UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________to________
Commission
File No.
(exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated Filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 16, 2021, the registrant had shares of common stock outstanding.
Table of Contents
| 2 |
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Such forward-looking statements reflect the views of NuZee, Inc. (“NuZee” or the “Company”) with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about the Company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance, or any other matters, are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “expects”, “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements in this report may include, without limitation, statements regarding:
| ● | our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our products; | |
| ● | the impact to our business from the COVID-19 global crisis; | |
| ● | the evolving coffee preferences of North American coffee consumers; | |
| ● | the size and growth of the markets for our products and services; | |
| ● | our ability to compete with companies producing similar beverage products; | |
| ● | our expectation that our existing capital resources will be sufficient to fund 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 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 control over financial reporting; | |
| ● | our ability to develop innovative new products; and | |
| ● | our financial performance. |
The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in the section of our Annual Report on Form 10-K filed with the SEC on December 28, 2020 titled “Risk Factors” and sections of this report that describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
| 3 |
Item 1. Financial Statements.
NuZee, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2021 | September 30, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets: | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Right-of-use asset - finance lease | - | |||||||
| Investments | ||||||||
| Other assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Current portion of long-term loan payable | ||||||||
| Current portion of lease liability - operating lease | ||||||||
| Current portion of lease liability - finance lease | ||||||||
| Accrued expenses | ||||||||
| Deferred income | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Lease liability - operating lease, net of current portion | ||||||||
| Lease liability - finance lease, net of current portion | ||||||||
| Loan payable - long term, net of current portion | ||||||||
| Other noncurrent liabilities | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock; shares authorized, $ par value; and shares issued | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 4 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross Profit (Loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from investment in uncosolidated affiliate | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Net loss attributable to NuZee, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average number of common stock outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 5 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Noncontrolling | ||||||||||||||||||||||||
| NuZee, Inc. | Interests | Total | ||||||||||||||||||||||
| For the three months eneded June 30 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||
| Foreign currency translation | ( | ) | ( | ) | ||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||
| Noncontrolling | ||||||||||||||||||||||||
| NuZee, Inc. | Interests | Total | ||||||||||||||||||||||
| For the nine months eneded June 30 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 6 |
NuZee , Inc.
Consolidated Statements of Stockholders’ Equity
(unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
| Balance September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Equity securities issued for cash | - | - | ||||||||||||||||||||||
| Stock option expense | - | - | - | - | ||||||||||||||||||||
| Exercise of stock options | - | - | - | |||||||||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Equity securities issued for cash | - | - | ||||||||||||||||||||||
| Common stock issued for compensation | - | - | ||||||||||||||||||||||
| Stock option expense | - | - | - | - | ||||||||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Amortization of common stock issued for compensation | - | - | - | - | ||||||||||||||||||||
| Stock option expense | - | - | - | - | ||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
NuZee , Inc.
