UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended September 30, 2021

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

Commission File No. 001-39338

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)

1401 Capital Avenue, Suite B

Plano, TX 75074

(Address of principal executive offices)

Registrant’s telephone number, including area code — (760) 295-2408

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.00001 par value		NUZE		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant (based on the price at which the registrant’s Common Stock was last sold as of March 31, 2021, the last business day of the most recently completed second fiscal quarter), was approximately $43,338,119.

As of December 8, 2021, there were outstanding 18,203,587 shares of the registrant’s Common Stock, $0.00001 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the registrant’s definitive Proxy Statement to be filed in connection with its 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. The information in Part III hereof for the fiscal year ended September 30, 2021, will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

TABLE OF CONTENTS

PART I	4
ITEM 1. BUSINESS.	4
ITEM 1A. RISK FACTORS	13
ITEM 1B. UNRESOLVED STAFF COMMENTS	31
ITEM 2. PROPERTIES	32
ITEM 3. LEGAL PROCEEDINGS	32
ITEM 4. MINE SAFETY DISCLOSURES	32
PART II	33
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	33
ITEM 6. [RESERVED]	33
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	41
ITEM 9A. CONTROLS AND PROCEDURES	41
ITEM 9B. OTHER INFORMATION	41
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	41
PART III	42
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	42
ITEM 11. EXECUTIVE COMPENSATION.	42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	42
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	42
PART IV	43
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES	43
ITEM 16. FORM 10-K SUMMARY	44
SIGNATURES	45

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Report”) contains forward-looking statements, including, without limitation, in the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “target,” “seek,” “estimate,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding:

	●	our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our products and provide our co-packing services;

	●	the impact to our business from the COVID-19 global crisis, including any supply chain interruptions;

	●	the evolving coffee preferences of coffee consumers in North America and Korea;

	●	the size and growth of the markets for our products and co-packing services;

	●	our ability to compete with companies producing similar products or providing similar co-packing services;

	●	our expectation that our existing capital resources will be sufficient to fund our operations for at least the next 12 months;

	●	our expectation regarding our future co-packing revenues, including in fiscal year 2022;

	●	our ability to develop innovative new products and expand our co-packing services to other products that are complementary to our current single serve coffee product offerings;

	●	our reliance on third-party roasters to roast coffee beans necessary to manufacture our products and allow us to fulfill every aspect of our co-packing services;

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

	●	our ability to retain key management, sales and marketing personnel;

	●	the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology;

	●	the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

	●	our ability to develop and maintain our corporate infrastructure, including our internal control over financial reporting; and

	●	the outcome of pending, threatened or future litigation;

	●	our financial performance.

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties.

Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A below, titled “Risk Factors,” and discussed elsewhere in this Report and in our other reports filed with the SEC. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events or circumstances or otherwise, except as required by law.

REFERENCES

As used in this Report: (i) the terms “we”, “us”, “our”, “NuZee” and the “Company” mean NuZee, Inc. and its subsidiaries, taken together; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

PART I

ITEM 1. BUSINESS.

Overview

We are a specialty coffee company and, we believe, a leading co-packer of single serve pour over coffee in the United States, as well as a preeminent co-packer of tea-bag style coffee. Our mission is to leverage our position as a co-packer at the forefront of the North American single serve coffee market to revolutionize the way single serve coffee is enjoyed in the United States. While the United States is our core market, we also have manufacturing and sales operations in Korea and a joint venture in Latin America.

We believe we are the only commercial-scale producer that has the dual capacity to pack both single serve pour over coffee and tea-bag style coffee within the North American market. We intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve pour over and tea-bag style coffee markets in North America. We target existing high-margin companies and are paid per-package based on the number of single serve coffee products produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for almost every single serve coffee product our co-packing customers sell in the North American and Korean markets. While we financially benefit from the success of our co-packing customers through the sales of their respective single serve pour over and tea-bag style coffee products, we are also able to avoid the risks associated with owning and managing the product and its related inventory. We have also developed and sell NuZee branded single serve coffee products, including our flagship Coffee Blenders line of both single serve pour over coffee and tea-bag style coffee, which we believe offers consumers some of the best coffee available in a single serve application in the world.

