CIMG Inc 10-Q for FY2023 Q3
CIMG Inc. (CIMG)
About this 10-Q
CIMG Inc filed this 10-Q on August 11, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $648.61K
- down 16.2% from $774.02K a year earlier
- Net loss
- $2.03M
- compared with a net loss of $2.63M a year earlier
- Diluted EPS
- -$2.63
- compared with -$4.77 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| 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.
(exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The
|
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the 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 | ☐ |
| ☒ | 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of August 11, 2023, the registrant had shares of common stock outstanding.
Table of Contents
| 2 |
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Such forward-looking statements reflect the views of NuZee, Inc. (“NuZee” or the “Company”) with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about the Company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, or any other matters, are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “expects”, “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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, provide our co-packing services, and to continue as a going concern; | |
| ● | our expectation that our existing capital resources will be sufficient to fund our operations for the next three months and our expectation to need additional capital to fund our planned operations beyond that; | |
| ● | the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; | |
| ● | our expectations regarding our ability to maintain compliance with the listing requirements of the Nasdaq Capital Market; | |
| ● | the impact to our business, including any supply chain interruptions, resulting from changes in general economic, business and political conditions, including changes in the financial markets and macroeconomic conditions resulting from a pandemic such as COVID-19 or otherwise; | |
| ● | the evolving coffee preferences of coffee consumers in North America and East Asia; | |
| ● | 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 ability to successfully achieve the anticipated results of strategic transactions; | |
| ● | our expectation regarding our future co-packing revenues; | |
| ● | our ability to develop or offer innovative new products and services, and expand our co-packing services to other products that are complementary to our current single serve coffee product offerings; |
| ● | our expectations regarding additional manufacturing, coffee roasting and co-packing capabilities to be provided through our manufacturing partner, as well as our manufacturing partner’s ability to successfully facilitate distribution efforts to the Eastern United States; | |
| ● | our reliance on third-party roasters or manufacturing partners to roast coffee beans necessary to manufacture our products and 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; |
| 3 |
| ● | the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology; | |
| ● | our ability to develop and maintain our corporate infrastructure, including our internal control over financial reporting; | |
| ● | the outcome of pending, threatened or future litigation; and | |
| ● | 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. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in the section of our Annual Report on Form 10-K filed with the SEC on December 23, 2022, titled “Risk Factors” and sections of this report that describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
| 4 |
Item 1. Financial Statements
NuZee, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2023 | September 30, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets: | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Investment in unconsolidated affiliate | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Current portion of long-term loan payable | ||||||||
| Current portion of lease liability - operating lease | ||||||||
| Current portion of lease liability - finance lease | ||||||||
| Deferred income | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Lease liability - operating lease, net of current portion | ||||||||
| Lease liability - finance lease, net of current portion | ||||||||
| Loan payable - long term, net of current portion | ||||||||
| Other noncurrent liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock; shares authorized, $ par value; and shares issued and outstanding as of June 30, 2023, and September 30, 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from investment in unconsolidated affiliate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Basic and diluted weighted average number of common stock outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| For the three months ended June 30 | 2023 | 2022 | ||||||
| NuZee, Inc. | ||||||||
| For the three months ended June 30 | 2023 | 2022 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation | ( | ) | ( | ) | ||||
| Total other comprehensive loss, net of tax | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| For the nine months ended June 30 | 2023 | 2022 | ||||||
| NuZee, Inc. | ||||||||
| For the nine months ended June 30 | 2023 | 2022 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation | ( | ) | ||||||
| Total other comprehensive income (loss), net of tax | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Restricted stock compensation | - | |||||||||||||||||||||||
| Round-up shares issued in reverse split | ||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Forgiveness of stock issuance costs | - | |||||||||||||||||||||||
| Stock option expense | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock compensation | ||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Forgiveness of stock issuance costs | - | |||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Restricted stock compensation | - | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of warrants, net of issuance costs | ||||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Other comprehensive gain | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Warrant issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||
