NuZee, Inc. (NASDAQ:NUZE) is a specialty coffee and technologies company that has positioned itself as a leading co-packer of single-serve pour over coffee and coffee brew bags in the United States. The company has also expanded its product portfolio to offer a third type of single-serve coffee format, DRIPKIT pour over products, as a result of its acquisition of substantially all of the assets of Dripkit, Inc.
Business Overview
NuZee's mission is to leverage its 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. The company's co-packing services provide a tolling arrangement, where it receives a fee for almost every single-serve coffee product its co-packing customers sell in the North American and Korean markets. This model limits NuZee's risk related to owning and managing inventory.In addition to its co-packing services, NuZee also produces and sells its own branded single-serve pour over and brew bag coffee products. The company has recently expanded its product offerings to include bagged coffees for existing single-serve customers as well as a new licensing relationship with Stone Brewing, which will include both bagged and single-serve format coffee products. This expansion is expected to allow NuZee to increase manufacturing efficiency and better serve its customers and the market.
While the United States is NuZee's core market, the company also has manufacturing and sales operations in Korea and a joint venture in Latin America. NuZee believes it is the only commercial-scale producer within the North American market that has the dual capacity to pack single-serve pour over and brew bag coffee.
Financials
For the fiscal year ended September 30, 2023, NuZee reported annual revenue of $3,348,831, a net loss of $8,749,467, annual operating cash flow of -$6,926,279, and annual free cash flow of -$6,942,520. The company's revenue for the six months ended March 31, 2024 was $1,959,748, a 2% increase compared to the same period in the prior year.The company's gross profit margin for the six months ended March 31, 2024 was 1%, compared to 6% in the same period of the prior year. This decrease was primarily attributable to an increase in inventory reserves for excess and obsolete inventories. NuZee's operating expenses for the six months ended March 31, 2024 were $3,782,757, an 11% decrease compared to the same period in the prior year, primarily due to a decrease in professional fees and compensation expense.
Geographic Concentration
NuZee's operations are primarily split between two geographic areas: North America and Asia. For the six months ended March 31, 2024, net revenues attributable to the company's operations in North America totaled $1,289,338, compared to $1,006,717 in the same period of the prior year. Net revenues attributable to the company's operations in Asia totaled $670,410 for the six months ended March 31, 2024, compared to $910,797 in the same period of the prior year.As of March 31, 2024, $419,805 of NuZee's property and equipment, net, was attributable to its North American operations, compared to $184,763 as of September 30, 2023. Additionally, $102,416 of the company's property and equipment, net, was attributable to its Asian operations as of March 31, 2024, compared to $124,246 as of September 30, 2023.
Liquidity
As of March 31, 2024, NuZee had a cash balance of $0. Considering the company's current cash resources and its current and expected levels of operating expenses for the next twelve months, NuZee expects to need additional capital to fund its planned operations for at least twelve months from May 21, 2024.The company intends to seek to raise additional capital, including through public or private equity offerings, to support its operating activities for the next twelve months and beyond. However, the timing and amount of funds that NuZee will need to raise will depend on a number of factors, including its ability to generate a sufficient amount of revenues from the sale of its coffee products to fund its business operations and the timing and amount of funds received upon the exercise for cash of outstanding warrants by the warrant holders.
Risks and Challenges
NuZee faces several risks and challenges that could impact its future performance. The company has incurred significant losses since its inception and may continue to incur losses as it invests in the commercialization of its products and administrative support. NuZee's ability to achieve profitability is dependent on its ability to generate sufficient revenue from the sale of its coffee products and co-packing services.Additionally, the company's operations are subject to various legal proceedings and claims, which could have an adverse impact on its financial condition and results of operations. NuZee is also subject to the risk of delisting from the Nasdaq Capital Market if it is unable to regain compliance with the minimum stockholders' equity requirement by June 14, 2024.