UNITED STATES 

SECURITIES AND  EXCHANGE  COMMISSION  WASHINGTON, D.C.      20549 

F O R 10 -Q 

 

x QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE  SECURITIES  EXCHANGE  ACT  OF  1934 

 

For the  quarterly  period  ended  June  30,  2014 

 

¨   TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE  SECURITIES  EXCHANGE  ACT  OF  1934  For  the  transition  period  from        to 

  

Commission File  No.  333-176684 

 

 

                                                                         NUZEE, INC.                                                                   

(exact name  of  registrant  as  specified  in  its  charter)                                 

 

 

                              Nevada                                                                                 38-3849791                     

(State or  other  jurisdiction  of  incorporation  or  organization)             (I.R.S. Employer  Identification  Number) 

 

 

                                10815 Rancho Bernardo Road, Suite 250, San  Diego,  CA  92127                              

 

(Address of  principal  executive  offices)         (zip  code) 

 

                                            (858) 549-6893  or toll  free  (855)  936-8933                                              

 

(Registrant’s telephone  number,  including  area  code)  Securities  registered  pursuant  to  Section  12(b)  of  the  Act: 

 

                              Titles of  each class                                                    Name of  each exchange  on  which  registered                 

None                                                                                             N/A                

 

 

Indicate by  check  mark  whether  the  registrant  (1)  has  filed  all  reports  required  to  be  filed  by  Section  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934  during  the  preceding  12  months  (or  for  such  shorter  period  that  the  registrant  was  required  to  file  such  reports),  and  (2)  has  been  subject  to  such  filing  requirements  for  the  past  90  days.     Yes      ¨ No  x

 

Indicate by  check  mark  whether  the  registrant  has  submitted  electronically  and  posted  on  its  corporate  Web  site,  if  any,  every  Interactive  Data  File  required  to  be  submitted  and  posted  pursuant  to  Rule  405  of  Regulation  S-T  (§232.405  of  this  chapter)  during  the  preceding  12  months  (or  for  such 

 

shorter

period

that

the

registrant

w a

required

to

submit

a n

post

such

files).

 

 

 

 

 

 

 

 

Y e x

N ¨

 

 

 


 
 

 

 

Indicate     by      check      mark      whether      the      registrant      is      a     large      accelerated     filer,  an      accelerated     filer,  a     non-accelerated      filer      or      a     smaller      reporting  company.      See  definitions  of  “large  accelerated  filer,”  “accelerated  filer”  and  “smaller  reporting  company”  in  Rule  12b-2  of  the  Exchange  Act. 

 

Large accelerated  filer 

 

¨

 

 

Accelerated filer 

 

¨

Non-accelerated filer 

 

¨

(Do not  check  if  smaller  reporting  company) 

 

Smaller reporting  company 

 

x

 

Indicate      by     check      mark     whether     the     registrant     is        a     shell     company     (as     defined     in        Rule     12b-2     of     the                  Exchange  Act).                                                                                                                                               Yes  ¨                   No  x

 

APPLICABLE ONLY  TO  REGISTRANTS  INVOLVED  IN  BANKRUPTCY  PROCEEDINGS  DURING THE PRECEDING  FIVE  YEARS: 

 

Indicate by  check  mark  whether  the  registrant  has  filed  all  documents  and  reports  required  to  be  filed  by  Section  12,  13  or  15(d)  of  the  Securities  Exchange         Act        of                    1934 subsequent                 to       the                distribution     of         securities        under a                      plan      confirmed       by                    a        court. 

 

Y e ¨       N ¨

 

(APPLICABLE ONLY  TO  CORPORATE  REGISTRANTS) 

 

Indicate the  number  of  shares  outstanding  of  each  of  the  registrant’s  classes  of  common  stock, as  of  the  latest  practicable  date.  As  of  August  1 8,  2014,  NuZee,  Inc.  had  30,169,204  shares  of  common  stock  outstanding. 

 

Table of  Contents 
PART  I. 

 

Item 1.         Financial  Statements. 

 

(a)       Balance  Sheets  as  at  June 30 2014  (Unaudited)  and  September  30,  2013  (Audited). 

(b)      Statement  of  Operations  for  the  three and nine months  ended  June 30 2014  and  2013      (Unaudited). 

(c)       Statement  of  Cash  Flows  for  the  nine  months  ended  June 30 2014  and  2013  (Unaudited). 

(d)      Notes  to  Consolidated  Financial Statements  (Unaudited). 

 

 

Item 2.        Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations. 
Item  3.        Quantitative  and  Qualitative  Disclosures  About  Market  Risk. 

Item 4.        Controls  and  Procedures 

 

 

PART II. 

