SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

 

 

NUZEE, INC.

 

 

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

NEVADA

 

2080

 

000-55157

 

 

(State or other jurisdiction of incorporation or organization)

 

(Primary Standard Industrial Classification Code Number)

 

(I.R.S. Employer Identification No.)

 

 

 

 

 

 

 

 

16955 Via Del Campo, Suite 260

San Diego, CA 92127

 

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

 

With Copies To:

Karen A. Batcher, Esq.

Synergen Law Group, APC

819 Anchorage Place, Suite 28

Chula Vista, CA 91914

Tel. 619.475.7882

Fax. 866.352.4342

 

 

National Registered Agents Inc. of NV

1000 East Williams Street, Suite 204

Carson City, Nevada 89701

(800) 550-6724

 

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

 

 

 

 

From time to time after this Registration Statement is declared effective.

 

 

(Approximate date of commencement of proposed sale to the public)

 

 

 

If any of the securities being registered on this 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

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under 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 pursuant to Rule 462(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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

 

Large accelerated filer      ¨

Accelerated filer                 ¨

Non-accelerated filer         ¨

(Do not check if a smaller reporting company)

Smaller reporting company   x

 

Calculation of Registration Fee

Title of Each Class of Securities to be Registered

 

Amount to be Registered

 

Offering Price Per Share (1)

 

Aggregate Offering Price

 

 

Registration Fee

Common Stock

18,366,873

$0.50

$9,183,436.50

$1,182.83

 

(1)     Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.

(2)     Consists of shares of common stock held by 29 selling shareholders.  Pursuant to Rule 416 of the Securities Act, this registration statement shall be deemed to cover additional securities (i) to be offered or issued in connection with any provision of any securities purported to be registered hereby to be offered pursuant to terms that provide for a change in the amount of securities being offered or issued to prevent  dilution resulting from stock splits, stock dividends, or similar transactions and (ii) of the same class as the securities covered by this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of, or a stock dividend paid with respect to, the registered securities.

 

The information in this 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 prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

  

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.

 

 

 

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Subject to Completion, Dated June 18 , 2014

   
 

 

 

PROSPECTUS

 

18,366,873 Shares of Common Stock

 

NUZEE, INC.

 

We are registering a total of 18,366,873 shares of our common stock on behalf of the selling shareholders identified under the heading “Selling Shareholders” in this prospectus.  The Selling Shareholders may sell their shares from time to time in the over-the-counter market or any exchange on which our company may be listed in the future at the prevailing market price or in negotiated transactions.  Our shares are currently quoted on the e OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. (“OTCQB”) under the symbol “NUZE”.

 

We are not selling any shares of our common stock in this offering and therefore will not receive any proceeds from the resale of our common stock pursuant to this offering.  

  

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD INVEST IN OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. FOR A DISCUSSION OF SOME OF THE RISKS INVOLVED, SEE “RISK FACTORS” BEGINNING ON PAGE 6 OF THIS PROSPECTUS.

  

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

  

THE DATE OF THIS PROSPECTUS IS JUNE 18 , 2014.

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TABLE OF CONTENTS

PROSPECTUS SUMMARY .. 5

RISK FACTORS . 7

USE OF PROCEEDS . 13

DETERMINATION OF OFFERING PRICE .. 13

DILUTION .. 13

SELLING SHAREHOLDERS . 13

PLAN OF DISTRIBUTION .. 17

DESCRIPTION OF SECURITIES . 18

INTERESTS OF NAMED EXPERTS AND COUNSEL .. 19

DESCRIPTION OF BUSINESS . 20

DESCRIPTION OF PROPERTY .. 26

LEGAL PROCEEDINGS . 26

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S . 26

COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . 26

FINANCIAL STATEMENTS . 27

SELECTED FINANCIAL DATA .. 44

SUPPLEMENTARY FINANCIAL INFORMATION .. 44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF . 44

FINANCIAL CONDITION AND RESULTS OF OPERATIONS . 44

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS . 47

ON ACCOUNTING AND FINANCIAL DISCLOSURE .. 47

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .. 48

DIRECTORS AND EXECUTIVE OFFICERS . 48

EXECUTIVE COMPENSATION .. 51

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .. 54

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . 55

DISCLOSURE OF COMMISSION POSITION OF . 56

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES . 56

EXHIBITS . 56

 

 

 

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PROSPECTUS SUMMARY

 

 

This summary highlights information contained elsewhere in this prospectus.  It does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section titled “Risk Factors” and our consolidated financial statements and the related notes.  You should only rely on the information contained in this prospectus.  We have not, and the selling shareholders have not, authorized any other person to provide you with different information.  This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted.  The information in this prospectus is accurate only as of the date on the front cover, but the information may have changed since that date.

  

Unless the context otherwise requires, when we use the words “the Company,” “we,” “us” or “our Company” in this prospectus, we are referring to Nuzee, Inc., a Nevada corporation.

  

OUR COMPANY

 

Nuzee Inc. is the operating company that manages a portfolio of branded consumer packaged goods.  The Company was incorporated in July 2011 as Havana Furnishings, Inc. (“Havana”) under the laws of the State of Nevada.  From the date of Incorporation through April 2013, the Company was a development stage company engaged in the business of selling public restaurant and bar furnishings and accessories from Asia to retailer customers at wholesale prices on the internet.  In April 2013, the Company's sole officer decided that it was not economically feasible to continue with the Company’s business plan and began to seek other companies for potential merger.

 

On April 19, 2013, the Company completed a merger with Nuzee Co., Ltd. a California corporation “Nuzee-CA”) wherein Nuzee Co., Ltd. became a wholly owned subsidiary of Havana.  Pursuant to the Share Exchange Agreement, each of the 33,733,333 outstanding shares of Nuzee-CA common stock was converted into one share of the Company’s common stock.   In addition, upon the closing of the Merger, the Company amended its Articles of Incorporation to change its name from Havana Furnishings, Inc. to Nuzee, Inc.  Nuzee-CA was established in 2011 as an importer and distributor of natural spring water and skincare products as well as energy drinks.

 

In December, 2013, we completed a merger with our wholly owned subsidiary, Nuzee Co., Ltd. wherein Nuzee Co., Ltd. merged with and into Nuzee, Inc.  Nuzee, Inc. was the surviving company of the merger, and at the closing of the merger, Nuzee Co., Ltd. ceased to exist.

 

Our global corporate headquarters is located in San Diego, California.  When we refer to our company and its business in this report, we are referring to the business and activities of our consolidated operations.

 

To date, we mainly distributed natural and organic products produced by 3rd parties.  These legacy product lines which included New Zealand bottled spring water, natural and organic skincare from New Zealand as well as the TorqueTM energy drinks are being phased out and/or discontinued as the Company believes its best near and long term success is to focus resources on our own product line of functional beverages which will enable the Company to control, develop, manufacture and promote its brands from the United States.

 

During the 2013 fiscal year we began researching and investigating the viability of a new product platform for functional beverages.  We plan to start producing our first family of functional beverages in early 2014.  These products are considered healthy alternatives, with all natural ingredients and provide an added wellness benefit when compared to the traditional non-fortified version of the same beverage.  As a result, Nuzee’s mission is to be a good-for-you company focused on building beverage brands that offer functional and nutritional benefits.

 

EMERGING GROWTH COMPANY

 

We are an Emerging Growth Company as defined in the Jumpstart Our Business Startups Act.

  

We shall continue to be deemed an emerging growth company until the earliest of:

 

 

 

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(A)            the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more;

 

(B)            the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement under this title;

 

(C)            the date on which such issuer has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or

 

(D)            the date on which such issuer is deemed to be a ‘large accelerated filer’, as defined in section 240.12b-2 of title 17, Code of Federal Regulations, or any successor thereto.

 

As an emerging growth company we are exempt from Section 404(b) of Sarbanes Oxley. Section 404(a) requires Issuers to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting.  This statement shall also assess the effectiveness of such internal controls and procedures.

 

Section 404(b) requires that the registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.

 

As an emerging growth company we are exempt from Section 14A and B of the Securities Exchange Act of 1934 which require the shareholder approval of executive compensation and golden parachutes.

 

We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act.

 

For so long as we are an emerging growth company, we will be permitted to provide the scaled executive compensation disclosure applicable to smaller reporting companies even if we no longer qualify as a smaller reporting company.  In addition, as an emerging growth company, we are exempt from PCAOB rules regarding mandatory firm rotation or the auditor reporting model.