We may also consider co-packaging other products that are complementary to our current product offerings and provide us with a deeper access to our customers. In addition, we are continually exploring potential strategic partnerships, co-ventures, and mergers, acquisitions, or other transactions with existing and future business partners to generate additional business, reduce manufacturing costs, expand into new markets, and further penetrate the markets in which we currently operate.

Single serve coffee products

Single serve pour over coffee

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

Tea-bag style coffee

We introduced our tea-bag style coffee, or coffee tea bags, in 2019. The brewing method is similar to brewing tea; put the coffee tea bag in a cup, add hot water and let it sit for approximately 5 minutes. This coffee brewing method is relatively new to North America and we believe has gained attention from roasters and end consumers who want eco-friendlier alternatives to coffee pods and other types of single serve coffee. Our coffee tea bags are industrially compostable, allowing consumers to deposit the used coffee tea bag in the food scrap and yard waste bin after brewing.

Revolutionizing the single serve coffee market in North America

We believe the typical coffee consumer is increasingly focused on the environmental impact of the product, as well as the taste and quality of the ingredients. We anticipate that pod-based, single serve coffee will face increasing pressure given their heavy reliance on the use of plastics. In our view, consumer preferences in North America have evolved over the last decade to substantially mirror those of Japanese consumers, who have traditionally focused on the taste, eco-footprint and quality of ingredients.

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

	●	Our single serve coffee solutions are portable and do not require a machine for brewing. Therefore, the consumer investment required to enjoy our product is very minimal (as opposed to machine based solutions). Single serve coffee products can easily travel and have a number of consume-later applications not available to machine based solutions (camping, travel, office, etc.).

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

	●	Our single serve coffee products allow consumers to brew only what they need, therefore allowing mindful, responsible consumption that can reduce food waste and leads to better coffee sustainability.

	●	Our single serve coffee products are brandable to the cup level, and, unlike machine-based drip systems, the branding remains visible throughout the process of preparing and consuming a cup.

We seek to establish ourselves as the leading co-packer of single serve coffee products for the North American market, and to further expand our own brands of single serve coffee products for sale directly to end consumers in order to generate increased revenues and to help accelerate consumer adoption of these brewing formats. We believe that top tier brands that want to compete in the North American single serve coffee market will demand the highest levels of quality from their manufacturing partners. We further believe that we remain a commercial-scale leader in the single serve coffee market in North America as a result of our history of working with sophisticated packing equipment manufacturers, SQF Certification from the Safe Quality Food Institute, organic certification, operational knowledge and the co-packing arrangements we are continuing to develop with companies. As a result of our ongoing efforts, we feel we are well positioned to be a co-packer of choice for companies offering single serve coffee products in the North American market.

We own sophisticated packing equipment developed by East Asian companies for pour over and tea-bag style coffee production. We believe these manufacturers are the world leaders for supplying such machines. We obtained these machines from a premier supplier of the type of high-quality packing equipment we use for our products, FUSO Industries Co. Ltd. (“FUSO”).

We understand that as single serve pour over and tea-bag style coffee products gain momentum in the North American market we will face increasing competition. However, (i) we have, and continue to develop, manufacturing expertise on increasingly complex and larger orders, (ii) we have experience dealing with companies of all sizes and their specific requirements (from small roasters to international companies) and (iii) we have SQF and organic certification.

We received SQF Certification from the Safe Quality Food Institute, which is a customary requirement to produce for large multi-national and international companies. Furthermore, we are now in the preliminary stage of obtaining Quality Management SQF Certification, which involves a comprehensive implementation of even more advanced safety and quality management systems. We are also certified as fair trade, organic, and Kosher.

Our primary focus is the development of single serve coffee products in the North American market targeting the individual consumer for use at home and office or other settings that would benefit from single serve product offerings and positioning ourselves as the leading commercial-scale co-packer of single serve pour over and tea-bag style coffee products. We may also consider co-packaging other products that are complementary to our current single serve coffee product offerings and provide us with a deeper access to our customers.