 

Item 1.         Legal  Proceedings 

Item  1A.         Risk  Factors 


 
 
 
 

2


 
 

Item 2.         Unregistered Sales  of  Equity  Securities  and  Use  of  Proceeds 

Item  3.         Defaults  Upon  Senior  Securities 

Item 4.         Mine  Safety  Disclosures 

Item  5.         Other Information 

Item 6.         Exhibits 

 

 

 

FORWARD-LOOKING INFORMATION 

 

This Quarterly  Report  on  Form  10-Q  of  NuZee,  Inc. contains  “forward-looking  statements”  that  may  state  our  management’s  plans,  future  events,  objectives,  current  expectations,  estimates, forecasts,  assumptions  or  projections  about  the  company  and  its  business.      Any  statement  in  this  report  that  is  not  statement  of  historical  fact  is  forward-looking  statement,  and in  some  cases,  words  such  as  “believes,”  “estimates,”  “projects,”  “expects,”  “intends,”  “may,”  “anticipates,”  “plans,”  “seeks,”  and  similar  expressions  identify  forward-looking  statements.      Forward-looking  statements  involve  risks  and  uncertainties  that  could  cause  actual  outcomes  and  results  to  differ  materially  from the  anticipated  outcomes  or  results.    These  statements  are  not  guarantees  of  future  performance,  and  undue  reliance  should  not  be  placed  on  these  statements.      It  is  important  to  note  that  our  actual  results  could        differ  materially  from  what is  expressed  in  our  forward-looking  statements  due  to  the  risk  factors  described  in  the  section  of  our  Form  10-K  filed  on  January  14,  2014  entitled  “Risk  Factors.” 

 

We undertake  no  obligation  to  update  publicly  any  forward-looking  statements,  whether  as  result  of  new  information,  future  events  or  otherwise. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 
 

 

Item 1.      Financial  Statements. 


PART I. 

 

Nuzee, Inc.

CONSOLIDATED BALANCE SHEET

(Unaudited)

                   
               

June 30, 2014

September 30, 2013

                   

ASSETS

               
 

Current Assets

           
   

Cash

       

$                                    467,749

$                                        1,110,661

   

Accounts Receivable

     

23,528

13,195

   

Related Party Receivables

   

-

139,661

   

Inventories

     

53,735

-

   

Prepaid expenses and deposits

   

92,734

16,896

   

Total current assets

   

637,746

1,280,413

                   
   

Equipment, net

     

10,516

8,663

                   
 

Total Assets

       

$                                  648,262

$                                       1,289,076

                   

LIABILITIES AND STOCKHOLDERS' EQUITY

       
 

Current Liabilities

         
   

Accounts payable

     

97,556

55,822

   

Advances from Stockholders'

   

-

50,000

   

Other Current Liabilities

   

16,961

9,563

   

Total Current Liabilities

   

114,517

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;

30,055,357 and 37,957,790 shares issued and outstanding

301

380

   

Additional paid in capital

   

4,592,947

2,556,349

   

Accumulated deficit

     

(4,059,503)

(1,383,038)

   

Total Stockholders' Equity

   

533,745

1,173,691

                   
 

Total Liabilities and Stockholders' Equity

 

$                                  648,262

$                                       1,289,076

                   

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

 

 

 

 

 

 

 

 

 

 

 

F-1

 


 
 

Nuzee, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

               
     

Three Months Ended June 30, 2014

Three Months Ended June 30, 2013

 

Nine Months Ended June 30, 2014

Nine Months Ended June 30, 2013

               

Revenues

   

$                  59,159

$                   48,208

 

$                   59,471

$                     105,419

Cost of revenues

 

55,828

44,901

 

56,016

77,964

 

Gross profit

 

3,331

3,307

 

3,455

27,455

Operating expenses

 

618,605

299,684

 

2,677,620

727,022

Loss from operations

 

(615,274)

(296,377)

 

(2,674,165)

(699,567)

               

Other Income (Expense)

 

(2,488)

(800)

 

(2,300)

(43,010)

               

Net loss

   

$             (617,762)

$               (297,177)

 

$           (2,676,465)

$                  (742,577)

               

Loss per share, Basic and diluted

 

$                   (0.02)

$                     (0.01)

 

$                    (0.09)

$                        (0.02)

               

Weighted average common shares outstanding, Basic and diluted

29,687,884

36,281,464

 

30,010,231

33,825,689

               

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-2

 

 

 

 
 

Nuzee, Inc

STATEMENTS OF CASH FLOWS

For the nine months ended June 30, 2014 and 2013

(Unaudited)

     

     
       

2014

 

2013

             

Cash Flows from Operating Activities:

     
   

Net loss

(2,676,465)

 

(742,577)

   

Adjustments to reconcile net income to net cash used

     
     

in operating activities:

     
     

Depreciation expense

2,388

 

279

     

Stock option expense

1,480,480

 

-

     

Warrant expense

7,500

   
     