Consolidated Statements of Stockholders’ Equity
(unaudited)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||||||
| Common stock | paid-in | Accumulated | Noncontrolling | comprehensive | ||||||||||||||||||||||||
| Shares | Amount | capital | deficit | interest | loss | Total | ||||||||||||||||||||||
| Balance September 30, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Equity securities issued for cash | - | - | - | |||||||||||||||||||||||||
| Stock option expense | - | - | - | - | - | |||||||||||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Stock option expense | - | - | - | - | - | |||||||||||||||||||||||
| Other comprehensive gain / (loss) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||
| Balance March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Equity securities issued for cash | - | - | - | |||||||||||||||||||||||||
| Stock option expense | - | - | - | - | - | |||||||||||||||||||||||
| Other comprehensive gain | - | - | - | - | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | Nine Months Ended | |||||||
| June 30, 2021 | June 30, 2020 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and Amortization | ||||||||
| Noncash lease expense | ||||||||
| Stock option expense | ||||||||
| Property and equipment impairment | - | |||||||
| Inventory impairment | - | |||||||
| Common stock issued for compensation | - | |||||||
| Sales allowance | ( | ) | ||||||
| Write-off of deferred offering costs | - | |||||||
| Loss on sale of assets | - | |||||||
| Loss from investment in uncosolidated afffiliate | - | |||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable - Related party | - | ( | ) | |||||
| Inventories | ( | ) | ||||||
| Prepaid expense and other current assets | ( | ) | ( | ) | ||||
| Other current assets - Related party | - | |||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Other non-current liabilities | ||||||||
| Deferred revenue | - | |||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | - | |||||||
| Other current liabilities - related party | - | ( | ) | |||||
| Accrued expense and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Cash paid for purchase of fixed assets, net | ( | ) | ( | ) | ||||
| Proceeds from sales of equipment | - | |||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Financing activities: | ||||||||
| Proceeds from exercise of options | - | |||||||
| Repayment of loans | ( | ) | ( | ) | ||||
| Repayment of finance lease | ( | ) | ( | ) | ||||
| Proceeds from issuance of equity securities, net of issuance costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange on cash and cash equivalents | ( | ) | ||||||
| Net change in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Non-cash transactions | ||||||||
| Recognition of right-of-use asset and lease liability upon adoption of ASU 2016-02 | $ | $ | ||||||
| Recognition of right-of-use asset and lease liability during the period | $ | $ | ||||||
| Reclassification of common stock offering costs to additional paid in capital | $ | $ | ||||||
| Finance lease of equipment to pay off accounts payable | $ | $ | ||||||
| Contribution of machines to NuZee Latin America | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 8 |
NuZee, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2021
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of NuZee, Inc. (together with its subsidiaries, referred to herein as the “Company”, “we” or “NuZee”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020 as filed with the SEC on December 28, 2020. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.
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, its wholly owned subsidiaries and its former majority owned subsidiary (which was sold as of September 28, 2020, as described below), which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.
On
September 28, 2020, the Company entered into a Stock Transfer Agreement with Eguchi Holdings Co., Ltd. (“EHCL”), pursuant
to which the Company sold to EHCL for an aggregate sale price of approximately $
The Company has two wholly owned international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”).
Stock Split
On
October 28, 2019, we completed a
Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of June 30, 2021 and June 30, 2020, the total number of common stock equivalents was and , respectively, comprised of stock options and warrants as of June 30, 2021 and entirely of stock options as of June 30, 2020. The Company incurred a net loss for the three and nine months ended June 30, 2021 and 2020, respectively, and therefore basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.
Capital Resources
Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets 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, 2021, the Company had cash of $
Major Customers
In the nine months ended June 30, 2021 and 2020, revenue was primarily derived from major customers disclosed below.
Nine months ended June 30, 2021:
| Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts | ||||||||||||
| Customer WP | $ | % | $ | % | ||||||||||||
| 9 |
Nine months ended June 30, 2020:
| C ustomer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||
| Customer K | $ | % | $ | % | ||||||||||||
| Customer WP | $ | % | $ | % | ||||||||||||
| Customer J | $ | % | $ | % | ||||||||||||
Lease
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The Company implemented ASU No. 2016-02 on October 1, 2019.
The
Company does a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. The
Company has one significant long-term operating lease for office and manufacturing space in Plano, Texas. The leased property in Plano,
Texas, has a remaining lease term through June of 2024. The lease has an option to extend beyond the stated termination date, but exercise
of this option is not probable. The Company did not apply the recognition requirements of ASC 842 to operating leases with a remaining
lease term of
The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning October 1, 2020, through the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases are as follows:
| October 1, 2020 | ||||
| ROU Asset | $ | |||
| Lease Liability | $ | |||
During the prior year analysis of leases, we determined to renew the office and manufacturing space in Vista, CA through January 31, 2022, which was previously scheduled to be vacated at June 30, 2020. Additionally, the Korean office and manufacturing space lease was extended through June 2022 and an apartment lease was signed through June 2022. Accordingly, we have added ROU assets and lease liabilities related to those leases at June 30, 2020.