| Common stock issued for cash, ATM offering, net of issuance costs | ||||||||||||||||||||||||
| Common stock issued for Dripkit acquisition | ||||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Restricted stock award issuance | ||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||||||||||
| Balance | $ | $ | ( | ) | $ | $ | ||||||||||||||||||
| Common stock issued for cash, ATM offering, net of issuance costs | $ | $ | $ | $ | ||||||||||||||||||||
| Equity securities issued for cash, exempt offering, net of issuance costs | ||||||||||||||||||||||||
| Common stock issued to settle Dripkit Bulk Sales Holdback Amount | ||||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Amortization of restricted stock award issued | - | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | Nine Months Ended | |||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Noncash lease expense | ||||||||
| Stock option expense | ||||||||
| Issuance of common stock for services | ||||||||
| Restricted stock compensation | ||||||||
| Bad debt expense | ||||||||
| Loss on disposition of asset | ||||||||
| Loss from investment in unconsolidated affiliate | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable, accrued expenses and other current liability | ( | ) | ||||||
| Deferred income | ||||||||
| Lease liability – operating lease | ( | ) | ( | ) | ||||
| Other non-current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Acquisition of Dripkit | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from issuance of common stock, exercise of options | ||||||||
| Repayment of loans | ( | ) | ( | ) | ||||
| Repayment of finance lease | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock, ATM offering, net of issuance cost | ||||||||
| Proceeds from issuance of common stock, exercise of warrants, net of issuance costs | ||||||||
| Proceeds from issuance of equity securities, exempt offering, net of issuance costs | ||||||||
| Cash paid for offering costs | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of foreign exchange on cash | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | ||||||||
| Non-cash transactions: | ||||||||
| ROU assets and liabilities added during the period | $ | $ | ||||||
| Common stock issued in acquisition of Dripkit | ||||||||
| Forgiveness of stock issuance costs | ||||||||
| Stock issuance costs accrued | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 9 |
NuZee, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2023
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of NuZee, Inc. (together with its subsidiaries, referred to herein as the “Company”, “we” or “NuZee”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 as filed with the SEC on December 23, 2022. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a 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 financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the Annual Report on Form 10-K for the year ended September 30, 2022, have been omitted.
Principles of Consolidation
The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.
The Company has two wholly owned international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”).
On
February 25, 2022 (the “Closing Date”), the Company acquired substantially all the assets and certain specified liabilities
(the “Acquisition”) of Dripkit, Inc., a Delaware corporation (“Dripkit”), pursuant to the Asset Purchase Agreement,
dated as of February 21, 2022 (the “Asset Purchase Agreement”), by and among the Company, Dripkit, and Dripkit’s existing
investors (the “Stock Recipients”) who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant
to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the Acquisition was $
2022 Reverse Stock Split
On
December 28, 2022, we completed a
All share and per share information included in these financial statements and notes thereto have been retroactively adjusted to give effect to the Reverse Stock Split.
| 10 |
Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of June 30, 2023, and June 30, 2022, the total number of common stock equivalents was and , respectively, comprised of stock options and warrants as of June 30, 2023 and June 30, 2022. The Company incurred a net loss for the three and nine months ended June 30, 2023, and 2022, respectively, and therefore basic and diluted earnings per share for these periods are the same because all potential common equivalent shares would be antidilutive.
Going Concern and Capital Resources
Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, raising capital and the commercialization and manufacture of its single serve coffee products. The Company has grown revenues from its principal operations; however, there is no assurance of future revenue growth similar to historical levels.
As
of June 30, 2023, the Company had cash of $
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP, which contemplates continuation of the Company as a going concern. The Company has had limited revenues, recurring losses and an accumulated deficit. These items raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying unaudited interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations and to raise additional capital for the further development and marketing of the Company’s products and business.
Major Customers
In the nine months ended June 30, 2023 and 2022, revenue was primarily derived from major customers disclosed below.
SCHEDULE OF REVENUE BY MAJOR CUSTOMERS
Nine months ended June 30, 2023:
| Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||
| Customer CL | $ | % | $ | % | ||||||||||||
| Customer CN | % | % | ||||||||||||||
Nine months ended June 30, 2022:
| Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||
| Customer WP | $ | % | $ | % | ||||||||||||
| Customer CU | % | % | ||||||||||||||
| Customer S | $ | % | $ | % | ||||||||||||
Lease
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The Company implemented ASU No. 2016-02 on October 1, 2019.