Impairment of Intellectual Property

-

 

42,818

     

(Increase) decrease in assets:

     
     

Accounts receivable

(10,333)

 

(21,447)

     

Inventory

(53,735)

 

7,896

     

Prepayments and other current assets

(75,838)

 

(11,423)

     

Related party receivable

-

 

(139,661)

     

Increase (decrease) in liabilities:

     
     

Accounts payable

41,734

 

(21,738)

     

Other current liabilities

7,398

 

5,889

             
     

Net Cash Provided by(Used in) Operating Activities

(1,276,871)

 

(879,964)

   

       

Cash Flows from Investing Activities:

     
 

Purchase of property and equipment

(4,241)

 

-

             
     

Net Cash Used in Investing Activities

(4,241)

 

-

             

Cash Flows from Financing Activities:

     
 

Proceeds from sale of stock

638,200

 

249,390

 

Advances from stockholders

-

 

540,000

     

     
     

Net Cash Provided by Financing Activities

638,200

 

789,390

             
     

Net change in Cash

(642,912)

 

(90,574)

     

     

Cash, beginning of period

 

1,110,661

 

165,484

             

Cash, end of period

 

467,749

 

74,910

       

 

 

 

 

Supplemental Disclosure of cash flow information:

     
     

Cash paid during the year for:

     
     

Interest

-

 

-

     

Income taxes

-

 

-

             

Non-cash Transaction

       

Cancellation of common stock

 

(139,661)

 

-

Common stock issued for settlement of advance from stockholder

-

 

640,610

             
             

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

 
F-3

 
 

Nuzee, Inc. 

NOTES     TO  CONSOLIDATED      FINANCIAL  STATEMENTS 

(Unaudited)  

June 30 2014 

 

 

1.       BASIS  OF  PRESENTATION  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES 

 

The accompanying  unaudited  interim  financial  statements  of  Nuzee,  Inc.  have  been  prepared  in  accordance  with  accounting  principles  generally  accepted  in  the  United  States  of  America  and  rules  of  the  Securities  and  Exchange  Commission,  and  should  be  read  in  conjunction  with  the  audited  financial  statements  and  notes  thereto  contained  in  the  Company’s  annual  report  on  Form  10-K  for  the  initial  period  ended  September  30,  2013  as  filed  with  the  SEC.  In  the  opinion  of  management,  all  adjustments,  consisting  of  normal  recurring  adjustments,  necessary  for  fair  presentation  of  financial  position  and  the  results  of  operations  for  the  interim  periods  presented  have  been  reflected  herein.  The  results  of  operations  for  interim  periods  are  not  necessarily  indicative  of  the  results  to  be  expected  for  the  full  year.  Notes  to  the  consolidated  financial  statements  which  would  substantially  duplicate  the  disclosure  contained  in  the  audited  financial  statements  as  reported  in  the  annual  report  on  Form  10-K  have  been  omitted. 

 

In the quarter ended June 30, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.

 

Going Concern 

The accompanying  financial  statements  have  been  prepared  in  accordance  with  accounting  principles  generally  accepted  in  the  United  States  of  America,  which  contemplates  continuation  of  the    Company  as  going  concern.  The  Company has  had  recurring  losses,  large  accumulated deficits,  is  dependent  on  the  shareholder  to  provide  additional  funding  for  operating  expenses  and  has  no  recurring  revenues.  These  items  raise  substantial  doubt  about  the  Company’s  ability  to  continue  as  going  concern. 

Equity based  payments 

The Company  accounts  for  equity  instruments  issued  to  employees  in  accordance  with  ASC  718  "Stock  Compensation".  Under  this  guidance,  stock  compensation  expense  is  measured  at  the  grant  date,  based  on  the  fair  value  of  the  award,  and  is  recognized  as  an  expense  over  the  estimated  service  period  (generally  the  vesting  period)  on  the  straight-line  attribute  method. 

 

2.           RELATED  PARTY  TRANSACTIONS 

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

3.          C O MM O S T O C

During March  2014,  the  Company  sold  613,667  shares  at  $0.60  per  share,  for  an aggregate  purchase  price  of  $368,200. 

During April to June 2014 the  Company  sold 450,000 shares at $0.60 per share, for an aggregate purchase price of $270,000.

 

4.     STOCK  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  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. 

 

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  nine  months  ended  June 30 2014: 

Risk-free interest  rate  1%  2%  Expected  option  life  5 years Expected  volatility  300%   

Expected dividend  yield  0.0% 

At June 30 2014,  2,535,902  options  are  exercisable  and  the  Company  recognized  $1,480,480  of  stock  options  expenses  during  the  nine  months  ended  June 30 2014. 