The direct-leased property in Vista, California has a remaining lease term through January of 2022. The leased properties in both Korea and Vista, California have options to extend beyond the stated termination date, but exercise of these options are not probable. The sub-leased property in Vista, California, is leased month-to-month and has been calculated as a ROU Asset co-terminus with the direct-leased property.
As of June 30, 2021, our operating leases had a weighted average remaining lease term of 1.9 years and a weighted-average discount rate of 5%. Other information related to our operating leases is as follows:
| ROU Asset – October 1, 2020 | $ | |||
| Amortization during the period | ( | ) | ||
| ROU Asset –June 30, 2021 | $ | |||
| Lease Liability – October 1, 2020 | $ | |||
| Amortization during the period | ( | ) | ||
| Lease Liability – June 30, 2021 | $ |
| Lease Liability – Short-Term | $ | |||
| Lease Liability – Long-Term | ||||
| Lease Liability – Total | $ |
| 10 |
The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of June 30, 2021:
Amounts due within 12 months of June 30,
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total Minimum Lease Payments | ||||
| Less Effect of Discounting | ( | ) | ||
| Present Value of Future Minimum Lease Payments | ||||
| Less Current Portion of Operating Lease Obligations | ( | ) | ||
| Long-Term Operating Lease Obligations | $ |
On
October 9, 2019, the Company entered into a lease agreement with Alliance Funding Group which provided for a sale lease back on certain
packing equipment. The terms of this agreement require us to pay $
The following summarizes ROU assets under finance leases at June 30, 2021:
| ROU asset-finance lease at September 30, 2020 | $ | |||
| Impairment | ( | ) | ||
| ROU asset-finance lease at June 30, 2021 | $ |
The table below summarizes future minimum finance lease payments at June 30, 2021 for the 12 months ended June 30:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total Minimum Lease Payments | ||||
| Amount representing interest | ( | ) | ||
| Present Value of Minimum Lease Payments | ||||
| Current Portion of Finance Lease Obligations | ( | ) | ||
| Finance Lease Obligations, Less Current Portion | $ |
The
Company leases office space with terms ranging from month to month to
Cash and non cash activities associated with the leases for the nine months ended June 30, 2021 are as follows:
| Operating cash outflows from operating leases: | $ | |||
| Operating cash outflows from finance lease: | $ | |||
| Financing cash outflows from finance lease: | $ |
In
September 2020, we subleased the space at 1700 Capital Avenue in Plano, Texas, effective October 1, 2020 under favorable terms that are
co-terminus with the original lease ending June 30, 2024. In the nine months ended June 30, 2021, we recognized sublease income of $
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ |
| 11 |
Loans
On
April 1, 2019, NuZee purchased a delivery van from Ford Motor Credit for $
On
February 15, 2019 NuZee KR entered into equipment financing for production equipment with ShinHan Bank for $
The loan payments required for the next five remaining fiscal years are as follows:
| Ford Motor Credit | ShinHan Bank | Total | ||||||||||
| 2021 (July – September 2021) | $ | $ | ||||||||||
| 2022 (October 2021 – June 2022) | ||||||||||||
| Total Current Portion | $ | $ | $ | |||||||||
| 2022 (July – September 2022) | $ | $ | ||||||||||
| 2023 | - | |||||||||||
| 2024 | - | |||||||||||
| 2025 | - | - | ||||||||||
| Total LT Portion | $ | $ | $ | |||||||||
| Grand Total | $ | $ | $ | |||||||||
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 recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The adoption of Topic 606 did not have a material impact on our consolidated financial statements.
| 12 |
Foreign Currency Translation
The
financial position and results of operations of each of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s
local currency as the functional currency. Revenues and expenses of each such subsidiary have been translated into U.S. dollars at average
exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet
date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity
unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustments comprising
accumulated other comprehensive income (loss) amounted to $(
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
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, 2021 and September 30, 2020, the carrying value of inventory
of $
| June 30, 2021 | September 30, 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Less – Inventory reserve | - | - | ||||||
| Total | $ | $ | ||||||
Joint Venture
On
January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (
The
Company accounts for NLA using the equity method of accounting since the management of day to day operations at NLA ultimately lies with
the Company’s joint venture partner as the operations of NLA are based in its partners facilities and our partner appoints the
Chairman of the joint Board. As of June 30, 2021, the only activity in NLA was the contribution of two machines as described above and
other start up related activities. $
2. GEOGRAPHIC CONCENTRATION
The
Company is organized in three geographical segments. The Company co-packs product for customers and produces and sells its products directly
in North America and Korea. The Company has investor relations operations in Japan as a majority of our shareholders are based in Japan.