Since 2016, we have been primarily focused on single serve pour over coffee production. Over this time, we have developed expertise in the operation of our sophisticated packing equipment and the related production of our single serve pour over coffee products at both our Vista, California facility and at our production operations in Seoul, Korea. In addition, our manufacturing facility and corporate headquarters in Plano, Texas is now operational. We have also expanded our co-packing expertise to tea bag style coffee products, which we believe are gaining traction in the United States.

Our sources of revenue

Co-packing

We operate as a third-party contract packager for the finished goods of other major companies operating in the coffee beverage industry. Under these arrangements, our co-packing customers typically supply us with roasted, whole bean coffee that we produce and package into single serve pour over and tea-bag style coffee products according to their formulations and specifications. In addition, under our private label coffee development program, our team works directly with our co-packing customers in developing private labels of signature coffees. Under this program, our team of coffee experts works extensively with our co-packing customers to develop a coffee taste profile to their unique needs and then we source, roast (utilizing our third party roasting partners), blend, pack (in either our single serve pour over or tea-bag style coffee products), and package single serve coffee products to their exact specifications.

We currently focus on fostering co-packing arrangements with larger companies developing pour over and tea-bag style coffee products. We believe that as our potential co-packing customers continue to realize that we have the experience co-packing for a variety of customer sizes, we will become the co-packer of choice. The standards required to co-pack for large international companies almost always meet or exceed the standards required to co-pack for any other customer. We also believe that as our co-packing customers’ competitors realize they have single serve pour over and tea-bag style coffee solutions, they will be more motivated to develop their own such solutions and that will lead to increased co-packing opportunities for us.

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

As previously announced, we expect to manufacture certain Cuvée Coffee (“Cuvée”) single serve filter bag products that Cuvée plans to sell in a nationally recognized retail chain. Pursuant to our co-packing arrangement with Cuvée, we currently, and plan to continue to, manufacture single serve filter bag products according to their formulations and specifications on a purchase order basis. For a discussion of certain risks related to our co-packing arrangements, including our co-packing arrangement with Cuvée, see “Item 1A. Risk Factors” herein.

NuZee branded products

Although our primary focus is on the manufacture of single serve pour over coffee products pursuant to co-packing arrangements, we have also developed high-quality NuZee branded single serve coffee products that are sold directly to consumers. In addition to being available for direct sale to consumers, our NuZee branded products serve as samples that are provided to potential new co-packing customers to showcase our co-packing capabilities and production expertise. In this regard, our NuZee branded products are a ‘stepping-stone’ product for our co-packing customers that market high quality packaging and coffee. Sales of our NuZee branded products, including through Amazon, also help promote consumer adoption into the format and to educate coffee drinkers in the United States about this coffee format that is new to North America but widely known in East Asia.

●

Coffee Blenders. Our Coffee Blenders line of products, including both single serve pour over coffee products and tea-bag style coffee, is our flagship, high-end product line that, in addition to showcasing our production expertise, also includes what we believe to be some of the best coffee available in a single serve application in the world. We sell Coffee Blenders products mainly online and to some specialty retailers. We also have a number of potential co-packing opportunities in which our customers would contract for us to replicate one or more of our Coffee Blenders products with their foil and packing, providing further evidence of the high-quality nature of this line and coffee.

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

	●	Pine Ranch. Pine Ranch is another line of our tea bag-style coffee that is available in two distinct roasts: a medium roast called “Smooth Blend” and a dark roast called “Bold Blend”. We introduced this product line in 2019. We offer it direct to consumers through Amazon. Pine Ranch is available in dispense boxes that are suitable for offices and retail stores. Pine Ranch is a product that we can showcase to potential co-packing customers as an alternative to the pour over format.