 

F-4


 
 

 

5.     STOCK WARRANTS

 

During nine months ended June 30, 2014, the Company granted 100,000 warrants to advisors.  The right to exercise these warrants shall vest in equal eight quarterly installments over the twenty-four (24) months following the date their vesting begins, subject to their continued engagement as a service provider though each such date. The  exercise  price  equal to the current fair market value per  share on the date of grant and  will  expire  ten  years  from  the  grant  date,  unless  terminated  earlier  as  provided  by  the  Warrant Agreements.   

 

The Black-Scholes  warrant  pricing  model  was  used  with  the  following  weighted  average  assumptions  for  options  granted  during  the  nine  months  ended  June 30 2014: 

Risk-free interest  rate  2.53% 

Expected  life  10 years

Expected  volatility  300%   

Expected dividend  yield    0.0% 

 

At June 30 2014,  12,500  warrants are  exercisable  and  the  Company  recognized  $7,500  of  warrant  expenses  during  the  nine  months  ended  June 30 2014. 

 

6.     S U B S E Q U E N E V E N T

During July  2014,  the  Company  sold  113,847  shares  at  $0.60  per  share,  for  an aggregate  purchase  price  of  $68,308.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-5

 


 
 

Item 2.      Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations. 

 

The following  plan  of  operation  provides  information  which  management  believes  is  relevant  to  an assessment  and  understanding  of  our  results  of  operations  and  financial  condition.     The  discussion  should  be  read along  with  our  financial  statements  and  notes  thereto.      This  section  includes  number  of  forward-looking  statements  that  reflect  our  current  views  with  respect  to  future  events  and  financial  performance.      Forward-looking  statements  are  often  identified  by  words  like  believe,  expect,  estimate, anticipate,  intend,  project  and  similar  expressions,  or  words  which,  by  their  nature,  refer  to  future  events.      You  should  not  place  undue  certainty  on  these  forward-  looking  statements.      These  forward-looking  statements  are  subject  to  certain  risk  s and  uncertainties  that  could  cause  actual  results  to  differ  materially  from  our  predictions. 

 

Plan of  Operations 

 

Short Term  Goals  (12  Months)  Market  Awareness,  Growth Expansion 

Based on the initial commercial launch and availability of the product the  Company’s  growth  plans  include  continuing  efforts  to: 

 

·    Launch  distributors  in  Asia  to  introduce  and  distribute  Coffee  Blenders  family  of  products  as  market  awareness  and  interest  in  functional  beverages  is  well  understood. 

 

·    Build  targeted  distribution  network  in the United States for  our  Coffee  Blenders  functional  beverages  by  signing  retailers  that  serve  the  mass consumer K-cup  and  Coffee  replenishment  channels

 

·    Increase  awareness  for  Coffee  Blenders  through  direct communications  and  sampling  programs; 

 

In April  2014,  we  officially  launched  the  Coffee  Blenders  products  through  international  press  announcement  and  began  stocking  product  for  resell  on  Coffee  Blenders.com  and Amazon.com.  In the most recent quarter we augmented our direct efforts and started to supply product to regional and national coffee distributors. 

 

Furthermore, the Company plans to pursue direct and indirect distribution to select retailers nationwide. As a result, the Company invested in a new formula and product development effort in order to achieve retail channel price points.  In addition, the Company hired a new VP of Business Development and Sales with significant experience in the retail and beverage channels to accelerate our launch.  We are very encouraged by the initial interest and traction received from retailers and expect Coffee Blenders to be available for purchase in regional specialty chains by the end of the year that focus on premium quality coffee offerings for their customers.  Product availability is pending for national and regional chain with announcements to follow. 

 

           

We embarked  on  researching  and  building  brand  and  product  awareness  through  editor/blogger  outreach,  digital advertising campaigns and  product sampling  at  local  universities,  functions,  events, etc.     The initial results are encouraging and the Company plans to continue to selectively participate in events.  In the current quarter we also explored  co-marketing  programs  with Fitness and Health associations (e.g. health professionals and wellness organizations) and believe they also provide a solid opportunity to build brand and product awareness among their based of clients.  Joint sponsorship programs with companies are in development.  The Company hopes to announce sponsors in the coming months. 

 

We saw mixed results from our search  engine  marketing  (SEM) and social outreach programs.  As a result, we will continue to invest in digital marketing only where it provides a return on investment that covers the shipping expenses associated with sampling the product. 