 

GOING CONCERN

 

MaloneBailey, LLP, our independent auditor, has expressed substantial doubt about our ability to continue as a going concern given our recurring losses, large accumulated deficits, dependence on the shareholder to provide additional funding for operating expenses, and no recurring revenues.  Potential investors should be aware that there are difficulties associated with being a new venture, and the high rate of failure associated with this fact.

 

 

THE OFFERING

 

The following is a brief summary of this offering:    

 

Common stock outstanding prior to this offering (as of June 1 6 , 2014)

29,865,357

Common stock being offered for resale to the public through this offering

18,366,873

Common stock outstanding after this offering

29,865,357

Percentage of outstanding common stock to be registered

63.35%

 

 

 

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RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or results of operations in future periods. The risks described below are not the only risks facing our company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.

 

RISKS RELATED TO OUR COMPANY

 

If we cannot sustain profitable operations, we will need to raise additional capital to continue our operations, which may not be available on commercially reasonable terms, or at all, and which may dilute your investment.

 

We generated a net loss of $1,097,980 for the year ended September 30, 2013 and therefore we cannot guarantee that we will be successful in building a functional beverage business in future periods.

 

If we are unable to generate sufficient revenues to pay our expenses and our existing sources of cash and cash flows are otherwise insufficient to fund our activities, we will need to raise additional funds to continue our operations. We do not have any arrangements in place to provide additional funds. If needed, those funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we are unsuccessful in sustaining profitability and reducing our accumulated deficit, and we cannot obtain additional funds on commercially reasonable terms or at all, we may be required to curtail significantly or cease our operations.

 

Because we have a limited operating history, our ability to fully and successfully develop our business is unknown.

 

Nuzee Co, Ltd. was incorporated in California in 2011 prior to the merger with Havana Furnishings as a result we have only recently begun developing and producing our functional products, and do not have a significant operating history with which investors can evaluate our business. Our ability to successfully develop our products and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broad market acceptance by consumers.  Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.

 

Our independent auditor has indicated substantial doubt about our ability to continue as a going concern.

 

MaloneBailey, LLP, our independent auditor, has expressed substantial doubt about our ability to continue as a going concern given our recurring losses, large accumulated deficits, dependence on the shareholder to provide additional funding for operating expenses, and no recurring revenues.  Potential investors should be aware that there are difficulties associated with being a new venture, and the high rate of failure associated with this fact.

 

Our financial statements included with this prospectus have been prepared assuming that we will continue as a going concern.  If we are not able to achieve revenues, then we may not be able to continue as a going concern and our financial condition and business prospects will be adversely affected.

 

Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.

 

Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the development, production, marketing, and sales of our product. As a result, we may not generate significant revenues in the future. Failure to generate significant revenues in near future may cause us to suspend or cease activities.

 

We will need additional funds to produce, market, and distribute our product.

 

We will have to spend additional funds to produce, market and distribute our product. If we cannot raise sufficient capital, we may have to cease operations and you could lose your investment.

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There is no guarantee that sufficient sale levels will be achieved.

 

There is no guarantee that the expenditure of money on distribution and marketing efforts will translate into sales or sufficient sales to cover our expenses and result in profits. Consequently, there is a risk that you may lose all of your investment.

 

Our development, marketing, and sales activities are limited by our size.

 

Because we are small and do not have significant capital reserves, we must limit our product development, marketing, and sales activities.  As such we may not be able to scale our production and business development activities to the level required. If this becomes a reality, we may not ever generate revenues and you will lose your investment.

 

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

 

The nutritional and functional beverage business environment is rapidly evolving as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures.  In addition, the nutritional beverage retail landscape is very dynamic and constantly evolving, not only in emerging and developing markets, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed markets, 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.

 

Intense competition and increasing competition in the commercial beverage market could hurt our business.

 

The commercial retail beverage industry, and in particular the functional beverage segment is still nascent and viewed as highly competitive. Market participants are of various sizes, with various market shares and geographical reach, some of whom have access to substantially more sources of capital.

 

We will compete generally with many liquid refreshments, including numerous specialty beverages, such as hot and cold coffee and teas.

 

We will compete indirectly with major international beverage companies including but not limited to: Green Mountain Coffee Roasters, the Coca-Cola Company; PepsiCo, Inc.; Nestlé; Kraft Foods Group, Inc.; and Starbucks. These companies have established market presence in the United States, and offer a variety of beverages that are substitutes to our product. We face potential direct competition from such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the health food and beverage market.

 

We will compete directly with other consumer products participants in the emerging functional beverage sector including BulletProof Coffee, Green Mountain Wellness Coffee, Organo Gold Herbal Coffee, Nuvia Trim Coffee, South Beach Java, Javita, and NatureGift Instant Coffee. These companies could bolster their position in the sector through additional expenditure and promotion.

 

As a result of both direct and indirect competition, our ability to successfully distribute, market and sell our product, and to gain sufficient market share in the United States and internationally to realize profits may be limited, greatly diminished, or totally diminished, which may lead to partial or total loss of your investments in our company.

 

 

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

 

A significant portion of our distribution network and its success depend on the performance of third parties. Any non-performance or deficient performance by such parties may undermine our operations, profitability, and result in total loss to your investment. To distribute our product, we will use a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who will in turn sell our product to consumers. The success of this network will depend on the performance of the brokers, distributors and retailers of this network. There is a risk that a broker, distributor, or retailer may refuse to or cease to market or carry our product. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our product in localities 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 also need to maintain good commercial relationships with third-party brokers, distributors and retails so that they will promote and carry our product. Any adverse consequences resulting from the performance of third-parties or our relationship with them could undermine our operations, profitability and may result in total loss of your investment.

 

We depend on third party manufacturers and ingredients providers to produce all of our products.

 

Our reliance on third party manufacturers and providers exposes us to a number of risks that are beyond our control, including:

·          Unexpected increases in production costs;

·          Unexpected scheduling delays;

·          Unexpected shortage of ingredients;

·          Loss of priority assignment of any and all supplies and materials;

·          The failure from any of our partners to deliver components or finished goods.

 

Health benefits of the functional ingredients are not guaranteed.

 

Although we use ingredient backed by clinical studies that support our claims such health benefits to individuals are not guaranteed. Consequently, negative studies and publicity surrounding any of our ingredients may result in loss of market share or potential market share and hence loss of your investment.

 

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

 

Various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the availability of our product relating to the content or perceived adverse health consequences of our product. If these types of requirements become applicable to our product under current or future environmental or health laws or regulations, they may inhibit sales of our product.

 

Unfavorable general economic conditions in the United States or elsewhere could negatively impact our financial performance.

 

Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability of, and consumer demand for, our product in the United States. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of our products or by shifting away from our beverages to lower-priced products offered by other companies. Lower consumer demand for our product in the United States could reduce our profitability.

 

We will rely primarily on the United States and Keurig brewer households to generate adoption and use in our products.

 

The consumer acceptance for Keurig brewers could decline and negatively impact the market size and growth potential. We are attempting to develop other geographic markets and single-serve brewer platforms for our products, in Asia and other markets.  We are looking for opportunities to generate additional significant customers to reduce our risk associated with customer concentration. We can make no assurance, however, that we will succeed in diversifying our customer base, developing other geographic markets or in becoming less reliant on a small number of significant customers.

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If we do not compete effectively in the functional beverage market, our revenues and market share will decline.

 

The markets for Coffee Blenders are highly competitive. We face competition from larger and better capitalized competitors such as Green Mountain Coffee Roasters, Inc. and many nutraceutical beverage firms which have significantly greater penetration in key markets than we do. Economies of scale allow these competitors to offer product pricing and related incentives that we may be unable to match. We also face competition from a number of smaller competitors. These competitors may be able to:

  • develop better and more variety of products
  • develop less expensive products
  • develop broader channels
  • as well as the ability to respond more rapidly to changing market conditions

 

If we are not successful in enhancing our products, maintaining customer relationships and managing our cost structure so that we can provide competitive prices, we may experience reduced sales and our potential market share may decline.

 

Our competitive position could be seriously damaged and we may incur substantial expenses if we become party to lawsuits alleging that our products infringe the intellectual property rights of others.

 

The technology around K-CUP®, K-Cup Brewers and related Keurig know-how and processes may impact our ability and/or our partner’s ability to deliver finished goods.

 

If we are forced to take any of the foregoing legal actions to defend our products, we could face substantial costs and shipment delays and our business could be seriously harmed. Although we carry general liability insurance, our insurance may not cover potential claims of this type or be adequate to indemnify us for all liability that may be imposed.

In addition, it is possible that our distribution partners or manufacturing partners may seek indemnity from us in the event that our products are found or alleged to infringe upon the intellectual property rights of others. Any such claim for indemnity could result in substantial expenses to us that could harm our operating results.