Our business strategy

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

	●	Continually grow our base of large national or international co-packing customers. We focus on entering into co-packing agreements with large international companies, including co-packing arrangements pursuant to our private label coffee development program. We believe that, as the U.S. market continues to gain awareness of single serve pour over and tea-bag style coffee products, we will continue to grow our base of large domestic or international co-packing customers.

	●	Co-pack for smaller scale, rapidly growing, innovative coffee customers and capture their growth over time. In addition to co-packing for large domestic or international customers, we believe that select smaller scale, rapidly growing, innovative co-packing customers provide us with different opportunities versus larger customers. Large national roasters often look to these smaller scale customers for inspiration. We believe capturing these influential roasters would help us provide format visibility to the bigger roasters as well as influential consumers.

	●	Increase our production capacity in response to growing demand for co-packing. In 2019, we announced a new manufacturing facility and corporate headquarters in Plano, Texas. Our manufacturing facility in Plano, Texas is now operational, and we expect this facility to provide additional production capacity in anticipation of growing demand for our co-packing services.

	●	Strategically grow and expand our international operations that align with our vision. We plan to strategically grow our current international operations as well as potentially expand internationally if this growth or expansion is strategic to our vision. We believe the Korean market, albeit competitive, still has significant growth potential as well as strong market acceptance for coffee and single serve pour overs. We have also formed a joint venture for manufacturing and sales in Latin America. As we look at other potential international manufacturing locations, we look for characteristics similar to the Korean, Latin American and U.S. markets. We plan to further leverage our international operations to support our customers’ expansion into the markets in which we operate. This includes assisting our U.S. customers launching their products in Japan, Korea and Mexico.

Industry

According to the United States Department of Agriculture (“USDA”), global coffee consumption is forecast to reach 165.0 million bags in 2021/22 (a bag is equivalent to 60 kilograms), which was an increase of 1.8 million bags from the prior year. The United States is the single country with the highest projected consumption as part of this forecast.

While consumers have been purchasing single-serve coffee machines to recreate the café style experience at home, there has been an increased focus on environmental sustainability and demand for eco-friendly products. The 2019 Retail and Sustainability Survey by CGS showed that more than two-thirds of respondents consider sustainability when making a purchase and are willing to pay more for sustainable products. Greenpeace USA considered coffee pods as “one of the best examples of unnecessary single-use plastics that are polluting our planet” and the big producers of pods have been seeking eco-friendly alternatives. Sustainability is expected to continue to be a big trend in the coffee pod market, especially as some cities and local governments consider bans on the use of single-use plastic pods (akin to bans on plastic straws and plastic bags) and as consumers become increasingly concerned about throwing used plastic pods in landfills, according to Food Dive.

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

Customers and Sales

Our co-packing customers primarily include large and small size coffee roasters and suppliers. We intend to continue to pursue such co-packing arrangements in the future. We believe this interest is due to (i) the saturation of machine based single serve coffee alternatives, (ii) increase in consumer requirements for eco-friendly packaging and (iii) our superior quality compared to other single serve coffee alternatives.

Sales to relatively few co-packing customers account for a significant percentage of our net sales, and our success depends in part on our ability to maintain good relationships with these key co-packing customers and other key retail and grocery customers.

Generally, under our co-packing arrangements, co-packing customers must issue purchase orders for our products and co-packing services. Although these purchase orders stipulate key terms including order quantity, product specifications, price, payment terms, packaging method and delivery instructions, our co-packing arrangements, including our co-packing arrangement with Cuvée, are typically not governed by any written agreement and have no minimum purchase requirements.

We also sell our NuZee branded products directly to consumers. Currently, Amazon and our www.coffeeblenders.com website are our only established domestic retail channels for direct sales to consumers of NuZee branded products. For additional information regarding our current customer base, see “Note 2. Basis of Presentation And Summary of Significant Accounting Policies—Major Customers” to our Consolidated Financial Statements.