 

For each of the above initiatives, we continue to measure overall results using  host  of  costing  parameters  not  limited  to  the  following:  product  slotting  fees,  overall  margin  requirements,  retail activation costs, market development  fees,  return  allowances,  broadcast  advertising  and  promotional  marketing  plans,  in-store  and  channel  detailing,  product  sampling  and  customer  demoing  as  well  as  transportation  and  logistics  cost, cross dock  fees,  shelf-life  expiration  swaps,  and initial  and  recurring  inventory  loading  levels in order to

 

 

 

 

4


 
 

The Company  plans  going  forward  include  the  following  milestones: 

 

 

Milestone

Timing

Est. Cost/Funding  Source 

1. Refine  Products  Pricing 

Improve Product  Functions  and  Create  New  Versions,  preparing  “regular”  coffee  Line  for  Japan,  Explore  brewer  solutions  (Home  and  QSRs) 

2 nd Half 2014

Sale of  Equities 

 

 

 

2. Refine  Staff  and align operations based  on  funding 

August - October

$50,000-$60,000/Mo. Recurring  Sale  of  Equities 

 

 

 

3. Focus on International and U.S. distribution

September –  December 

$150,000-300,000 Sale of Equities

 

 

 

4. Establish  and  validate  traction  by channel

Ongoing

 

 

 

 

5. Explore  OEM/Private  Label  Opportunities  and  secure additional funding from current investors.

Ongoing

 

 

If we  are  unable  to  receive  funding  our  plans  will  be  dramatically  and  negatively  impacted  such  that  we  will  prioritize  go  to  market  strategies  based  on  reduced  operations  and  available  capital. 

 

Long Term  Goals  (Five  Years) 

 

The Company  believes  that  there  will be  significant  expansion  opportunities  in  existing  markets  through  new  products  as  well  as  in  new  regions  outside  of  the  United  States  in  combination  of  market  development  and  product  licensing. 

The Company  believes  that  our  limited  resources  may  pose  challenge  to  our  expansion  goals  and  therefore  anticipates  that  it  may  require  additional  capital  in future  years  to  fund  expansion.  There  can be  no  assurance that  our  expansion  strategy  will  be  accretive  to  our  earnings  within  reasonable  period  of  time.  However,  the  Company  believes  that  it  can improve  its  operational  efficiencies  and  reduce  the  need  for  new  capital  by  carefully  managing  the  business  based  on  the  following  economic  fundamentals  within  accretive  margin  and  cost  contribution  modeling. 

 

Results of  Operations 

 

Comparison of the three months ended June 30, 2014 and 2013

 

For the three months ended June 30, 2014 we have earned revenues of $59,159 from the launch of Coffee Blenders products through international press announcement and began stocking product for resell on coffeeblenders.com and amazon.com.  For the three months ended June 30, 2013 revenues of $48,208 were from the sale of discontinued operations of skin products, Torque energy drinks and New Zealand bottled water.

 

Operating expenses increased $311,421 or 104% from approximately $299,684 in the third quarter of 2013 to approximately $618,605 in the third quarter of 2014 due to stock compensation expenses, marketing expenses and personnel costs.

 

Comparison of the nine month ended June 30, 2014 and 2013

 

For the nine month ended June 30, 2014 we have earned revenues of $59,471 from the launch of Coffee Blenders products through international press announcement and began stocking product for resell on coffeeblenders.com and amazon.com.  For the nine month ended June 30, 2013 revenues of $105,419 were from the sale of discontinued operations of skin products, Torque energy drinks and New Zealand bottled water.  Some of the products were sold at a significant discount in order to eliminate inventory.

 

Operating expenses increased $1,950,598 or 268% from approximately $727,022 in the nine month ended 2013 to approximately $2,677,620 in the nine month ended 2014 due to research and preparation of coffee blenders products, stock compensation expenses, marketing expenses, and personnel costs.

 

We are presently in the initial commercial launch of the Coffee Blenders products and we can provide no assurance that we will be able to attain profitability.

 

We expect sales growth in 2014 from our new products through a combination of direct to consumer through our website portal, product awareness as well as through affiliate online stores and distribution to select retailers nationwide.

 

 

5

 


 
 

Liquidity and  Capital  Resources 

 

As of  June 30 2014  we had  a cash balance of $467,749 and $1,110,661 at September 30, 2013.  Inventory increased to $53,735 as of June 30, 2014 from no inventory at September 30, 2013.  The increase was mainly due to discontinued operations of skin products, Torque energy drinks and New Zealand bottled water.  Related Party Receivables decreased from $139,661 at September 2013 to no related party receivable at June 30,2014.  See note 3 for more information on related party receivable.  Prepaid expenses and deposits increased by approximately 549% to $92,734 as of June 30, 2014 from $16,896 at September 30, 2013.  Total assets decreased by 50% from $1,289,076 at September 2013 to $648,262 at June 30, 2014.

 

As of June 30, 2014 we had current liabilities of $114,517 and $115,385 at September 30, 2013. Accounts Payable increased by approximately 75% to $97,556 as of June 30, 2014 from $55,822 at September 30, 2013.  The increase was mainly due to product costs, Directors & Officers insurance, and legal costs.  Advances from stockholders decreased from $50,000 at September 30, 2013 to $nil balance as of June 30, 2014.  Other Current Liabilities increased by approximately 77% to $16,961 as of June 30, 2014 from $9,563 at September 30, 2013 mainly due to legal fees accrual and deferred product costs.