The Company performs a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. The Company has a long-term operating lease for office and manufacturing space in Plano, Texas. The leased property in Plano, Texas, has a remaining lease term through June 2024. The lease has an option to extend beyond the stated termination date, but exercise of this option is not probable. The Company did not apply the recognition requirements of ASC 842 to operating leases with a remaining lease term of 12 months or less.
| 11 |
In
May 2022, the Company renewed the office and manufacturing space in Vista, California through March 31, 2025, which was scheduled to
expire on
Effective
December 1, 2022, we entered into a new operating lease for our principal executive office, which is located at 1350 East Arapaho Road,
Suite #230, Richardson, Texas 75081. We lease the Richardson office on an annual basis, at a cost of $
As
of June 30, 2023, our operating leases had a weighted average remaining lease term of
SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE
| ROU Asset – October 1, 2022 | $ | |||
| ROU Asset added during the period | ||||
| Amortization during the period | ( | ) | ||
| ROU Asset – June 30, 2023 | $ | |||
| Lease Liability – October 1, 2022 | $ | |||
| Lease Liability added during the period | ||||
| Amortization during the period | ( | ) | ||
| Lease Liability – June 30, 2023 | $ | |||
| Lease Liability – Short-Term | $ | |||
| Lease Liability – Long-Term | ||||
| Lease Liability – Total | $ |
The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of June 30, 2023:
Amounts due within twelve months of June 30,
| 2024 | $ | |||
| 2025 | ||||
| Total Minimum Lease Payments | ||||
| Less Effect of Discounting | ( | ) | ||
| Present Value of Future Minimum Lease Payments | ||||
| Less Current Portion of Operating Lease Liabilities | ||||
| Long-Term Operating Lease Liabilities | $ |
On
October 9, 2019, the Company entered into a lease agreement with Alliance Funding Group which provided for a sale lease back on certain
packing equipment. The terms of this agreement require us to pay $
| 12 |
The table below summarizes future minimum finance lease payments at June 30, 2023 for the twelve months ended June 30:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES
| 2024 | $ | |||
| 2025 | ||||
| Total Minimum Lease Payments | ||||
| Amount representing interest | ( | ) | ||
| Present Value of Minimum Lease Payments | ||||
| Current Portion of Finance Lease Obligations | ||||
| Finance Lease Obligations, Less Current Portion | $ |
Lease
expenses included in operating expense for the nine months ended June 30, 2023, and 2022 was $
Cash and non-cash activities associated with the leases for the nine months ended June 30, 2023, are as follows:
SCHEDULE OF CASH AND NON-CASH ACTIVITIES OF LEASES
| Operating cash outflows from operating leases: | $ | |||
| Operating cash outflows from finance lease: | $ | |||
| Financing cash outflows from finance lease: | $ |
In
September 2020, we subleased the space at 1700 Capital Avenue in Plano, Texas, effective October 1, 2020, under terms that are co-terminus
with the original lease ending June 30, 2024. During the nine months ended June 30, 2023, we recognized sublease income of $
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE
| 2024 | $ | |||
| Total | $ |
Loans
On
April 1, 2019, we purchased a delivery van from Ford Motor Credit for $
The remaining loan payments for each of the twelve months ended June 30:
SCHEDULE OF LOAN PAYMENTS
| Ford Motor Credit | ||||
| 2024 | $ | |||
| 2025 | ||||
| Grand Total | $ | |||
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of October 1, 2018, on a modified retrospective basis. The adoption of Topic 606 did not have a material impact on our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations.