 

Our international sales and operations subject us to various risks associated with, among other things, foreign laws, policies, economies, and exchange rate fluctuations.

 

All of our international sales and operations are subject to inherent risks, which could have a material adverse effect on our financial condition or results of operations. Each country has their own regulations regarding food safety and ingredient panel disclosures. Our ability to meet those requirements may prevent us from launching products or force us to reverse orders and business.

 

Adverse weather conditions could reduce the supply or demand for our products.

 

The sales of our products are influenced to some extent by weather conditions in the markets in which we operate.  Also the supply of our raw ingredients could be impacted by adverse weather that increase cost or reduce availability.

Because the majority of our sales are denominated in United States dollars, changes in foreign currency exchange rates affect the market price for our products in countries in which they are sold. If the currency of a particular country weakens against the United States dollar, the cost of our products in that country may increase.

 

If we are unable to attract and retain key personnel necessary to operate our business, our ability to develop and market our products successfully could be harmed.

 

We have a small employee base and depend substantially on our current executive officers and key sales, and operational employees. The loss of key employees or the inability to attract or retain qualified personnel, could delay product development and harm our ability to sell our products. Our success depends on our ability to identify, attract and retain qualified management, sales, and marketing personnel.

 

 

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A 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.

 

Changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues.

 

The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our company’s product will be 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, such as the Occupational Safety and Health Act; various federal, state and local environmental protection laws; and various other federal, state, and local statutes and regulations. Legal requirements also apply in many jurisdictions in the United States requiring that deposits or certain eco taxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers.  The precise requirements imposed by these measures vary.  Other types of statutes and regulations relating to beverage container deposits, recycling, eco taxes and/or product stewardship also apply in various jurisdictions in the United States. We anticipate that additional, similar legal requirements may be proposed or enacted in the future at the local, state and federal levels in the United States. Changes to such laws and regulations could increase our costs or reduce or net operating revenues.

 

RISK RELATED TO OUR STOCK

 

Because Nuzee ownership is concentrated with the Chairman controlling a large percentage of our common stock, he has the ability to influence matters affecting our stockholders.

 

As a result, he has the ability to influence matters affecting our stockholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares of common stock.  Because he controls such shares, investors may find it difficult to replace our management if they disagree with the way our business is being operated. Because their interest could result in management making decisions that are in their best interest and not in the best interest of the general investor base, you may lose some or all of the value of your investment in our common stock.

 

Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.

 

We are authorized to issue up to 100,000,000 shares of common stock and 100,000,000 shares of preferred stock, of which 37,957,790  shares of common stock and no share of preferred stock are issued and outstanding as of the date hereof.  Our board of directors has the authority to cause us to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.

 

Our common stock is quoted on the OTC Markets, which may be detrimental to investors.

 

Our common stock is currently quoted on the OTC Markets. Stocks quoted on the OTC Markets generally have limited trading volume and exhibit a wider spread between the bid and ask quotations as compared to stocks traded on national exchanges. Accordingly, you may not be able to sell your shares quickly or at the market price if trading in our stock is not active.

 

 

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Trading on the OTC Markets and Bulletin Board exchanges may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

 

Our common stock is quoted on the OTC Markets and Bulletin Board. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ a stock exchange like the NYSE. Accordingly, stockholders may have difficulty reselling any of the shares.

 

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

 

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.

 

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.

 

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

 

Our stock is a penny stock. The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

12


 
 

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules promulgated by the SEC, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

 

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of the common stock offered through this prospectus by the selling shareholders.

 

 

DETERMINATION OF OFFERING PRICE

 

The selling stockholders may offer their shares through public or private transactions, on or off OTCBB, at prevailing market prices, or at privately negotiated prices.  Although our stock is currently listed on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. under the symbol “NUZE,” no market for our shares has materialized.  Therefore, we determined the price of our public offering based to the last sale price of our common stock to investors.

 

 

DILUTION

 

The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders.

 

 

SELLING SHAREHOLDERS

 

The selling shareholders named in this prospectus are offering all of the 18,366,873 shares of common stock offered through this prospectus.  The following table provides, as of the date of this prospectus, information regarding the beneficial ownership of our common stock held by each of the selling shareholders, including:

 

1.       The number of shares owned by each prior to this offering;

2.       The total number of shares that are to be offered by each;

3.       The total number of shares that will be owned by each upon completion of the offering;

4.       The percentage owned by each upon completion of the offering; and

5.       The identity of the beneficial holder of any entity that owns the shares.

 

 

 

 

13


 
 

Name of Selling Shareholder

Shares Owned Prior to this Offering

Shares Being Offered

Shares Held Upon Completion of this Offering (1)

Percent Owned Upon Completion of this Offering (2)

Arata Matsushima (3)

1,520,000

760,000

760,000

2.54

Atsuo Hirayama

10,000

10,000

0

0

Aura A. Nieto De Almanza

40,000

40,000

0

0

Ayako Ogawa

4,167

4,167

0

0

Ayako Terai

10,000

10,000

0

0

Azusa Nakahara

20,833

20,833

0

0

Bolivar De Sedas

40,000

40,000

0

0

Chika Ono

10,000

10,000

0

0

Chikako Sumida

10,000

10,000

0

0

Contribution Co., Ltd. (4)

41,667

41,667

0

0

Craig Hagopian (5)

1,216,000

608,000

608,000

2.04

Daisuke (Sachi) Takemura

20,833

20,833

0

0

Eguchi Steel Co., Ltd. (6)

200,000

200,000

0

0

Eiji Yamaguchi

20,833

20,833

0

0

Eri Fushimi

100,000

100,000

0

0

Eric Enrique Morales Del Sed

60,000

60,000

0

0

Eugenio Martinez Valencia

60,000

60,000

0

0

Fumiko Morikage

10,000

10,000

0

0

Fusako Eguchi

140,000

140,000

0

0

Geraldine M. Auila O.

40,000

40,000

0

0

GTP-1(7)

766,667

766,667

0

0

Hideyuki Kawaguchi

62,500

62,500

0

0

Hiroyasu Kato

20,000

20,000

0

0

Hiroyuki Sakaguchi

20,000

20,000

0

0

Hitoshi Koda

10,000

10,000

0

0

Hutex Corporation (8)

20,000

20,000

0

0

Isamu Kurita

20,000

20,000

0

0

Jackeline Sharpe

60,000

60,000

0

0

Juan Gonzalez Reyes

60,000

60,000

0

0

Jun Endo

10,000

10,000

0

0

Junpei Ando

20,000

20,000

0

0

Kan Yoo Park

10,000

10,000

0

0

Karen De Sedas

40,000

40,000

0

0

Karina Velasquez Banilla

40,000

40,000

0

0

Karla Rodriquez De De Urriola

60,000

60,000

0

0

Katsunori Ohtani

62,500

62,500

0

0

 

 

14


 
 

Katsuyoshi Eguchi

828,800

828,800

0

0

Kazuaki Hirayama

20,000

20,000

0

0

Kazuki Nakao

20,833

20,833

0

0

Kazumi Ikeda

1,342,133

1,282,133

60,000

0.20

Kazunobu Izue

10,000

10,000

0

0

Kazushige Okumura

10,000

10,000

0

0

Keisuke Yagami

10,000

10,000

0

0

Ken Saito

20,000

20,000

0

0

Kenji Matsuba

20,389

20,389

0

0

Kenta Ono

10,000

10,000

0

0

Ko Ukai

10,000

10,000

0

0

Koichi Murayama

30,000

30,000

0

0

Koichi Nakamura

333,333

333,333

0

0

Kotaro Shiozawa

100,000

100,000

0

0

Kozo Yamakita

333,333

333,333

0

0

Leonardo Cubilla

60,000

60,000

0

0

Lilia Rosa Aguilar B.

60,000

60,000

0

0

Lohas and Company, Ltd.(9)

333,333

333,333

0

0

Luis E. Rodiguez

60,000

60,000

0

0

Luis Enrique Hernandez

40,000

40,000

0

0

Mahito Morikage

10,000

10,000

0

0

Makoto Mori

200,000

200,000

0

0

Manami Nagata

10,000

10,000

0

0

Maria Del C. Nieto M.