 

Our current ratio decreased from 1110% in September 30, 2013 to 557% as of June 30, 2014.

 

Our auditor has indicated that there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, and if we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations.  Our financial statements do not include adjustments that might result from the outcome of this uncertainty.

 

Our current  cash  balance  as  of  June 30 2014  is  not  sufficient  to  fund  our  operations  for  the  next  twelve  months.      Therefore,  the  Company  intends  to  engage  in  additional  financing  through  the  sale  of  equity  securities. 

 

Item 3.      Quantitative  and  Qualitative  Disclosures  About  Market  Risk. 

 

We are  smaller  reporting  company  and  therefore  are  not  required  to  provide  the  information  for  this  item  for  Form  10-Q. 

 

Item 4.      Controls  and  Procedures 

 

As of  the  end  of  the  period  covered  by  this  Report, the  Company’s  President, and  principal  financial  officer  (the  “Certifying  Officer”),  evaluated the  effectiveness  of  the  Company’s  “disclosure  controls  and  procedures,”  as  defined  in  Rule  13a-15(e)  under  the  Securities  Exchange  Act  of  1934.      Based  on  that  evaluation,  the  officer  concluded  that,  as  of  the  date  of  the  evaluation,  the  Company’s  disclosure  controls  and  procedures  were  not  effective  to  provide  reasonable  assurance  that  the  information  required  to  be  disclosed  in  the  Company’s  periodic  filings  under  the  Securities  Exchange  Act  of  1934  is  accumulated  and  communicated  to  management  to  allow  timely  decisions  regarding  required  disclosure. 

 

The Certifying  Officer  has  also  indicated  that  there  were  no  changes  in  internal  controls  over  financial  reporting  during  the  Company’s  last  fiscal  quarter,  and  no  significant  changes  in  our  internal  controls  or  other  factors  that  could  significantly  affect such  controls  subsequent  to  the  date  of  their  evaluation  and  there  were  no  corrective  actions  with  regard  to  significant  deficiencies  and  material  weaknesses. 

 

Our management,  including  the  Certifying  Officer,  does  not  expect  that  our  disclosure  controls  or  our  internal  controls  will  prevent  all  errors  and  fraud.  control  system, no  matter  how  well  conceived  and  operated, can provide  only  reasonable, not  absolute,  assurance  that  the  objectives  of  the  control      system  are  met.      In addition,  the  design  of  control  system must  reflect  the  fact  that  there  are  resource  constraints, and  the  benefits  of  controls  must  be 

considered relative  to  their  costs.      Because  of  the  inherent  limitations  in  all  control  systems, no  evaluation  of  controls  can provide  absolute  assurance  that  all  control  issues  and  instances  of  fraud, if  any, within  company  have  been  detected.      These  inherent  limitations  include  the  realities  that  judgments  in  decision-making  can be  faulty,  and  that  breakdowns  can  occur  because  of  simple  error  or  mistake.      Additionally,  controls  can be  circumvented  by  the  individual  acts  of  some  persons,  by  collusion  of  two  or  more  people  or  by  management  override  of  the  control.      The  design  of  any  systems  of  controls       also  is  based  in  part  upon  certain  assumptions  about  the  likelihood  of  future  events,  and  there  can be  no  assurance  that  any  design  will  succeed in  achieving  its  stated  goals  under  all  potential  future  conditions.      Because  of  these  inherent  limitations  in  cost-effective  control  system, misstatements 

due to  error  or  fraud  may  occur  and  not  be  detected. 

 

 

PART II. 

 

Item 1.      Legal  Proceedings 

None. 

  

Item 1A.      Risk  Factors 

 

6


 


 
 

 

There have  been no  changes  to  our  risk  factors  from  those  disclosed  in  our  Form  10-K  filed  on  January  14,  2014.  Item 2.      Unregistered  Sales  of  Equity  Securities  and  Use  of  Proceeds 

There were  no  unregistered  Sales  of  Equity  Securities  during  the  quarter  ending  June 30 2014. 

 

Item 3.      Defaults  Upon  Senior  Securities  None. 

Item 4.       Mine  Safety  Disclosures  Not  applicable. 

Item 5.      Other  Information 

 

On March  17,  2014,  the  Company  held  the  Annual  Meeting  of  the  Shareholders  of  the  Corporation  at  16955  Via  Del  Campo,  San  Diego,  California,  92127.      The  shareholders  unanimously  approved  the  directors  nominated  as directors  of  the  Corporation,  reappointment  of  Malone  Bailey  as external  audit  firm  of  the  Corporation  for  the  fiscal  year  ended  September  30,  2014,  and  the  Nuzee,  Inc.  2013  Stock  Incentive  Plan. 