In March of 2021, the Company wrote off $
| 13 |
| Geographic Concentrations |
| Nine Months Ended | Nine Months Ended | |||||||
| June 30, 2021 | June 30, 2020 | |||||||
| Net Revenue: | ||||||||
| North America | $ | $ | ||||||
| Japan | - | |||||||
| South Korea | ||||||||
| $ | $ | |||||||
| Property and equipment, net: | As of June 30, 2021 |
As of September 30, 2020 |
||||||
| North America | $ | $ | ||||||
| Japan | ||||||||
| South Korea | ||||||||
| $ | $ |
3. RELATED PARTY TRANSACTIONS
For
the nine months ended June 30, 2021, we sold $
| 4. | ISSUANCE OF EQUITY SECURITIES |
During
the nine months ended June 30, 2021, the Company sold (i) shares of common stock to Triton Funds LP in a registered public offering
for aggregate net proceeds of $
On January 11, 2021, the Compensation Committee (the “Compensation Committee”) of the Company’s Board of Directors granted to Shanoop Kothari, who was serving at the time as both the Company’s Chief Financial Officer and Chief Operating Officer, in connection with the Committee’s determination of Mr. Kothari’s annual compensation, an award of restricted shares (the “Restricted Shares”) of the Company’s common stock under the NuZee, Inc. 2019 Stock Incentive Plan. The Restricted Shares vest as follows: (i) Restricted Shares vested immediately (); (ii) Restricted Shares vested on March 31, 2021; and (iii) Restricted Shares were originally scheduled to vest on March 31, 2022 but are now scheduled to be accelerated to vest on Mr. Kothari’s Separation Date (as defined below) as further described in Note 6-Subsequent Events.
On
March 11, 2021, we terminated our At Market Issuance Sales Agreement, dated September 1, 2020 (the “ATM Agreement”), with
B. Riley Securities, Inc. (f/k/a/ B. Riley FBR, Inc.) and The Benchmark Company, LLC (collectively, the “Agents”), pursuant
to which we could from time to time offer and sell up to an aggregate of $ million of shares of our common stock through the Agents
in “at-the-market-offerings”, as defined in Rule 415 under the Securities Act. We did not sell any shares of common stock
under the ATM Agreement. The Company’s consolidated statement of cash flows for the nine months ended June 30, 2021 includes stock
issuance expenses of $
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| 5. | STOCK OPTIONS AND WARRANTS |
Options
During the nine months ended June 30, 2021, the Company issued options to independent contractors, options to independent Board members and options to employees. For independent board members, these options shall vest and become exercisable over a period of , with For independent contractors, these options shall vest and become exercisable over a period of , with For employees, During the nine months ended June 30, 2021, the Company issued a total of Performance-Based Options, which represents the maximum number of Performance-Based Options that may be earned if all performance milestones are achieved for the applicable performance periods.
The exercise price for the options ranged from $ - $ per share. The options will expire from the grant date, unless terminated earlier as provided by the option agreements.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model using the assumptions noted as follows: expected volatility was based on the Company’s historical stock performance. The expected term of options granted was determined using the contractual term. The risk-free rate is calculated using the U.S. Treasury yield curve and is based on the expected term of the option.
| For non-employees, employees and independent Board members | June 30, 2021 | |||
| Risk-free interest rate | – | % | ||
| Expected option life | ||||
| Expected volatility | - | % | ||
| Expected dividend yield | % | |||
| Exercise price | $ | - $ | ||
For the nine months ended June 30, 2021, options were forfeited because of the termination of employment and conclusion of Board appointment. For the nine months ended June 30, 2021, shares were issued upon the exercise of stock options.