40,000

40,000

0

0

Masaaki Nagase

85,417

85,417

0

0

Masaaki Naruse

10,000

10,000

0

0

Masakazu Shigemori

20,833

20,833

0

0

Masateru Higashida (10)

14,233,633

7,116,817

7,116,816

23.83

Masato Hoshikawa

10,000

10,000

0

0

Mayumi Sakai

10,000

10,000

0

0

Miho Naruse

10,418

10,418

0

0

Minaru Nishihira

10,000

10,000

0

0

Mitsujiro Oike

224,277

224,277

0

0

Mitzila Espinosa

60,000

60,000

0

0

Myung Soon Kim

100,000

100,000

0

0

Naho Eguchi

20,000

20,000

0

0

Naoki Sugiura

10,000

10,000

0

0

Nobuaki Suzuki

20,000

20,000

0

0

Nobuyuki Hiroya

333,333

273,333

60,000

0.20

Norihiko Sumida

10,000

10,000

0

0

Noriko Sugimoto

60,000

60,000

0

0

Noritoshi Terai

10,000

10,000

0

0

Oscar Rodriguez

60,000

60,000

0

0

Oscar Rodriguez

60,000

60,000

0

0

 

 

15


 
 

Raimundo Barragan

60,000

60,000

0

0

Ri Park

68,657

68,657

0

0

Ryoji Masuda

20,833

20,833

0

0

Saori Harayama

10,000

10,000

0

0

Satoru Yukie (11)

1,520,000

760,000

760,000

2.54

Seiko Okumura

10,000

10,000

0

0

Scott Rieger

20,000

20,000

0

0

Shinichi Harada

10,000

10,000

0

0

Shun Nakamura

10,000

10,000

0

0

Stefeno Cerutti

60,000

60,000

0

0

Steven I. Bellach Revocable Living Trust (12)

40,000

40,000

0

0

Takafumi Suzue

10,000

10,000

0

0

Takao Kino

10,000

10,000

0

0

Takayuki Naruse

20,302

20,302

0

0

Tatsuya Takase

10,000

10,000

0

0

Teodolinda Bethancourt

40,000

40,000

0

0

Teppei Urayama

10,000

10,000

0

0

Teruko Shirai

10,000

10,000

0

0

Tomohiro Morimoto

20,833

20,833

0

0

Tomoki Kato

120,000

120,000

0

0

Tomotaka Suzuki

31,250

31,250

0

0

Torus International Enterprises Limited (13)

333,333

273,333

60,000

0.20

Toshihiro Tsukada

104,165

104,165

0

0

Travis Gorney

1,520,000

760,000

760,000

2.54

Tsutomu Sakurai

20,000

20,000

0

0

Tsuyoshi Sugimoto

10,000

10,000

0

0

Tsuyoshi(Takeshi) Shirai

104,167

104,167

0

0

Tyseth S. Esquivel

60,000

60,000

0

0

Yasuji Otsubo

40,000

40,000

0

0

Yasuyuki Harayama

10,000

10,000

0

0

Yoshiaki Egami

41,667

41,667

0

0

Yoshiki Nakamura

20,000

20,000

0

0

Yuichi Suzuki

10,417

10,417

0

0

Yukino Niimi

10,000

10,000

0

0

Yuko Takase

10,000

10,000

0

0

Yusuke Fukatsu

10,000

10,000

0

0

Yutaka Misasagawa

10,000

10,000

0

0

TOTAL

28,551,689

18,366,873

10,184,816

34.09

 

( 1 )       Assumes that all of the shares offered hereby are sold and that shares owned before the offering but not offered hereby are not sold.

( 2)       Based on 29,865,357 shares of common stock outstanding on May 28, 2014.

(3)       Arata Matsushima is a Director of the Company.

(4)       The person with voting and investment control over the securities held by Contribution Co., Ltd. is Mr. Hikaru Taguchi.

( 5)       Craig Hagopian is the President, Chief Executive Officer Director of the Company.

(6)       The person with voting and investment control over the securities held by Eguchi Steel Co., Ltd. is Katsuyoshi Eguchi.

( 7)       The person with voting and investment control over the securities held by GTP-1 is Naomichi Yamaguchi.

(8)       The person with voting and investment control over the securities held by Hutex Corporation is Katsuyoshi Eguchi.

(9)       The person with voting and investment control over the securities held by Lohas and& Company, Ltd. is Kenichi Miura.

16


 
 

(10)     Masateru (“Masa”) Higashida is a Director of the Company.

(11)     Satoru Yukie is the Chief Financial Officer, Treasurer, Secretary, Chief Operations Officer, and a Director of the Company.

(12)     The person with voting and investment control over the securities held by Steven I. Bellach Revocable Living Trust is Steven I. Bellach.

(13)     The person with voting and investment control over the securities held by Torus International Enterprises, Ltd. is Katsuyoshi Eguchi.

 

Other than those noted above, none of the selling shareholders:

 

a)       has had a material relationship with us other than as a shareholder at any time within the past three years; or

b)       has ever been one of our officers or directors.

 

PLAN OF DISTRIBUTION

 

The selling shareholders may sell some or all of their common stock in one or more transactions, including block transactions:

  

(1)                On such public markets as the common stock may from time to time be trading;

(2)                In privately negotiated transactions;

(3)                Through the writing of options on the common stock;

(4)                In short sales; or

(5)                In any combination of these methods of distribution.

 

The sales price to the public is fixed at $0.50 per share until such time as the shares of our common stock are traded on the OTCQB. Although our common stock is currently listed on the OTCQB, public trading of our common stock may never materialize.  If a market for our common stock does materialize on the OTCQB, then the sales price to the public will vary according to the selling decisions of each selling shareholder and the market for our stock at the time of resale.  In these circumstances, the sales price to the public may be:

 

(1)                The market price of our common stock prevailing at the time of sale;

(2)                A price related to such prevailing market price of our common stock; or

(3)                Such other price as the selling shareholders determine from time to time.

 

The shares may also be sold in compliance with Rule 144 of the Securities Act.

 

We can provide no assurance that all or any of the common stock offered will be sold by the selling shareholders named in this prospectus.

 

We are bearing all costs relating to the registration of the common stock.  The selling shareholders, however, will pay any commissions or other fees payable to brokers or dealers in connection with any sale of the common stock.

 

The selling shareholders named in this prospectus must comply with the requirements of the Securities Act and the Exchange Act in the offer and sale of the common stock.  The selling shareholders and any broker-dealers who execute sales for the selling shareholders may be deemed to be an "underwriter" within the meaning of the Securities Act in connection with such sales. In particular, during such times as the selling shareholders may be deemed to be engaged in a distribution of the common stock, and therefore be considered to be an underwriter, they must comply with applicable law and may, among other things:

 

(1)                Not engage in any stabilization activities in connection with our common stock;

(2)                Furnish each broker or dealer through which common stock may be offered, such copies of this prospectus, as amended from time to time, as may be required by such broker or dealer; and

(3)                Not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Exchange Act.

 

 

17


 
 

DESCRIPTION OF SECURITIES

 

COMMON STOCK

 

Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.00001 per share. The holders of our common stock:

 

·          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 our Articles of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of our securities.

  

NON-CUMULATIVE VOTING

  

Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% 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 that event, the holders of the remaining shares will not be able to elect any of our directors.  

 

CASH DIVIDENDS

  

As of the date of this prospectus, we have not paid any cash dividends to our stockholder.  The declaration of any future cash dividend will be at the discretion of our board of directors 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.

  

PREFERRED STOCK

  

We are authorized to issue 100,000,000 shares of preferred stock with a par value of $0.00001 per share. The terms of the preferred shares are at the discretion of the board of directors.  Currently no preferred shares are issued and outstanding.

 

SHARE PURCHASE WARRANTS

 

On August 1, 2013 the Company’s Board of Directors approved a resolution to grant 1,000,000 warrants to consultants.  To date, no warrants have been granted.

OPTIONS

During October 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 shall vest 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.

18


 
 

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 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 based on the expected term of the option. The Company has estimated there will be no forfeitures.

The Black-Scholes option pricing model was used with the following weighted average assumptions for options granted during the three months ended March 31, 2014:

Risk-free interest rate 1% - 2%

Expected option life 5 – 6 years

Expected volatility 300%

Expected dividend yield 0.0%

At March 31, 2014, 2,011,945 options are exercisable and the Company recognized $1,326,055 of stock options expenses during the three months ended March 31, 2014.

CONVERTIBLE SECURITIES

 

We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.

 

ANTI-TAKEOVER PROVISIONS

  

There are no Nevada anti-takeover provisions that may have the affect of delaying or preventing a change in control.

  

WHERE YOU CAN FIND ADDITIONAL INFORMATION 

  

You may read copies of any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that will contain copies of the reports we file electronically. The address for the Internet site is www.sec.gov. 