 

DEPARTURE OF OFFICERS AND DIRECTORS

 

On August 4, 2014, Fernando Corona tendered his resignation as one of the Company’s Directors.  Mr. Corona’s resignation, which was effective immediately, was not due to any disagreements with the Company’s operations, policies or practices.  A copy of Mr. Corona’s Letter of Resignation dated August 4, 2014  is filed herewith as Exhibit 17.1.

 

On August 11, 2014, Arata Matsushima tendered his resignation as one of the Company’s Directors.  Mr. Matsushima’s resignation was effective immediately.  A copy of Mr. Matsushima’s Letter of Resignation dated August 11, 2014 , which does not state any disagreements with the Company’s operations, policies or practices, is filed herewith as Exhibit 17.2.

 

On August 11, 2014, Craig Hagopian tendered his resignation as the Company’s President and CEO and  Director, to be effective on August 19, 2014.  Mr. Hagopian’s resignation resulted from a disagreement with the Company on a matter relating to the Company’s operations, policies or practices.  A copy of Mr. Hagopian’s Letter of Resignation dated August 4, 2014, which contains his reason for resigning, is filed herewith as Exhibit 17.3.

 

On August 11, 2014, Satoru Yukie tendered his resignation as the Company’s CFO, COO, Secretary, Treasurer and  Director, to be effective on August 19, 2014.  Mr. Yukie’s resignation resulted from a disagreement with the Company on a matter relating to the Company’s operations, policies or practices.  A copy of Mr. Yukie’s Letter of Resignation dated August 4, 2014, which contains his reason for resigning, is filed herewith as Exhibit 17.4. 

 

The Registrant believes that the following circumstances may have represented the disagreements that might, in whole or in part, caused or contributed to the resignation of Mssrs. Hagopian and Yukie, and most likely affected the resignation decision of Mr. Matsushima.

 

At a Special Meeting of the Company’s Board of Directors which took place on August 4, 2014, the Chairman of the Board recommended several changes to the Company’s executive team.  Specifically, Mr. Higashida desired to take on the role as the Company’s CFO.  Mr. Yukie would retain his position as the Company’s COO, Secretary and Treasurer.  Additionally, to reduce the Company’s expenses, the Chairman recommended that Mr. Yukie’s salary be reduced.  These recommendations were not due to any disagreements that the Board had with Mr. Yukie, or dissatisfaction with Mr. Yukie’s performance. 

 

At the August 4, 2014 meeting, the Chairman also recommended that Mr. Hagopian’s role be modified to include a portion of Mr. Yukie’s responsibilities.  In order to control the Company’s expenses, the Chairman recommended that Mr. Hagopian’s salary would be changed whereby  he would receive 50% of his normal salary and 50% would be paid in the form of Company stock.

 

The above-mentioned recommendations were only discussed at the August 4th meeting.  No motions were made or resolutions approved.  Rather, the Board decided to continue the meeting until August 11, 2014.  On August 11, 2014, the Board approved the changes recommended by the Chairman at the August 4, 2014 Board Meeting.  The resignations of Mssrs. Hagopian and Yukie followed, then the resignation of Mr. Matsushima.   

 

Mssrs. Hagopian and Yukie both offered to remain  with the Company, keeping their positions as Directors and as President/CEO and CFO/COO/Secretary/Treasurer respectively until the Company’s upcoming 10-Q for the period ending June 30, 2014 is filed with the Securities and Exchange Commission.  The latest date to file the 10-Q will be August 19, 2014.

 

ELECTION OF OFFICERS AND DIRECTORS

 

On August 12, 2014, the Company’s Board of Directors (which consisted of Mssrs. Higashida, Hagopian and Yukie) appointed Mr. Higashida as the Company’s President, CEO, CFO, COO, Secretary and Treasurer to be effective on August 19, 2014.

 

A copy of this Form 10-Q has been furnished to the Directors whose resignation is addressed in this filing, as required by item 5.02(a)(3)(i) of Form 8-K and has requested that each Director furnish a letter addressed to the Company stating whether he agrees with the statements made by the Company herein and, if not, stating the respects in which he or she does not agree.  The Company will file a Form 8-K to disclose the receipt of such correspondence from any departing Director.

 

 

 

7

 

 


 

Item 6.     Exhibits 

 

EXHIBIT NO. 