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at September 30, 2020 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Expired | ||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Outstanding at June 30, 2021 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2021 | $ | $ | ||||||||||||||
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 $
| 15 |
Nonvested options
| Number of nonvested shares | Weighted average grant date fair value | |||||||
| Nonvested shares at September 30, 2020 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( |
) | ||||||
| Vested | ( |
) | ||||||
| Nonvested shares at June 30, 2021 | ||||||||
Warrants
On
June 23, 2020, as part of our agreement with Benchmark Company, LLC the underwriter of the Company’s June 2020 registered public
offering of common stock, we issued
On
March 19, 2021, we entered into an underwriting agreement in connection with our registered public offering (the “Offering”)
of
Each
Series A Warrant entitles the registered holder to purchase one share of our common stock at an exercise price of $
The following table summarizes warrant activity for the nine months ended June 30, 2021:
| Number of Shares Issuable Upon Exercise of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at September 30, 2020 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding June 30, 2021 | $ | |||||||||||||||
| Exercisable at June 30, 2021 | $ | $ | ||||||||||||||
6. SUBSEQUENT EVENTS
Shanoop Kothari’s Resignation and Severance Agreement
On June 22, 2021, Shanoop Kothari notified the Company of his resignation as Chief Financial Officer. Mr. Kothari’s resignation will be effective as of August 16, 2021 (the “Separation Date”).
In connection with Mr. Kothari’s resignation, the Company entered into a Severance Agreement and General Release with Mr. Kothari on July 2, 2021 (the “Severance Agreement”). Pursuant to the Severance Agreement, Mr. Kothari’s outstanding restricted shares of common stock were accelerated to vest on the Separation Date.
Appointment of Patrick Shearer as Chief Financial Officer and Issuance of Options
On July 2, 2021 (the “Commencement Date”), the Company appointed Patrick Shearer to be its new Chief Financial Officer, effective immediately.
In addition, pursuant to Mr. Shearer’s employment agreement, the Company granted to Mr. Shearer on the Commencement Date an award of options to purchase shares of our common stock. Subject to Mr. Shearer’s continued employment, the options vest as follows: (i) options shall vest upon the first anniversary of the Commencement Date; (ii) options shall vest upon the second anniversary of the Commencement Date; and (iii) options shall vest upon the third anniversary of the Commencement Date. The options have an exercise price of $ per share and will expire from the grant date, unless terminated earlier as provided by the option agreements.
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CEO Compensation
On
July 2, 2021, the Compensation Committee approved a grant of nonqualified performance-based options (the “Options”) to Masateru
Higashida, the Company’s President and Chief Executive Officer, to purchase shares of the Company’s common stock,
which represents the maximum number of Options that may be earned if all performance milestones are achieved, as further described below.
The Options have an exercise price of $ per share and will expire from the grant date, unless
terminated earlier as provided by the option agreements. Also on July 2, 2021, the Compensation
Committee awarded a deferred bonus of $
Also
on July 2, 2021, the Compensation Committee approved the parameters of the cash bonus for Mr. Higashida (the “Fiscal Year 2022
Cash Bonus”) for fiscal year 2022. Pursuant to Mr. Higashida’s Executive Employment Agreement dated as of August 15, 2017,
the Compensation Committee established the relevant performance metrics and goals for determining the amount of the Fiscal Year 2022
Cash Bonus that Mr. Higashida would be entitled to receive, assuming achievement by the Company of the respective target and maximum
performance levels under each metric established for fiscal year 2022. The Fiscal Year 2022 Cash Bonus, if any, payable to Mr. Higashida
will be determined by the extent to which the Company achieves certain performance objectives relating to the Company’s net revenues
and net cash provided by operating activities in fiscal year 2022, with a target Fiscal Year 2022 Cash Bonus opportunity of $
Issuance of Options to New Employees
On July 29, 2021, the Company issued a total of options to new employees, including Performance-Based Options, which represents the maximum number of Performance-Based Options that may be earned if all performance milestones are achieved for the applicable performance periods, and time-based options.