  

STOCK TRANSFER AGENT

  

Our transfer agent is QuickSilver Stock Transfer, 6623 Las Vegas Blvd South #255, Las Vegas, Nevada 89119.

 

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

The financial statements included in this prospectus and the registration statement have been audited by MaloneBailey LLP and by our former independent auditors, Anton & Chia LLP  to the extent and for the periods set forth in their respective reports appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firms as experts in auditing and accounting.

 

Karen A. Batcher, Esq of Synergen Law Group, APC our independent legal counsel, has provided an opinion on the validity of our common stock.

 

 

 

19


 
 

DESCRIPTION OF BUSINESS

 

OVERVIEW

 

Nuzee Inc. is the operating company that manages a portfolio of branded consumer packaged goods.  The Company was incorporated in July 2011 as Havana Furnishings, Inc. (“Havana”) under the laws of the State of Nevada.  From the date of Incorporation through April 2013, the Company was a development stage company engaged in the business of selling public restaurant and bar furnishings and accessories from Asia to retailer customers at wholesale prices on the internet.  In April 2013, the Company's sole officer decided that it was not economically feasible to continue with the Company’s business plan and  began to seek other companies for potential merger.

 

On April 19, 2013, the Company completed a merger with Nuzee Co., Ltd. a California corporation (“Nuzee-CA”) wherein Nuzee Co., Ltd. became a wholly owned subsidiary of Havana.  Pursuant to the Share Exchange Agreement, each of the 33,733,333 outstanding shares of Nuzee-CA common stock was converted into one share of the Company’s common stock.   In addition, upon the closing of the Merger, the Company amended its Articles of Incorporation to change its name from Havana Furnishings, Inc. to Nuzee, Inc.  Nuzee-CA was established in 2011 as an importer and distributor of natural spring water and skincare products as well as energy drinks.

 

Our global corporate headquarters is located in San Diego, California. When we refer to our company and its business in this report, we are referring to the business and activities of our consolidated operations.

 

To date, we mainly distributed natural and organic products produced by 3rd parties.  These legacy product lines which included New Zealand bottled spring water, natural and organic skincare from New Zealand as well as the TorqueTM energy drinks are being phased out and/or discontinued as the Company believes its best near and long term success is to focus resources on our own product line of functional beverages which will enable the Company to control, develop, manufacture and promote its brands from the United States.

 

During the 2013 fiscal year we began researching and investigating the viability of a new product platform for functional beverages. We plan to start producing our first family of functional beverages in early 2014.  These products are considered healthy alternatives, with all natural ingredients and provide an added wellness benefit when compared to the traditional non-fortified version of the same beverage.  As a result, Nuzee’s mission is to be a good-for-you company focused on building beverage brands that offer functional and nutritional benefits.

 

Our operational approach has and will remain to develop and manufacture our products under strict guidelines for good manufacturing and food safety practices before releasing our products to the market.  We own our formulas and work with experts in beverage, nutrition and flavoring sciences to ensure our products not only taste delicious but are also good-for-you using quality and natural ingredients with proven clinical research to support the functional efficacy. We are using multiple manufacturing partners, known in the industry as co-packers, to scale our manufacturing capabilities.

 

We sell our products directly to consumers through our website portal (in final development) as well as through soon to be announced affiliate online stores and retailers.

 

MARKET OPPORTUNITY

 

As an emerging company in the functional beverage sector we are participating in large growing market with historical sales of more than $16 billion with anticipated growth of 3% per year through 2015 according to research by Datamonitor.  Nuzee’s products fall within the nutraceutical drink portion of the functional beverage market which accounts for approximately 6% or $1 billion in the United States annually. 

 

20


 
 

 

PRINCIPAL PRODUCTS

 

After careful study and research the company determined its first functional beverage will be a line of single-serve gourmet coffees.  Our decision was based on numerous factors including the market for coffee and its continued growth, the ability to serve a cup of coffee quickly and conveniently as well as the ability for precise dosage of our active ingredients in pre-portioned packs.  Our knowhow is tied to our formula, process and use of natural flavoring to mask the undesired off-notes produced by the added functional ingredient(s) such that the original beverage is preserved and there are no deficiencies in the taste and aroma profile.

 

Coffee Blenders          

 

Coffee Blenders TM

Product Branding and Packaging

www.coffeeblenders.com

 

 

 

 

 

 

 

Escape for Stress Reduction

Lean for Weight Loss

Focus for Cognitive Performance

 

 

 

 

 

 

 

 

 

 

21


 
 

The company will make Coffee BlendersTM available in the first quarter of 2014. We believe Coffee Blenders to be the first line of gourmet specialty grade coffee offered in convenient K-Cups® using only natural ingredients with clinically supported branded nutraceuticals.

Each Coffee Blenders K-cup® will include a total of 11 grams of coffee plus natural ingredients and come in retail packaging of 15 K-Cup packs per box.

The coffee packs are compatible with Keurig K-Cup brewers and systems. Keurig is owned by Green Mountain Coffee Rosters (NASDAQ: GMCR).  A key consideration in launching Coffee Blenders in K-Cup formats was due to the patent protection surrounding the K-Cups expiring in late 2012.  This enables 3rd party companies to produce K-Cup compatible packs for an existing installed base of brewers totaling more than 16 million units according to GMCR company filings and reports.

With the majority of Keurig machines installed in the United States the Company is researching the viability of stick packs for international markets where Keurig brewers are not as popular or available. Additionally, the Company plans to explore other single-serve brewer platforms as well as distribution partnership opportunities as coffee consumption varies around the globe.

We plan to initially launch three functional varieties called Lean (for weight loss), Focus (for cognitive performance) and Escape (for stress reduction). The current family of products all utilize GRAS (Generally Recognized As Safe) ingredients that are also supported by clinical studies using the exact strengthen and dosage recommended by our ingredient partner’s claims and research. Based on market feedback we anticipate introducing another set of functions in the second half of 2014. The Company is in the preliminary product development stages in determining the expansion of new functions and ingredients.

OUR STRATEGY

Our objective is to be a profitable, leading provider of functional beverages. Elements of our business strategy for 2014 include:

·          Secure additional working capital to support growth and development of Nuzee sales and support operations

·          Build product and brand awareness through marketing and communication programs

·          Build an enthusiast and loyal base of consumers for Coffee Blenders

·          Expand family of functional coffees to include new functions and flavors

·          Expand distribution across retail, online and affiliate channels

·          Contract with multiple manufacturing partners to scale production as required

·          Build portfolio of formulas for functional beverages

·          Explore new beverage platforms beyond coffee 

CUSTOMERS

Our customers are divided into two groups: direct consumers and distribution partners.

Direct Consumers -- we believe that the existing K-cup single serve household will be our primary target audience.  We plan to reach them through direct response techniques using search marketing and direct advertising to drive purchases on our e-commerce shopping site. Orders will be processed after payment has been received via credit card or other electronic remittance.

Distribution Partners -- we will target outlets and distributors that are engaged in selling beverages such as coffee or teas as well as those who focus on health and wellness products.  All products will be sold on a purchase order basis using standard terms and conditions associated with wholesale procurement with minimum order quantities.  We supply products to these customers on a purchase order basis.

22


 
 

SALES AND MARKETING

Sales revenues reported in fiscal year 2013 were related to legacy product lines which were being discontinued.   Therefore, the some cases the products were sold at a significant discount in order to eliminate inventory as we ready our warehouse for the upcoming Coffee Blenders.

As an emerging product brand we believe that a significant amount of spend is required to generate sales in 2014. We plan to implement a four stage approach:

1.       Build Awareness and Consideration

2.       Generate Trial

3.       Drive Initial Sales

4.       Drive Repeat Sales

We anticipate the need to spend more than one million in target marketing, sampling and test advertising (stages #1 and #2) in 2014. We will use the learning from our advertising campaigns to determine the optimal cost of acquisition in order to scale the business appropriately. We also plan to implement a loyalty club program to encourage repeat orders. Once the Company has metrics on the successfully conversion rate (i.e. from initial sale to repeat order) management will then be in a position to determine our cash requirements to sustain and grow the business.

At this time, most of our products will be sold around the world under the “COFFEE BLENDERS” brand name. However, the Company will consider private label arrangements if the margin structure and distribution potential are economically viable.

MANUFACTURING

We plan to use third party contract manufacturers to provide finished products and goods.  We have agreements in place with suppliers and partners for all components required to deliver a finished Coffee Blenders product.  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.