DESCRIPTION

17.1*

Resignation Letter of Fernando Corona dated August 4, 2014

17.2*

Resignation Letter of Arata Matsushima dated August 11, 2014

17.3*

Resignation Letter of Craig Hagopian dated August 11, 2014

17.4*

Resignation Letter of Satoru Yukie dated August 11, 2014

31.1*

Certification of  Chief  Executive  Officer  pursuant  to  18  U.S.C.  Section  1350,  as 

 

adopted pursuant  to  Section  302  of  the  Sarbanes-Oxley  Act of  2002 

31.2*

Certification of  Chief  Financial  Officer  pursuant  to  18  U.S.C.  Section  1350,  as 

 

adopted pursuant  to  Section  302  of  the  Sarbanes-Oxley  Act of  2002 

32.1*

Certification of  Chief  Executive  Officer  and  Chief  Financial  Officer  pursuant  to  18 

 

U.S.C. Section  1350,  as  adopted  pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act 

 

of 2002 

32.2*

Certification of  Chief  Financial  Officer  pursuant  to  18  U.S.C.  Section  1350,  as 

 

adopted pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act of  2002 

101**      Interactive  Data  Files 

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE


XBRL Instance  Document 

XBRL Taxonomy  Extension  Schema  Document 

XBRL Taxonomy  Extension  Calculation  Linkbase  Document  XBRL  Taxonomy  Extension  Definition  Linkbase  Document  XBRL  Taxonomy  Extension  Label  Linkbase  Document 

XBRL Taxonomy  Extension  Presentation  Linkbase  Document 

 

*       Filed  herewith 

 

**       Furnished  herewith.  Pursuant  to  Rule  406T of  Regulation  S-T,  the  Interactive  Data  Files  on  Exhibit  101  hereto  are  deemed  not  filed  or  part  of  any  registration  statement  or  prospectus  for  purposes  of  Sections  11  or  12  of  the  Securities  Act  of  1933,  are  deemed  not  filed  for  purposes  of  Section  18  of  the  Securities  and  Exchange  Act  of  1934,  and  otherwise  are  not  subject  to  liability  under  those  sections. 

 

 

 

 

 

 

 

 

 

 

8

 

 


 
 

 

 

SIGNATURES

 

Pursuant to  the  requirements  of  the  Securities  Exchange  Act  of  1934,  this  report  has  been  signed  below  by  the  following  persons  on  behalf  of  the  registrant  and  in  the  capacities  and  on  the  dates  indicated. 

 

Date:         August 1 9 , 2014                                                                                                                                                        NUZEE, INC.

 

 

By:     /s/  Craig  Hagopian 
           Craig Hagopian,  President,  Chief  Executive 
          
Officer  (Principal  Executive  Officer) 

 

 

Date:         August 1 9 2014                                                         

 

By:    /s/  Satoru  Yukie  
         Satoru Yukie,  Secretary,  Treasurer,  COO, 
         
Chief  Financial  Officer  (Principal  Financial  Officer) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 17.1

  

  NUZEE BOARD RESIGNATION - 8-4-13-SIGNED.JPG  


 

Exhibit 17.2

  

 


 
 

Exhibit 17.3

  

 


 

Exhibit 17.4

  

 


 

Exhibit 31.1

  

  

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

  

I, Craig Hagopian, certify that:

  

1.      I have reviewed this report on Form 10-Q of NuZee, Inc.;

  

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  

4.     I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

  

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

  

(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

  

5.     I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 


 
 

  

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

  

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

  

Date:

August 19, 2014

 

NUZEE, INC.

 

 

 

 

 

 

 

By:

/s/ Craig Hagopian

 

 

 

 

Craig Hagopian, President, Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

Exhibit 31.2

  

  

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

  

I, Satoru Yukie, certify that:

  

1.      I have reviewed this report on Form 10-Q of NuZee, Inc.;

  

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  

4.     I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

  

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

  

(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

  

5.     I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 


 
 

  

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

  

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

  

Date:

August 1 9 , 2014

 

NUZEE, INC.

 

 

 

 

 

 

 

By:

/s/ Satoru Yukie

 

 

 

 

Satoru Yukie, Chief Financial Officer (Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

Exhibit 32.1

WRITTEN STATEMENT

PURSUANT TO

18 U.S.C. SECTION 1350

  

In connection with the Quarterly Report of NuZee, Inc. and its subsidiaries (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the Company’s Chief Executive Officer, Craig Hagopian, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

  

(1)           The Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and

  

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:

August 1 9 , 2014

 

NUZEE, INC.

 

 

 

 

 

 

 

By:

/s/ Craig Hagopian

 

 

 

 

Craig Hagopian, Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

Exhibit 32.2

WRITTEN STATEMENT

PURSUANT TO

18 U.S.C. SECTION 1350

  

In connection with the Quarterly Report of NuZee, Inc. and its subsidiaries (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the Company’s Chief Financial Officer, Satoru Yukie, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

  

(1)           The Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and

  

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:

August 19, 2014

 

NUZEE, INC.

 

 

 

 

 

 

 

By:

/s/ Satoru Yukie

 

 

 

 

Satoru Yukie, Chief Financial Officer (Principal Financial Officer)