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
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 to leverage our position as a co-packer at the forefront of the North American single serve pour over coffee market to revolutionize the way single serve coffee is enjoyed in the United States. While the United States is our core market, we also have manufacturing and sales operations in Korea and a joint venture in Latin America.
We believe we are the only commercial-scale producer of single serve pour over coffee products within the North American market. We intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve pour over coffee market in North America. We target existing, high-margin companies and are paid per-package based on the number of single serve pour over coffee products produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for almost every single serve pour over coffee product our co-packing customers sell in the North American market. While we financially benefit from the success of our manufacturing customers through the sales of their respective single serve pour over coffee products, we are also able to avoid the risks associated with owning and managing the product and its related inventory.
Our primary focus is the 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, and positioning ourselves as the leading commercial-scale co-packer of single serve pour over coffee products. We may also consider co-packaging other products that are complementary to single serve pour over drip coffee and provide us with a deeper access to our customers, such as tea bag coffee. In addition, we are continually exploring potential strategic partnerships, co-ventures, and mergers, acquisitions, or other transactions with existing and future business partners to generate additional business, reduce manufacturing costs, expand into new markets, and further penetrate the markets in which we currently operate.
Since 2016, we have been primarily focused on single serve pour over coffee production. Over this time we have developed expertise in the operation of our sophisticated packing equipment and the related production of 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 Plano, Texas manufacturing facility, which serves as our new single serve pour over co-packing hub and corporate headquarters to capture the location’s logistical advantages and lower cost structure.
In November 2020, we announced a strategic partnership with Farmer Brothers Co. (“FBC”) pursuant to which we may (but are not required to) place up to 50 co-packing machines in Farmer Brothers SQF-certified facility in Northlake, Texas. FBC intends to use the co-packing machines for the exclusive purpose of manufacturing certain of our products for us, our customers and certain of FBC’s customers. By pairing Farmer Brothers manufacturing and distribution capability with NuZee’s technical expertise and products with historic demand in Asia, the partnership is expected to accelerate the scale-up in the U.S. and efficient delivery of our products to coffee companies and branded businesses.
Impact of the COVID-19 Pandemic
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. In the nine months ended June 30, 2021, as a result of the COVID-19 pandemic and responses to the outbreak, certain of our customers slowed or delayed purchases of our co-packing services or pour over coffee products, and we also believe that potential sales of our pour over coffee products to new or potential customers in the hospitality industry were adversely impacted. In addition, we have experienced delays in the submission and approval of custom artwork and packaging as well as the shipment to us of coffee for co-packing. We do not believe, however, that these delays had a significant effect on our business or results of operations to date. The COVID-19 crisis may have an adverse impact on our business and financial results going forward that we are not currently able to fully determine or quantify. The COVID-19 crisis may adversely affect the ability of our customers to pay for goods delivered on a timely basis, or at all. Any increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.
Geographic Concentration
Our operations are primarily split between two geographic areas: North America and Asia.
For the three months ended June 30, 2021, net revenues attributable to our operations in North America totaled $419,648 compared to $119,313 of net revenues attributable to our operations in North America for the three months ended June 30, 2020. For the nine months ended June 30, 2021, net revenues attributable to our operations in North America totaled $1,077,986 compared to $756,000 of net revenues attributable to our operations in North America for the nine months ended June 30, 2020. Additionally, as of June 30, 2021, $573,631 of our Property and equipment, net was attributable to our North American operations, compared to $1,422,575 attributable to our North American operations as of September 30, 2020. In March 2021, the Company wrote off $840,391 of assets in North America as these assets were deemed to be no longer useful for the current business operations. $105,825 of the impairment was related to the ROU asset and $734,566 was to property and equipment. This write off is included in operating expenses on our consolidated statement of operations for the nine months ended June 30, 2021. These assets are co-packing equipment that have limited capabilities compared with other equipment the Company is currently utilizing. Since we have yet to utilize this equipment since it was delivered, we have determined their usefulness to our future operations is limited.