We currently purchase our nutraceuticals, Svetol (green coffee bean extract) and Cereboost (American Ginseng extract), from Naturex, Inc. (“Naturex”)  Pursuant to license agreements with Naturex, in order to maintain our license, we are required to purchase an annual minimum amount of product.  Copies of our license agreements with Naturex for Svetol and Cereboost are included with this Registration Statement as Exhibits 10.3 and 10.4 respectively.

We purchase coffee from San Diego Coffee, Tea & Spice, Inc. (“SDCTS”).   Our Agreement with SDCTS commenced on March 7, 2014 and  will remain in force for a period of two years.  After the first two years, the agreement with SDCTS will automatically renew for subsequent one year terms.  Either party can terminate the agreement upon 90 days written notice before the end of any term.  San Diego Coffee, Tea & Spice, Inc. (“SDCTS”) A copy of our agreement with SDCTS is included with this Registration Statement as Exhibit 10.5.

 All of the raw products (ground coffee and nutraceuticals) are sent to Core Supplement Technology, Inc. (“Core”) for mixing into our proprietary blends.  We do not have a written agreement with Core.   Rather, all services performed by Core are on a purchase order basis.  After Core mixes our coffees, the final product is shipped to SDCTS, or our other packager Cafejo, for packaging into single-serving containers commonly known as “K cups” and  boxed for retail sales.

RESEARCH AND DEVELOPMENT

We focus our research and development efforts on developing innovative functional beverages that not only taste delicious but also include a healthy wellness benefit.

 

23


 
 

Over the course of the last fiscal year Nuzee has maintained a modest R&D budget. With the advent of the functional beverage focus the Company plans 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. The Company has contracted product from Blue California and Naturex (Paris Stock Exchange: NRX) both global natural specialty ingredient suppliers who are providing assistance in ingredient identification, testing, marketing support, and clinical studies to accelerate our development efforts.

In 2013, our product development initiatives included:

·          $15,000 developing a raw ingredient selection, blending and flavoring for Coffee Blenders

 For 2014, our research and development initiatives will be concentrated on the following projects:

·          Continued development of our Coffee Blenders series with new functions and ingredients Research of instant coffee with micro-grounds for stick packs Development of functional beverages beyond coffee such as teas or hot chocolate

INTELLECTUAL PROPERTY

Nuzee has filed for trademark registrations in the United States on several marks it intends to use in the beverage industry and is in the process of submitting additional related trademark applications.  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.

Nuzee intends 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 Nuzee’s rights may result in a substantial cost to the Company, Nuzee’s management strongly believes that the protection of our intellectual property rights is a key component of our operating strategy.  As a result of our company’s continuing R&D efforts, the Company 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 Nuzee plans to cease using and may abandon its registered TORQ and TORQ WRENCH trademarks acquired from the HydroPouch Corporation.  The Company also plans to not pursue or contest the use of Nuzee as a product brand in association with water and skincare product as we exit those businesses.

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 of product from the licensor for any 12 month period, the licensor may terminate the Company’s license upon 15 days written notice.

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 coffees in K-Cups®.  While there are more than 200 varieties of K-Cup coffees to choose from there are few, if any functional coffees dedicated to weight-loss, stress reduction or cognitive performance. 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.

24


 
 

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 Blender product 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 well as the natural ingredients found in pills and powders.

As a result, we continue to look for significant niche markets where our close attention to customer requirements and superior performance are valued.

EMPLOYEES

As of June 1 8 , 2014, we had a total of 7 full-time equivalent employees.  All employees are located in San Diego.  We have a total of four employees involved in executive, general and administrative functions, three involved in sales and marketing.

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, similar to coffee.  Such products are regulated by the U.S. Food and Drug Administration (“FDA”).  Ingredients in such products must be approved food additives or “Generally Regarded as Safe” (“GRAS”); we have been careful to utilize ingredients that are approved food additives or GRAS. We also 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. 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. It will be our policy to comply with any and all legal requirements.

 

25


 
 

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 also posted within this section of the website. The information on our website is not part of this or any other 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.

 

DESCRIPTION OF PROPERTY

 

Our principal executive office is located at 16955 Via Del Campo, Suite 260, San Diego, California 92127.  We lease these facilities on an annual basis at a cost of $2,330 per month.  We also lease warehouse space located at 2245 Enterprise Street, Escondido, California 92029 on an annual basis at a cost of $775 per month.  We believe these facilities are suitable for our current needs.

 

 

LEGAL PROCEEDINGS

 

None.

 

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S

COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

MARKET INFORMATION

 

Since October 2012, our shares of common stock have been listed for quotation on the OTCQB tier of OTC Markets, under the stock symbol "HVFI.” Our symbol changed to “NUZE” during May 2013 in connection with our reverse merger and our common stock is quoted on OTCQB Market.  The following table shows the reported high and low closing bid prices per share for our common stock based on information provided by the OTCQB. The over-the-counter market quotations set forth for our common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

 

 

BID PRICE PER SHARE

Quarters Ended

 

HIGH

LOW

March 31, 2014

 

$ 0.00

$ 0.00

December 31, 2013

 

0.00

0.00

September 30, 2013

 

0.00

0.00

June 30, 2013

 

0.00

0.00

March 31, 2013

 

0.00

0.00

December 31, 2012

 

0.00

0.00

September 30, 2012

 

0.00

0.00

June 30, 2012

 

0.00

0.00

 

  NUMBER OF SHAREHOLDERS

 

As of June 18, 2014, the stockholders list for our common stock showed 138 registered stockholders and 29,865,357 shares of common stock issued and outstanding.  The transfer agent of our common stock is QuickSilver Stock Transfer, 6623 Las Vegas Blvd South #255, Las Vegas, Nevada 89119.

 

 

26


 
 

DIVIDENDS

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the growth and development of our business. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

We had no securities authorized for issuance under our equity compensation plans as of September 30, 2013.


FINANCIAL STATEMENTS

 

INDEX TO FINANCIAL STATEMENTS

 

 

 

 

 

 

 

  

Page

 

Consolidated Financial Statements For The Fiscal Year Ended September 30, 2013

(Audited)

  

 

 

 

Report of Independent Registered Public Accounting Firm – MaloneBailey, LLP

  

 

F-1

  

Report of Independent Registered Public Accounting Firm – Anton & Chia, LLP

 

 

F-2

 

Consolidated Balance Sheets (Audited)

  

 

F-3

  

Consolidated Statements of Operations (Audited)

  

 

F-4

  

Consolidated Statements of Stockholders’ Equity (Audited)

  

 

F-5

  

Consolidated Statements of Cash Flows (Audited)

  

 

F-6

  

Notes to Consolidated Financial Statements

  

 

F-7

  

 

 

 

 

 

Consolidated Financial Statements For The Fiscal Period Ended March 31, 2013

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) 

 

 

F-12

 

Consolidated Statements of Operations (Unaudited) 

 

 

F-13

 

Consolidated Statements of Cash Flows (Unaudited) 

 

 

F-14

 

Notes to Consolidated Financial Statements

 

 

F-15

 

           

 

 

 

 

 

 

 

 

 

 

 

27


 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

of NUZEE, Inc.

(A Development Stage Company)

 

We have audited the accompanying consolidated balance sheet of Nuzee, Inc. and its subsidiaries (a development stage company)  (collectively, the "Company") as of September 30,2013 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended and for the period from November 9, 2011 (inception) through September 30, 2013. 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 audits. We did not audit the cumulative totals of the Company for the period from November 9, 2011 (inception) to September 30, 2012, which totals reflect a deficit of $285,085 accumulated during the development stage. Those cumulative totals were audited by other independent auditors, whose report, dated April 10, 2013, expressed an unqualified opinion on the cumulative amounts but included an emphasis of a matter. Our opinion, insofar as it relates to amounts included for that period is based on the report of the other independent auditors.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial position of Nuzee, Inc. and its subsidiaries as of September 30, 2013 and the results of their consolidated operations and their cash flows for the year then ended and the period from November 9, 2011 (inception) through September 30, 2013, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

January 14, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-1

 

 

 
 

HTTP:::WWW.SEC.GOV:ARCHIVES:EDGAR:DATA:1527613:000129460613000103:X13042314564500.JPG  

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders of

NUZEE Co., Ltd.:

 

We have audited the accompanying balance sheet of Nuzee Co., Ltd. (the “Company”) as of September 30, 2012, and the related statements of operations, changes in stockholders’ equity, and cash flows for the period from inception, November 9, 2011 to September 30, 2012.  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 the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes 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 the above present fairly, in all material respects, the financial position of Nuzee Co., Ltd. as of September 30, 2012, and the results of its operations and cash flows from inception November 9, 2011 to September 30, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Anton & Chia, LLP