| 13 |
Foreign Currency Translation
The
financial position and results of operations of each of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s
local currency as the functional currency. Revenues and expenses of each such subsidiary have been translated into U.S. dollars at average
exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet
date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity
unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustments recorded
to other comprehensive income and loss amounted to $
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Prepaid expenses and other current assets
Prepaid expenses and other current assets at June 30, 2023 and September 30, 2022, were as follows:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| June 30, 2023 | September 30, 2022 | |||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
The
prepaid expenses and other current assets balance of $
Inventories
Inventory,
consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of
cost or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at
least quarterly and records a valuation allowance when appropriate. At June 30, 2023 and September 30, 2022, the carrying value of
inventory was $
SCHEDULE OF INVENTORY
| June 30, 2023 | September 30, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Equity Method Investment
On
January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (
The
Company accounts for NLA using the equity method of accounting since the management of day-to-day operations at NLA ultimately lies with
the Company’s joint venture partner as the operations of NLA are based in its partners facilities and our partner appoints the
Chairman of the joint board of directors of NLA. As of June 30, 2023, the only activities in NLA were the contribution of two machines,
as described above, and start up and initial marketing and sales activities. $
| 14 |
2. GEOGRAPHIC CONCENTRATION
The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis. The Company is organized in three geographical segments. The Company co-packs product for customers and produces and sells its products directly in North America and Korea. The Company previously had a minimally staffed office in Japan that provided support for import and export of product and materials between the U.S. and Japan, as well as investor relations support to its stockholders based in Japan; these functions are now supported by the Company’s personnel residing in the United States. Information about the Company’s geographic operations for the nine months ended June 30, 2023, and 2022 are as follows:
Geographic Concentration
SCHEDULE OF GEOGRAPHICAL OPERATIONS
| Nine Months Ended | Nine Months Ended | |||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Net Revenue: | ||||||||
| North America | $ | $ | ||||||
| South Korea | ||||||||
| Net Revenue | $ | $ | ||||||
| Property and equipment, net: | As of June 30, 2023 | As of September 30, 2022 | ||||||
| North America | $ | $ | ||||||
| South Korea | ||||||||
| Japan | ||||||||
| Property and equipment, net | $ | $ | ||||||
3. BUSINESS COMBINATIONS
As
described in Note 1, on February 25, 2022, the Company acquired substantially all the assets and certain specified liabilities of Dripkit
pursuant to the Asset Purchase Agreement, dated as of February 21, 2022, by and among the Company, Dripkit, and Dripkit’s investors
who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement,
the aggregate purchase price paid by the Company for the Acquisition was $
Pursuant
to the terms of the Asset Purchase Agreement, on the Closing Date,
On
the Closing Date, after adjustments and holdbacks under the Asset Purchase Agreement, the Company paid the aggregate purchase price as
follows: (i) cash paid by the Company to Dripkit was $
In
the year ended September 30, 2022, pursuant to the terms of the Asset Purchase Agreement, the Bulk Sales Holdback Amount was used to
satisfy sales and use taxes owed by Dripkit to the State of New York as of the Closing Date. Pursuant to the terms of the Asset Purchase
Agreement, the amounts remaining after offsetting the cost of these sales and use taxes were distributed as follows: (i) $
| 15 |
Dripkit was acquired for purposes of supplementing our current product offerings. Dripkit operates as a Dripkit Coffee business division that is wholly-owned by NuZee, Inc.
The
following table presents the allocation of the aggregate purchase price paid by the Company for the Acquisition of $
SCHEDULE OF ALLOCATION OF AGGREGATE PURCHASE PRICE
| Total purchase price | $ | |||
| Assets acquired: | ||||
| Inventory | $ | |||
| Property and equipment | ||||
| Identifiable intangible assets | ||||
| Total assets acquired | $ | |||
| Estimated fair value of net assets acquired | $ | |||
| Goodwill | $ |
Identified Intangibles
The
Company identified tradename and customer relationships as intangible assets in connection with the Acquisition. Any tradename and customer
relationship intangible assets will be amortized on a straight-line basis over their respective estimated useful lives. The goodwill
recognized resulted from such factors as an assembled workforce and management’s industry know-how. During the year ended September
30, 2022, we recorded a non-cash impairment charge of $
The
consolidated statement of operations for the nine months ended June 30, 2023 includes revenues of $
Unaudited Pro forma Financial Information
The following unaudited proforma financial information presents the combined results of operations of the Company and gives effect to the Dripkit Acquisition for the three and nine months ended June 30, 2022, as if the Acquisition had occurred on October 1, 2021 instead of on February 25, 2022.