| 18 |
For the three months ended June 30, 2021, net revenues attributable to our operations in Asia totaled $90,383 compared to $72,649 of net revenues attributable to our operations in Asia during the three months ended June 30, 2020. For the nine months ended June 30, 2021, net revenues attributable to our operations in Asia totaled $364,097 compared to $375,562 of net revenues attributable to our operations in Asia during the nine months ended June 30, 2020. Additionally, as of June 30, 2021, $234,217 of our Property and equipment, net was attributable to our Asian operations, compared to $245,773 attributable to our Asian operations as of September 30, 2020.
Results of Operations
Comparison of three months ended June 30, 2021 and 2020:
Revenue
| Three months ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Revenue | $ | 510,032 | $ | 191,962 | $ | 318,070 | 166 | % | ||||||||
For the three months ended June 30, 2021, our revenue increased by $318,070, or approximately 166%, compared with the three months ended June 30, 2020. This increase was primarily related to increased co-packing revenue partially offset by the impact from the sale of NuZee JP to Eguchi Holdings Co., Ltd. (“EHCL”) on September 28, 2020, as the results for the three months ended June 30, 2020 include revenues from NuZee JP while the results for the three months ended June 30, 2021 do not.
Cost of sales and gross margin
| Three months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Cost of sales | $ | 413,446 | $ | 331,039 | $ | 82,407 | 25 | % | ||||||||
| Gross profit | 96,586 | ($ | 139,077 | ) | $ | 235,663 | 169 | % | ||||||||
| Gross profit % | 19 | % | (72 | )% | ||||||||||||
For the three months ended June 30, 2021, we incurred a total gross profit of $96,586, from sales of our products and co-packing services, compared to a total gross loss of ($139,077) for the three months ended June 30, 2020. The gross margin rate was 19% for the three months ended June 30, 2021, and (72%) for the three months ended June 30, 2020. This increase in margin was driven primarily by increased efficiencies resulting from additional experience in co-packing during the current year period compared to the prior year period. In the three months ended June 30, 2020, the Company incurred increased costs as it continued to scale up its co-packing operations.
| 19 |
Operating Expenses
| Three months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Operating Expenses | $ | 3,206,552 | $ | 2,378,947 | $ | 827,605 | 35 | % | ||||||||
For the three months ended June 30, 2021, the Company’s operating expenses totaled $3,206,552 compared to $2,378,947 for the three months ended June 30, 2020, representing a 35% increase. This increase is primarily attributable to an increase in stock-based compensation expense as well as increased operating expenses associated with greater staffing levels.
Net Loss
| Three months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Net Loss attributable to NuZee, Inc. | $ | 3,067,042 | $ | 2,542,418 | $ | 524,624 | 21 | % | ||||||||
For the three months ended June 30, 2021, we generated net loss attributable to NuZee, Inc. of $3,067,042 versus $2,542,418 for the three months ended June 30, 2020. This increase in net losses is primarily attributable to higher stock compensation expense and operating expenses.
Comparison of nine months ended June 30, 2021 and 2020:
Revenue
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Revenue | $ | 1,442,083 | $ | 1,131,562 | $ | 310,521 | 27 | % | ||||||||
For the nine months ended June 30, 2021, our revenue increased by $310,521, or approximately 27%, compared with the nine months ended June 30, 2020. This increase was primarily related to increased co-packing revenues partially offset by the impact from the sale of NuZee JP to EHCL on September 28, 2020, as the results for the nine months ended June 30, 2020 include revenues from NuZee JP while the results for the nine months ended June 30, 2021 do not.