 

San Diego, California

January 10, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-2


 
 

 

 

Nuzee, Inc.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEET

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash

 

 

 

$

1,110,661

$

165,484

 

 

Accounts Receivable

 

 

 

13,195

 

-

 

 

Related Party Receivable

 

 

139,661

 

-

 

 

Inventories

 

 

 

-

 

73,241

 

 

Prepaid expenses and deposits

 

 

16,896

 

14,938

 

 

Total current assets

 

 

1,280,413

 

253,663

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment, net

 

 

 

8,663

 

2,475

 

 

Intellectual property

 

 

 

-

 

42,818

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

$

1,289,076

$

298,956

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

$

55,822

$

79,886

 

 

Advances from Stockholders'

 

 

50,000

 

149,710

 

 

Other Current Liabilities

 

 

9,563

 

7,011

 

 

Total Current Liabilities

 

 

115,385

 

236,607

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

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;

37,957,790 and 30,400,000 shares issued and outstanding

380

 

304

 

 

Additional paid in capital

 

 

2,556,349

 

347,103

 

 

Accumulated deficit

 

 

 

(1,383,038)

 

(285,058)

 

 

Total Stockholders' Equity

 

 

1,173,691

 

62,349

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

$

1,289,076

$

298,956

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

F-3


 
 

 

Nuzee, Inc.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Audited)

 

 

Year Ended September 30, 2013

For the period from November 9, 2011 (Inception)to

September 30, 2012

For the period from November 9, 2011 (Inception)to

September 30, 2013

Revenues

$                     122,232

$                                  -

$                   122,232

Cost of revenues

155,254

89,552

244,806

 

Gross profit (loss)

(33,022)

(89,552)

(122,574)

Operating expenses

1,065,728

195,506

1,261,234

Loss from operations

(1,098,750)

(285,058)

(1,383,808)

 

 

 

 

Other Income

770

-

770

 

 

 

 

Net loss

$                (1,097,980)

$                     (285,058)

$              (1,383,038)

 

 

 

 

Basic and diluted loss per common share

$                        (0.03)

$                          (0.01)

 

 

 

 

 

Basic and diluted weighted average number of common shares outstanding

34,915,497

30,400,000

 

 

 

 

 

 

           

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-4

 

 
 

  Nuzee, Inc.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the period from November 9, 2011 (Inception) to September 30, 2013

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

Additional

Paid-In

Capital

 

Accumulated

Deficit

Total

Stockholders'

Equity

 

Shares

Amount

 

 

 

 

 

 

Balance, November 9, 2011

-

$                       -

$                      -

$                        -

$                               -

 

 

 

 

 

 

Common Stock issued for cash

27,360,000

274

304,315

-

304,589

Common Stock issued for intellectual property

3,040,000

30

42,788

-

42,818

Net Loss

-

-

-

(285,058)

(285,058)

 

 

 

 

 

 

Balance, September 30, 2012

30,400,000

$                   304

$            347,103

$          (285,058)

$                      62,349

 

 

 

 

 

 

Common Stock issued debt

1,247,583

12

149,698

-

149,710

Common Stock issued for cash

7,150,207

72

2,102,358

 

2,102,430

Reverse merger adjustment

2,200,000

22

(22)

 

-

Common stock cancellation

(3,040,000)

(30)

(42,788)

 

(42,818)

 

 

 

 

 

 

Net Loss

-

-

-

(1,097,980)

(1,097,980)

 

 

 

 

 

 

Balance September 30, 2013

37,957,790

$                   380

$         2,556,349

$       (1,383,038)

$                 1,173,691

  

  The accompanying notes are an integral part of these audited financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-5


 
 

 

 

Nuzee, Inc.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended

September 30, 2013

For the period from November 9, 2011 (Inception)

to

September 30, 2012

For the period from November 9, 2011 (Inception)

to September 30, 2013

Operating Activities:

 

 

 

 

Net loss

 

 

 

 

$             (1,097,980)

$                (285,058)

$                   (1,383,038)

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

used by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

 

 

587

124

711

 

Provision for obsolete inventory

 

 

61,481

80,422

141,903

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts Receivable

 

 

 

(13,195)

-

(13,195)

 

Related Party Receivables

 

 

 

(139,661)

-

(139,661)

 

Inventories

 

 

 

 

11,761

(153,664)

(141,903)

 

Prepaid expenses and deposits

 

 

 

(1,959)

(14,937)

(16,896)

 

Accounts payable

 

 

 

 

(24,064)

79,886

55,822

 

Other Current Liabilities

 

 

 

2,552

7,011

9,563

 

 

 

 

 

 

 

 

 

 

Net cash used by operating activities

 

(1,200,478)

(286,216)

(1,486,694)

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

 

(6,775)

(2,599)

(9,374)

 

Net cash used by investing activities

 

 

(6,775)

(2,599)

(9,374)

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

Advances from Stockholders

 

 

 

50,000

149,710

199,710

 

Proceeds from issuance of common stock

 

 

2,102,430

304,589

2,407,019

 

Net cash provided by financing activities

 

2,152,430

454,299

2,606,729

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

 

 

945,177

165,484

1,110,661

Cash, beginning of period

 

 

 

165,484

-

-

Cash, end of period

 

 

 

 

$               1,110,661

$                   165,484

$                     1,110,661

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

 

 

 

$                              -

$                              -

$                                    -

 

Cash paid for taxes

 

 

 

 

$                              -

$                              -

$                                    -

 

 

 

 

 

 

 

 

 

Non Cash Investing and Financing Activities:

 

 

 

 

 

 

Common Stock issued for conversions of advance from stockholder

$                   149,710

$                              -

$                                    -

 

Common Stock issued in exchange for acquisition of intellectual property

$                               -

$                    42,818

$                                    -

 

Cancellation of common stocks

 

 

 

$                   (42,818)

$                              -

$                                    -

                       

 

The accompanying notes are an integral part of these audited financial statements

 

F-6


 
 

NUZEE, INC.

Notes to Consolidated Financial Statements

September 30, 2013

 

1. ORGANIZATION

 

Nuzee, Inc. (the “Company”) was incorporated on November 9, 2011 in Nevada. The Company is a start-up organization which markets and distributes consumer products primarily in the beverage 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. The Company is affiliated with international businesses that distribute the same products in Asia.

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the financial statements have been included.

 

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. The Company is classified as a development stage enterprise under GAAP and has generated limited revenues from its principal operations from inception through September 30, 2013.

 

Development Stage 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. Accordingly, the Company is considered to be in the development stage as defined in GAAP  The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues. As of September 30, 2013, the Company had decided to discontinue the sale of skin care products.

 

Use of Estimates

In preparing these 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

The Company’s financial instruments include cash, accounts payable, and accrued liabilities. The estimated fair value of these instruments approximates its carrying amount due to the short maturity of these instruments.

 

Cash and Cash Equivalents

The Company considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September 30, 2013.

 

F-7


 
 

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. There have been no write-offs during the various periods being reported on.

 

Revenue Recognition

The Company will recognize revenue only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the products are delivered and collectability of the resulting receivable is reasonably assured.

 

Inventory

Inventory, consisting principally of products held for resale, is stated at the lower of cost or market, using the weighted average cost method or net realizable value. The Company review inventory levels at least annual and records a valuation allowance when appropriate. At September 30, 2013 and 2012 the Company concluded there was impairment to the carrying value of the inventory of $61,481 and $80,422 respectively, the amount reflected on the balance sheet is net of this adjustment.

 

Equipment, net

Equipment is stated at cost. The Company depreciates equipment on a straight line basis. Office equipment is depreciated over a 3 year life, vehicles over a 5 year life, and other assets over a 10 year life. Depreciation expense for the years ended September 30, 2013 and 2012 was $587 and $124, respectively. Repair and maintenance costs are expensed as incurred.

 

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.

 

Long-Lived Assets

In accordance with Financial Accounting Standards Board ( “ FASB ” ) Accounting Standards Codification ( “ ASC ” ) 360, Property, Plant and Equipment, 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. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. No impairment losses were recognized for the years ended September 30, 2013 and 2012.

 

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.

F-8


 
 

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 consolidated 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, 2013 and 2012.

 

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 maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.

 

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.

 

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

3. RELATED PARTY TRANSACTIONS

 

The Company purchased $10,454 of skin care products, for resale, from an entity controlled by the Company’s majority shareholder. Those items are included in inventory at September 30, 2012. During 2012, the Company has received advances, from its majority shareholder totaling, $150,014, due on demand, which are included with other liabilities on the Balance Sheet. 

