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 a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by words
like believe, expect, estimate, anticipate, intend, project and similar
expressions, or words which, by their nature, refer to future events. You should
not place undue certainty on these forward- looking statements. These
forward-looking statements are subject to certain risk s and uncertainties that
could cause actual results to differ materially from our predictions.
Plan of Operations
NuZee will continue building the market in the US for the single serve pour over
coffee and the co-packing portion of the business. NuZee will continue building
on current relationships and form new business relationships to package other
brands and retail chains private label coffee. Our US expansion efforts are to
include a centrally located production facility that will have the space to
handle our intended capacity and growth for the next three years.
Over the next 3 months, the Company's growth plans include continuing efforts to
identify and secure a centrally located building that will be able to meet the
demand of what we believe will continue to be the fastest growing segment of our
business, our co-manufacturing for other brands and retail chains by building on
our current customers and forging relationships with new customers.
? Based on the last 6 months of feedback and customer interest from all of the
tradeshows we attended in quarter 1 we are confident that the current customers
we currently package for will continue to expand their drip cup business in the
US and introduce new line extensions in late 2018 and early 2019. The sell
through from our current customers is increasing each quarter which aligns
perfectly with the growth in popularity of pour-over style coffee in the US
market. We have produced physical samples for many of the nation's largest
brands and expect many of them to become customers in late 2018 and early 2019.
? We will continue to grow our single cup business in the next 3 months and have
signed agreements with one of the nation's largest retailers to feature our
brand in the next 3 months. We are building up our inventory in preparation for
the launch and have a strong marketing plan in place to support the rollout.
?As we continue to grow and scale both Coffee Blenders and Twin Peaks coffee we
are always revisiting our cost of goods and connecting with new suppliers of our
raw materials. We have been able to reduce our outer packaging by over 8% over
the last 3 months and will continue looking for new paths to drive our cost of
? As we prepare for our Safe Quality Food audit and certification we are working
closely with many large customers to ensure that our team is well prepared for
what we believe to be our quickest path to growth. Our team is preparing for
certification classes that will allow our food safety program to pass the audit
and better prepare us for what is required in addition to our current operation
to be considered SQF complaint.
?As we roll out our cold brew coffee extraction capabilities to our current
customers and new customers we will be also expanding our offerings from Glass
to Aluminum and PET bottles within the next three months. We are currently in
the final stages of our R&D and plan to have many offerings available to all of
our customers by Q4 2018.
? Our broker network expanded last quarter with the addition of 3 Grams Foods
out of Dallas, TX and we plan to bring on additional brokers to assist our sales
team in NuZee's efforts to expand our Coffee Blenders and Twin Peaks brands as
rapidly as possible throughout the US. We have hired additional staffing to help
support our expanded network and will hire additional employees over the next 3
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? We will work to increase our online presence over the next 3 months and have
commissioned a videographer and media company to curate new and fresh content
for our brands websites as well as all of our social media platforms. We will
also update our websites with fresh content.
Increase our sales team to meet the demand of our growing potential customers.
Adding additional staffing will help us stay in closer contact with potential
buyers and category managers. Each member added to our sales team will be versed
on all NuZee, Inc. products and be trained on how to best sell our products.
We have entered into several different channels for distribution and are
planning to expand into a few more channels in 2018. Our current and forecasted
company directed channels include;
Long Term Goals (Five Years)
The long-term goals for NuZee, Inc. are to position NuZee as the leader in the
drip cup co-packing business and capture a large market share from the closest
competing like product in the coffee segment, the single serve K-Cup. We will
broaden our ability to bring on national customers by increasing our production
capacity and adding a new production facility. We will expand our international
presence throughout Asia-Pacific and work to have the most successful cold brew
extraction & packaging plant in the US. Offering both the Drip Cup packing and
cold brew extraction will help drive to increase our revenues.
The Company believes that our limited resources may pose a 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 a 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
Results of Operations
Three & Six months ended March 31, 2018 Compared to Three & Six months ended
March 31, 2017
Revenue. For the three months ended March 31, 2018, our realized revenue
increased by 4% compared with the same time period in 2017. The contributing
factors for this increase was the volume of sales through our Direct Sales
Distribution channel. For the six months ended March 31, 2018, our realized
revenue decreased by 22% compared with the six months ended March 31, 2017. The
contributing factor for this decrease was the lower sales to our distributors.
Gross Profit. For the three months ended March 31, 2018, we earned a total gross
profit of $103,254 from sales of our products. The margin rate was 26% for the
three months ended March 31, 2018, and 13% for the three months ended March 31,
2017. This increase in margin is driven by lower labor and amortization costs.
For the six months ended March 31, 2018 the gross profit of $221,123
contributing factor was a lower Cost of sales driving a margin of 30% compared
to the six months ended March 31, 2017 margin of 22%.
Expenses. For the three months ended March 31, 2018, our Company's operating
expenses totaled $838,125 which is a reflection of increase in travel expenses,
professional fees and trade shows. There was a 33% increase over the same
period of the prior year in travel primarily due to meeting with current and new
investors. The increase in professional fees was driven by temporary headcount
support. For the six months ended March 31, 2018, our Company's operating
expenses totaled $1,598,778 compared to the six months ended March 31, 2017
$922,208. Contributing factor was a 47% increase in FTE headcount.
Net Loss. For the three months ended March 31, 2018, we generated net losses of
$737,263. This loss was attributed to operating expenses. Attributing factors
were leasehold improvements for production retrofitting and fees associated with
audit support and consulting services. For the six months ended March 31, 2018,
we generated net losses of $1,380,819. There was a 89% increase in losses from
the six months ended March 31, 2017 to the six months ended March 31, 2018.
Contributing activity towards the $649,153 increase was in professional fees
relating to consulting support in foreign investor relations, increased FTE
headcount and new facility production buildout.
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Liquidity and Capital Resources
As of September 30, 2017, we had a cash balance of $347,327 and $515,290 as of
March 31, 2018; this increase was primarily due to the sale of common stock.
Accounts receivable increased about 23% and inventories increased about 13%
since September 30, 2017 mainly in Direct Sales Distribution and co-packing
Our current ratio of 4.0 as of March 31, 2018 reflects an increase in working
capital compared to 2.6 as of September 30, 2017.
Our auditor has indicated that there is substantial doubt about our ability to
continue as a going concern due to 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 any adjustments that might result from the outcome of this uncertainty.
Our current cash balance as of March 31, 2018, 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.
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