Manufacturing

We lease manufacturing facilities in Vista, California, Plano, Texas, and Seoul, Korea, all of which are used to produce our single serve pour over or tea-bag style coffee products. These manufacturing facilities currently have the annual capacity to produce up to 300 million single serve coffee products (pour over or tea bag style). We have analyzed our current facilities considering our anticipated requirements, and we believe there is a need to optimize our manufacturing facilities to meet our future needs. We have entered into a new lease in Korea for a larger facility we are taking possession in January 2022 and are searching for a more optimal facility in the US.

Machinery for production at our manufacturing facilities comes from some of the most respected vendors in the industry. Our single serve coffee products are produced on packaging machines produced by the leading Japanese manufacturer of packaging machines, FUSO. Nitrogen and air compression machinery is capable of handling expansion, which helps to minimize any ongoing related capital expenditures for such machinery as we expand.

Raw Materials

Our primary raw material is green whole bean coffee, an exchange-traded agricultural commodity that is subject to price fluctuations. Under our co-packing arrangements, our co-packing customers typically supply us with roasted, whole bean coffee that we then produce and package into single serve pour over and tea-bag style coffee products according to their formulations and specifications. In addition, in connection with the production of our NuZee branded products and specialty coffees that we have developed for co-packing customers under our private label coffee development program, we source and purchase green whole bean coffee from multiple green coffee suppliers, and from multiple regions around the world. After being sourced by us, the green whole bean coffee is then shipped to our roasting partners where the coffee is roasted and then shipped to us for grinding, blending, packing and packaging. Maintaining a steady supply of roasted coffee beans from our co-packing customers is essential to our co-packing arrangements, and securing an adequate supply of green whole bean coffee is essential to our ability to manufacture NuZee branded products and to support the development of private labels for our co-packing customers under our private label development program. We have arrangements based on purchase orders in place with suppliers and partners for all components required to provide our co-packing services and deliver our NuZee branded products.

Our principal packaging materials include filters, foils, cartons, and craft master cases. We conduct business with multiple vendors of packaging materials on a purchase order basis.

Distribution

For distribution of our single serve coffee products to our co-packing customers, we typically rely on the distribution networks of our co-packing customers, including freight companies and common carriers arranged by them. At the request of our co-packing customers, we may also utilize a freight broker for the distribution and delivery of our products according to our co-packing customers’ instructions. We also sell NuZee branded products directly to consumers through our website and on Amazon, which are typically delivered by common carriers directly to each customer.

Intellectual Property

We currently own the following United States trademarks: “NuZee”, “NuZee Coffee (Stylized)”, “NuZee Coffee and Design”, “Coffee Blenders” and “Twin Peaks.” We are also in the process of obtaining rights to the “It’s Coffee Reimagined” trademark. We intend to continue growing our trademark portfolio in the United States with other related slogans and brands as new products are launched.

We further intend to expand our brand protections outside of the United States in line with our prospective international growth. As of the date of this Report, we had registered trademarks “Coffee Blenders” and “Twin Peaks” in Japan and registered trademarks “Twin Peaks” in Korea.

We intend to aggressively protect, police and assert our intellectual property rights, including product designs, proprietary product research and concepts as well as our trademark portfolio. Although asserting our rights may result in a substantial cost to the Company, our management strongly believes that the protection of our intellectual property rights is a key component of our operating strategy.

International operations

Korea

We established our Korean subsidiary in 2018. We are one of many producers of single serve pour over coffee products in Korea and do not have any exclusive rights for this region. Our strategy is to leverage our local relationships to secure large co-packing agreements for the markets in Korea, China and other Asian countries. Our Korean subsidiary increased its customer base in our 2021 fiscal year, and we believe that it will be able to continue to secure meaningful co-packing customers in our 2022 fiscal year.

Latin America

On January 9, 2020, we entered into a Joint Venture Agreement (the “JV Agreement”) with Industrias Marino, S.A. de C.V., a company incorporated under the laws of Mexico (“El Marino”), to form a joint venture in Mexico between us and El Marino in Mexico (“NuZee Latin America”). NuZee Latin America is organized under the laws of Mexico and is in the early stages of business development. Its primary business operations are intended to consist of the manufacture of single serve pour over coffee products for sale in Mexico, Central and South America.