 

During fiscal year ended September 30, 2013, the Company issued 1,247,583 common stocks to convert $149,710 of advance from shareholders. The company also received $50,000 in exchange for a note, from its majority shareholder, which are due on January 9, 2016 and bear interest rate of 2% per annum. As of September 30, 2013, the Company had a balance of $50,000 of advance from shareholders’.

 

During the year ended September 30, 2013, the Company made a deposit of $139,661 towards the purchase of skin care products, for resale, from an entity controlled by the Company’s majority shareholder. Subsequent to this commitment, the Company decided to discontinue the sale of skin care products, and cancelled the purchase order. The Company has requested a return of the deposit from the supplier, and this amount is reflected as a related party receivable. Subsequent to September 30, 2013, the Company had entered into a Compromise Agreement to settle the related party receivable. See note 8.

 

 

F-9

 


 
 

4. INTELLECTUAL PROPERTY

 

On September 17, 2012 the Company issued 3,040,000 shares at the estimated fair market value of $.014085 per share in exchange for an assignment of certain intellectual property rights to one of the Company’s principal product offerings. These shares were valued at $42,818.

 

The Company in July 2013 did not receive the value represented to it in connection with the issuance of 3,040,000 of these shares, and as a result, revoked such issuance. 

 

5. REVERSE MERGER

 

During April, 2013 Havana Furnishings Inc. consummated a share exchange with Nuzee, Co., Ltd. in which Havana Furnishings Inc. issued 33,733,333 common shares in exchange for 100% of the outstanding shares of Nuzee, Co., Ltd. Also as part of this transaction, the Company changed its name from Havana Furnishings Inc. to Nuzee, Inc. At the closing, there were approximately 33,733,333 Nuzee, Co., Ltd. shares outstanding. Pursuant to the share exchange agreements, the shares of Nuzee, Co., Ltd. common stock were exchanged for 33,733,333 new shares of the Company’s common stock, par value of $0.00001per share. At the closing of the agreement, Havana Furnishings Inc. had 2,200,000 shares of common stock issued and outstanding.

 

For accounting purposes, this transaction is being accounted for as a reverse merger and has been treated as a recapitalization of Havana Furnishings Inc., with Nuzee, Co., Ltd. is considered the accounting acquirer, and the financial statements of the accounting acquirer became the financial statements of the registrant. The Company did not recognize goodwill or any intangible assets in connection with the transaction. The 33,733,333 shares issued to the shareholder of Nuzee, Co., Ltd. and its designees in conjunction with the share exchange transaction have been presented as outstanding for all periods. The historical consolidated financial statements include the operations of the accounting acquirer for all periods presented.

 

6. COMMON STOCK

 

On September 7, 2012, the Company issued 4,560,000 shares in total to three subscribers for cash at $.0001 per share for total proceeds of $456.

 

Also, on September 7, 2012 the Company issued 1,216,000 shares to a subscriber for cash at $.0001 per share for total proceeds of $122.

 

Also, on September 17, 2012 the Company issued 21,584,000 shares to a subscriber for cash at $.014085 per share for total proceeds of $304,011.

 

During the fiscal year ended September 30, 2013, the Company entered into subscription agreements with accredited investors and sold 7,150,207 shares at $0.12, $0.22 and $0.48 per share, for an aggregate purchase price of $2,102,430.

 

 

 

 

 

 

 

 

 

 

F-10


 
 

7. INCOME TAX

 

As of September 30, 2013 and September 30, 2012, 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. Net operating loss carry forward is $285,058 and $1,383,038 as of September 30, 2013 and 2012 and will begin expiring in 2032.

 

Deferred tax assets consisted of the following as of September 30, 2013 and 2012:

 

2013

2012

Net Operating Losses

484,063

99,770

Valuation Allowance

(484,063)

(99,770)

 

8. SUBSEQUENT EVENTS

 

During October 2013 the Company granted 3,471,665 options to employee pursuant to the Company’s 2013 Stock Incentive Plan. 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 at thirty-sixth (1/36th) of the Shares on the last day of each successive calendar month for each full month of Continuous Service provided by the Optionee, with the exception that options issued to 2 employees shall vest and become exercisable over 18 months.  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.

 

During October 2013, the Company entered into a Compromise Agreement with the Company’s majority shareholder. In consideration of the compromises contained in the agreement the Company’s majority shareholder agreed to forgive a note in the amount of $50,000, cancel 8,966,100 shares, and the Company forgave the related party receivable of $139,661.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-11

 


 
 

 

Nuzee, Inc.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

 

 

 

 

 

 

March 31, 2014

September 30, 2013

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash

 

 

 

 

$                                  796,343

$                                     1,110,661

 

 

Accounts Receivable

 

 

 

306

13,195

 

 

Related Party Receivables

 

 

 

139,661

 

 

Inventories

 

 

 

49,567

-

 

 

Prepaid expenses and deposits

 

 

46,891

16,896

 

 

Total current assets

 

 

893,107

1,280,413

 

 

 

 

 

 

 

 

 

 

 

 

Equipment, net

 

 

 

9,547

8,663

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

 

$                                  902,654

$                                     1,289,076

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$                                   29,430

$                                          55,822

 

 

Advances from Stockholders'

 

-

50,000

 

 

Other Payable

 

102,000

-

 

 

Other Current Liabilities

 

51,642

9,563

 

 

Total Current Liabilities

 

 

183,072

115,385

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

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; 29,605,357 and 37,957,790 
shares issued and outstanding

 

296

380

 

 

Additional paid in capital

 

4,161,027

2,556,349

 

 

Deficit accumulated during the development stage

 

(3,441,741)

(1,383,038)

 

 

Total Stockholders' Equity

 

719,582

1,173,691

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$                                 902,654

$                                      1,289,076

 

 

 

 

 

 

 

 

 

 

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

                     

 

 

 

 

F-12


 
 

 

 

Nuzee, Inc.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

March 31, 2014

Three Months Ended

March 31, 2013

Six Months Ended

March 31, 2014

Six Months Ended

March 31, 2013

 

For the period from November 9, 2011 (Inception)

to March 31, 2014

 

 

 

 

 

 

 

 

 

Revenues

 

 

$                     312

$                      20,387

$                                 312

$                      57,211

 

$                         122,544

Cost of revenues

 

188

13,855

188

33,063

 

244,994

 

Gross profit (loss)

124

6,532

124

24,148

 

(122,450)

Operating expenses

656,135

229,260

2,059,015

427,338

 

3,320,249

Loss from operations

(656,011)

(222,728)

(2,058,891)

(403,190)

 

(3,442,699)

 

 

 

 

 

 

 

 

 

Other Income (Expense)

45

(42,818)

188

(42,210)

 

958

 

 

 

 

 

 

 

 

-

Net loss

 

 

$            (655,966)

$                 (265,546)

$                   (2,058,703)

$                 (445,400)

 

$                    (3,441,741)

 

 

 

 

 

 

 

 

 

Basic and diluted loss per

common share

$                  (0.02)

$                       (0.01)

$                            (0.07)

$                       (0.01)

 

 

 

       

 

 

Basic and diluted

weighted average number

of common shares

outstanding

29,005,062

33,733,333

30,088,876

32,597,802

 

 

 

 

 

 

 

 

 

 

 

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

                   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-13


 
 

 

Nuzee, Inc.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

Six Months Ended

March 31, 2014

Six Months Ended

March 31, 2013

For the period from November 9, 2011 (Inception)

to March 31, 2014

Operating Activities:

 

 

 

 

Net loss

 

 

 

 

$              (2,058,703)

$                  (445,400)

$                   (3,441,741)

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

used by operating activities:

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

1,326,055

-

1,326,055

 

Depreciation

 

 

 

 

1,044

186

1,755

 

Provision for obsolete inventory

 

 

-

-

141,903

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts Receivable

 

 

 

12,889

(502)

(306)

 

Related Party Receivables

 

 

 

-

(139,661)

(139,661)

 

Inventories

 

 

 

 

(49,567)

64,824

(191,470)

 

Prepaid expenses and deposits

 

 

 

(29,995)

(4,921)

(46,891)

 

Other Assets

 

 

 

 

-

42,818

-

 

Accounts payable

 

 

 

 

(26,392)

(55,845)

29,430

 

Other Current Liabilities

 

 

 

42,079

(6,111)

51,642

 

 

 

 

 

 

 

 

 

 

Net cash used by operating activities

(782,590)

(544,612)

(2,269,284)

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of furniture and equipment

 

 

(1,928)

-

(11,302)

 

Net cash used by investing activities

 

 

(1,928)

-