Cost of sales and gross margin
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Cost of sales | $ | 1,352,843 | $ | 1,250,904 | $ | 101,939 | 8 | % | ||||||||
| Gross profit | $ | 89,240 | $ | (119,342 | ) | $ | 208,582 | 175 | % | |||||||
| Gross profit % | 6 | % | (11 | )% | ||||||||||||
For the nine months ended June 30, 2021, we incurred a total gross profit of $89,240, from sales of our products and co-packing services, compared to a total gross loss of ($119,342) for the nine months ended June 30, 2020. The gross margin rate was 6% for the nine months ended June 30, 2021, and (11%) for the nine months ended June 30, 2020. This increase in margin was driven primarily by increased efficiencies resulting from additional experience in co-packing during the current year period compared to the prior year period. In the nine months ended June 30, 2020, the Company incurred increased costs as it continued to scale up its co-packing operations as well as a loss incurred on the close-out of certain inventory items for a particular customer.
| 20 |
Operating Expenses
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | % | |||||||||||||
| Operating Expenses | $ | 15,222,137 | $ | 8,342,412 | $ | 6,879,725 | 82 | % | ||||||||
For the nine months ended June 30, 2021, the Company’s operating expenses totaled $15,222,137 compared to $8,342,412 for the nine months ended June 30, 2020, representing a 82% increase. This increase is primarily attributable to an increase in stock-based compensation expense as well as increased operating expenses associated with greater staffing levels.
Net Loss
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | %. | |||||||||||||
| Net Loss attributable to NuZee, Inc. | $ | 15,048,722 | $ | 8,453,901 | $ | 6,594,821 | 78 | % | ||||||||
For the nine months ended June 30, 2021, we generated net loss attributable to NuZee, Inc. of $15,048,722 versus $8,453,901 for the nine months ended June 30, 2020. This increase in net losses is primarily attributable to higher stock compensation expense and operating expenses.
Liquidity and Capital Resources
Since our inception in 2011, we have incurred significant losses, and as of June 30, 2021, we had an accumulated deficit of approximately $49 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. We expect to incur additional losses as a result of the costs associated with operating as an exchange-listed public company in the future. To date, we have funded our operations primarily with proceeds from equity offerings.
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 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 stockholders.
As of June 30, 2021, we had a cash balance of $12,704,257.
Summary of Cash Flows
| Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash used in operating activities | $ | (5,204,587 | ) | $ | (3,003,714 | ) | ||
| Cash provided by (used in) investing activities | $ | (141,445 | ) | $ | 93,694 | |||
| Cash provided by financing activities | $ | 13,654,118 | $ | 6,777,931 | ||||
| Effect of foreign exchange on cash | $ | (2,374 | ) | $ | 21,858 | |||
| Net increase in cash | $ | 8,305,712 | $ | 3,889,769 | ||||
Operating Activities
We used $5,204,587 and $3,003,714 of cash in operating activities during the nine months ended June 30, 2021 and 2020, respectively, principally to fund our operating loss. This increase was primarily attributable to the increase in operating expenses associated with greater staffing levels and professional services expenses over the current fiscal year period.
| 21 |
Investing Activities
We used $141,445 of cash versus provided $93,694 of cash in investing activities during the nine months ended June 30, 2021 and 2020, respectively. Cash used in the current period was to fund the purchase of equipment versus in the prior period the cash provided was principally from the sales of equipment.
Financing Activities
Historically, we have funded our operations primarily through the issuance of our common stock.
Cash provided by financing activities increased to $13,654,118 for the nine months ended June 30, 2021 from $6,777,931 for the nine months ended June 30, 2020. The increase in cash provided by financing activities is primarily related to the increase in proceeds from the issuance of equity securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is collected and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. In designing and evaluating our disclosure controls and procedures, management recognizes that no matter how well conceived and operated, disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three-month period ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 22 |
PART II.
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on December 28, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 6. Exhibits
(1) A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 601(b)(10)(iii) of Regulation S-K
* Filed herewith.
** Furnished herewith.
*** The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: | August 16, 2021 | NUZEE, INC. | ||
| By: | /s/ Masateru Higashida | |||
| Masateru Higashida, Chief Executive Officer and President (Principal Executive Officer), Secretary, Treasurer, and Director | ||||
| By: | /s/ Patrick Shearer | |||
| Patrick Shearer, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||
| 24 |