Japan

We maintain a presence in Japan with an administrative office that is minimally staffed that primarily assists with import and export of sales and materials between the US and Japan.

Competition

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

The beverage industry in general, and the coffee sector, is extremely competitive. The principal areas of competition include product, quality, convenience, price, packaging, development of new products and flavors, and marketing campaigns. Our Coffee Blenders and other NuZee branded products are competing directly with Green Mountain brands and other licensed brands, as well as third-parties in the single serve coffee category who have similar formats to our products. Green Mountain brands have enjoyed broad, well-established national distribution through well-funded advertising, and product awareness. Our Coffee Blenders and other NuZee branded products also compete generally with all hot liquid refreshments, including specialty coffees and teas. Companies and brands manufacturing these products generally have far greater financial, marketing, and distribution resources than we do.

Important factors that will affect our ability to compete successfully include functional delivery of our products and co-packing services, 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 the distribution networks on which we rely.

We also compete 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.

Employees

As of September 30, 2021, we had a total of 20 employees in the United States, nine employees in Korea and one employee in Japan, all of whom are full-time. 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.

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 may 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 sets of our core management team will be a primary asset in the development of our brands and trademarks.

Information about our Executive Officers

The following sets forth the names, ages and current positions of our executive officers as of December 22, 2021.

Masateru Higashida, age 50, has served as our Chief Executive Officer, Secretary, and Treasurer since October 2014, and as Chair of the Board since April 2013. In July 2020, Mr. Higashida was also re-appointed President of the Company. He previously also held the position of President from October 2014 until August 2017, and Chief Financial Officer from August 2014 until February 2019. Mr. Higashida previously founded multiple companies, including a Korea-based investment company and a Singapore-based investment company, and began his career in the financial industry in Nagoya, Japan.

Patrick Shearer, age 53, has served as our Chief Financial Officer since July 2021. He brings over 25 years of experience in accounting, finance, transactions, and management in a variety of industries including food and beverage. Mr. Shearer was employed by Deloitte from 1993 to 2020. Most recently at Deloitte, Mr. Shearer served as Partner, Risk and Financial Advisory Services from 2004 to 2020. During this time, he was responsible for advising corporate and private equity clients on matters including accounting, finance, mergers, acquisitions, divestitures, and capital markets in a variety of industries, including consumer, industrials, services, and technology. During his time at Deloitte, Mr. Shearer was based in the firm’s Los Angeles and San Francisco, California and Nagoya and Tokyo, Japan offices. Mr. Shearer has significant international experience having lived and worked in Japan and having completed numerous cross-border projects. Mr. Shearer earned a Bachelor of Arts degree in economics from the University of California, Los Angeles. He is a licensed certified public accountant in the State of California.

Tomoko Toyota, age 50, has served as our Chief Marketing Officer since May 2021. Ms. Toyota brings over two decades of marketing leadership experience developing global brand and business strategies, with more than 10 years in the coffee industry leading market expansion of specialty coffee products, including single serve pour over coffee. From 2018 to 2021, Ms. Toyota was in charge of brand strategy and integrated marketing as Integrated Marketing, Head of Spring at the Brooks Running Company. In this role, Ms. Toyota’s responsibilities included leading global brand strategy development for key initiatives and leading teams to develop integrated marketing campaigns. During her 13-year tenure at the Starbucks Coffee Company between 2005 and 2018, Ms. Toyota held several senior level positions including Director of Global Strategic Marketing and Innovation and Director of Starbucks Integrated Marketing and SBC. Ms. Toyota earned a Bachelor of Arts degree in Political Science from Keio Gijuku University.

Jose Ramirez, age 46, has served as our Chief Sales Officer and Chief Supply Chain Officer since May 2021. Prior to joining the Company, Mr. Ramirez worked for 12 years at Farmer Bros. Co. (“FBC”). Most recently, as the Vice President of Coffee Strategy and Sustainability for FBC, he was responsible for green coffee management, customer and vendor partnerships, and company sustainability initiatives. Mr. Ramirez has been very active in the coffee community for over 20 years, serving on several boards including the board of World Coffee Research.

