunities in existing markets through new products as well as in new regions outside of the United States in a combination of market development and product licensing.
TheCompany believes that our limited resources may pose a challenge to our expansion goals and therefore anticipates that it may require additional capital infuture years to fund expansion. There canbe no assurancethat our expansion strategy will be accretive to our earnings within a reasonable period of time. However, the Company believes that it canimprove its operational efficiencies and reduce the need for new capital by carefully managing the business based on the following economic fundamentals within accretive margin and cost contribution modeling.
From inception on November 9, 2011 through December 31, 2014, we have accumulated losses of 4,821,047. This loss was attributed to $4,540, 688 of operating expenses.
We are presently in the development phase of our new product platform for functional beverages and we can provide no assurance that we will be able to attain profitability.
During the three months ending December 31, 2014, we earned revenues of $41,016 from sales of our products and incurred operating expenses in the amount of $297,980. These operating expenses included the research and the preparation of our business plan in addition to general and administrative expenses. We anticipate our operating expenses will increase as we further undertake our plan of operations. The increase will be attributed to costs associated with production, storage and delivery of our products as well as research and development of new products.
We expect sales in 2015 from our new products through a combination of direct to consumer through our website portal, product awareness as well as through affiliate online stores and retailers.
AsofSeptember 30, 2014 wehad a cash balance of $238,160 and $139,203 at December 31, 2014. Total assets decreased by 23% from $396,713 at September 2014 to $304,426 at December 31, 2014.
As of December 31, 2014 we had current liabilities of $47,233 and $51,564 at September 30, 2014. Accounts Payable decreased by approximately 12 % to $38,381 as of December 31, 2014 from $43,384 at September 30, 2014. Other Current Liabilities increased by approximately 8% to $8,852 as of December 31, 2014 from $8,180 at September 30, 2014 mainly due to legal fees accrual and deferred product costs.
Our current ratio decreased from 705% in September 30, 2014 to 577% as of December 31, 2014.
Our auditor has indicated that there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, and if we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
Ourcurrent cash balance as of December 31, 2014 is not sufficient to fund our operations for the next twelve months. Therefore, the Company intends to engage in additional financing through the sale of equitysecurities.
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We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Asof the end of the period covered by this Report,the Company’s President,and principal financial officer (the “Certifying Officer”), evaluatedthe effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the officer concluded that, as of the date of the evaluation, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management to allow timely decisions regarding required disclosure.
TheCertifying Officer has also indicated that there were no changes in internal controls over financial reporting during the Company’s last fiscal quarter, and no significant changes in our internal controls or other factors that could significantly affectsuch controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.
Ourmanagement, including the Certifying Officer, does not expect that our disclosure controls or our internal controls will prevent all errors and fraud. A control system,no matter how well conceived and operated,canprovide only reasonable,not absolute, assurance that the objectives of the control system are met. Inaddition, the design of a control systemmust reflect the fact that there are resource constraints,and the benefits of controls must be Consideredrelative to their costs. Because of the inherent limitations in all control systems,no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud,if any,within a company have been detected. These inherent limitations include the realities that judgments in decision-making canbe faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls canbe circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there canbe no assurance that any design will succeedin achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system,misstatements Dueto error or fraud may occur and not be detected.
Item1. Legal Proceedings None.
Item1A. Risk Factors
PARTII.
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Therehave beenno changes to our risk factors from those disclosed in our Form 10-K filed on February 12, 2015.
Item2. Unregistered Sales of Equity Securities and Use of Proceeds
Therewere no unregistered Sales of Equity Securities during the quarter ending December 31, 2014.
Item 4. Mine Safety Disclosures
Not applicable.
None.
EXHIBITNO. | DESCRIPTION |
31.1* | Certificationof Chief Executive��Officer pursuant to 18 U.S.C. Section 1350, as |
| adoptedpursuant to Section 302 of the Sarbanes-Oxley Actof 2002 |
31.2* | Certificationof Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as |
| adoptedpursuant to Section 302 of the Sarbanes-Oxley Actof 2002 |
32.1* | Certificationof Chief Executive Officer and Chief Financial Officer pursuant to 18 |
| U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act |
| of2002 |
32.2* | Certificationof Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as |
| adoptedpursuant to Section 906 of the Sarbanes-Oxley Actof 2002 |
101** | Interactive Data File |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
** | Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections. |
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Pursuantto the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: | February 23, 2015 |
| NUZEE, INC. | |
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| By: | /s/ Masateru Higashida | |
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| Masateru Higashida, Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) | |
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