Travis Gorney, age 41, has served as our Chief Innovation Officer and Vice President, Sales since May 2021. He previously served as our Chief Marketing Officer and Vice President from July 2020 to May 2021, President and Chief Operating Officer from September 2017 to July 2020, Senior VP of Sales and Marketing from January 2017 to August 2017 and VP of Sales and Supply Chain Management from February 2016 to January 2017. Mr. Gorney became a full-time employee of the Company in April 2013, following two years of consulting for Mr. Higashida on a project concerning bottled spring water from New Zealand as well as a line of certified organic beauty products. From 2008 through 2018, Mr. Gorney acted as President and CEO of Left Coast Threads, Inc., a company that operates retail clothing stores. Previously, in 2003, Mr. Gorney formed Point Blank Beverage, Inc. where, as President and CEO, he developed a premium energy drink by the name of Torque. Mr. Gorney began his career in the beverage industry as national sales manager for a start-up independent energy beverage company named Rollin X, LLC, where he worked from 2002 until 2004.

Governmental Regulation

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

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

Corporate Information

We were incorporated in 2011 in Nevada as Havana Furnishings, Inc. NuZee Co. Ltd. was incorporated in 2011. NuZee Co. Ltd. merged into Havana Furnishings, Inc. in 2013, at which time we changed our name to NuZee, Inc.

On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019 (the “Reverse Split”). Unless we indicate otherwise, all share and per share information in this Report reflects the Reverse Split, and the accompanying financial statements and notes to the financial statements give effect to the Reverse Split.

In June 2020, our common stock commenced trading on the Nasdaq Capital Market under the symbol “NUZE.” Prior to that, our common stock was quoted on the OTCQB Marketplace under the same symbol.

We have two international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”), and NuZee Investment Co., Ltd. (“NuZee INV”). NuZee KR and NuZee INV are wholly owned subsidiaries of the Company. We also have a joint venture in Mexico, as further discussed above.

Our principal executive offices are located at 1401 Capital Avenue, Suite B, Plano, Texas 75074, and our telephone number is (760) 295-2408.

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 website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Report. Our corporate governance policies, ethics code and board of directors’ committee charters are posted under the Investor Relations section of the website. 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.

ITEM 1A. RISK FACTORS

Risk Factor Summary

The risk factors summarized below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common stock to decline. These risks are discussed more fully in the section titled “Risk Factors.” Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, the following:

	1.	We have a history of net losses. We expect to continue to incur net losses in the future and we may never generate sufficient revenue from the commercialization of our single serve coffee products or co-packing services to achieve or sustain profitability.
	2.	We may not be able to raise additional capital to fund our existing operations, market our products and co-packing services and expand our operations.
	3.	We have limited operating history, which may make it difficult to evaluate our current business and to forecast our future performance.
	4.	Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
	5.	The COVID-19 pandemic and the appearance of new variants continues to affect our business operations and financial condition, and our liquidity could also be negatively impacted.
	6.	Sales to a limited number of customers represent a significant portion of our net sales. The loss of a key customer and efforts by our customers to improve their profitability could reduce sales of NuZee branded products and revenues generated from our co-packing services and adversely affect our financial performance.
	7.	Continued innovation and the successful development and timely launch of new products and co-packing services are critical to our financial results and achievement of our growth strategy.
	8.	Our future financial results are difficult to predict, and failure to meet market expectations for our financial performance or any publicly announced guidance may cause the price of our stock to decline.
	9.	Increased competition, including as a result of industry consolidation, could hurt our businesses, and changes in the coffee, tea and beverage environment and retail landscape could impact our financial results.
	10.	Our business, growth and profitability depend on the performance of third-parties and our relationship with them, including third-party coffee roasters.
	11.	Interruption or increased costs of our supply chain and sales network, including a disruption in operations at any of our facilities, could affect our ability to manufacture or distribute products and could adversely affect o

SEC Form 10-K filed by NuZee, Inc.