The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Acquisition had been completed on October 1, 2021, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.
| 16 |
The following is the proforma financial information for the Company and Dripkit:
SCHEDULE OF UNAUDITED PRO FORMA FINANCIAL INFORMATION
| Description | For the three months ended June 30, 2022 | For the nine months ended June 30, 2022 | ||||||
| Revenues | $ | $ | ||||||
| Net loss | $ | $ | ||||||
For
purposes of the pro forma disclosures above, the primary adjustments for the three and nine months ended June 30, 2022 include the elimination
of transaction costs of approximately $
4. INTANGIBLE ASSETS
As of June 30, 2023, the Company’s intangible assets consisted of the following:
SCHEDULE OF INTANGIBLE ASSETS
| Amortization | June 30, 2023 | |||||||||||||||
| Period (Years) | Gross | Accumulated Amortization | Net | |||||||||||||
| Tradenames | $ | $ | $ | |||||||||||||
Amortization
expense of intangible assets was $
5. ISSUANCE OF EQUITY SECURITIES
Restricted Stock Awards
On March 17, 2022, pursuant to the Company’s non-employee director compensation policy, the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) granted restricted shares (the “Restricted Shares”) of the Company’s common stock to each of the Company’s five independent directors pursuant to the NuZee, Inc. 2013 Stock Incentive Plan, totaling Restricted Shares. These awards are now fully vested. On March 22, 2023, pursuant to the Company’s non-employee director compensation policy, the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) granted restricted shares (the “Restricted Shares”) of the Company’s common stock to each of the Company’s five independent directors pursuant to the NuZee, Inc. 2023 Stock Incentive Plan, totaling Restricted Shares. The Restricted Shares are scheduled to vest in full on the one-year anniversary of the grant date, subject to each independent director’s continued service as a director of the Company. The Company recognized common stock compensation expense of $ and $, respectively, for the nine months ended June 30, 2023 and 2022, related to these Restricted Shares. The Restricted Shares are valued using the closing stock price on the grant date and the Company is expensing these restricted share awards on a straight-line basis over the requisite service period.
On March 15, 2023, the Company granted performance-based restricted shares to executive officers, employees and consultants as part of the 2013 Stock Incentive Plan and the 2019 Stock Incentive Plan. The initial performance period for the Performance-Based Restricted Shares commenced October 1, 2022 and ends September 30, 2023.
% of the Performance-Based Restricted Shares will vest, if at all, in Fiscal Year 2023, based on the Company’s achievement of a specified amount of cash on hand, sales growth, increased gross margin, and reduced operating losses in Fiscal Year 2023, and the other % of the Performance-Based Restricted Shares will vest, if at all, in Fiscal Year 2024, based on performance metrics to be set by the Board in its sole and absolute discretion on or before December 31, 2023. Based on management’s estimate as of June 30, 2023, the performance goals for Fiscal Year 2023 won’t be achieved and the Company recognized common stock compensation expense of $ for the nine months ended June 30, 2023, related to these Restricted Shares.
| 17 |
SCHEDULE OF RESTRICTED COMMON SHARES
| 2023 | 2022 | |||||||
| Number of shares outstanding at September 30, 2022 and 2021 | ||||||||
| Restricted shares granted | ||||||||
| Restricted shares forfeited | ) | |||||||
| Restricted shares vested | ) | |||||||
| Number of shares outstanding at June 30, 2023 and 2022 | ||||||||
During the nine months ended June 30, 2023, restricted shares were forfeited because of the termination of employment.
Common stock issued for services
On January 6, 2023, the Company issued shares of common stock to a third-party unaffiliated professional services provider in exchange for certain consulting advice to be provided to the Company. The shares are valued using the closing stock price on the grant date and the Company recognized common stock compensation expense of $ for the nine months ended June 30, 2023, related to these common stock shares.
On June 20, 2023, the Company issued shares of common stock to a third-party unaffiliated professional services provider in exchange for certain consulting advice to be provided to the Company. The shares are valued using the closing stock price on the grant date and the Company recognized common stock compensation expense of $ for the nine months ended June 30, 2023, related to these common stock shares.
Options
During the nine months ended June 30, 2023, the Company granted no new stock options, did not issue any shares upon the exercise of outstanding stock options, and had stock options that were forfeited and expired because of the termination of employment and expiration of options.
| 18 |
SUMMARY OF STOCK OPTION ACTIVITY
Number of Shares Issuable Upon Exercise of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at October 1, 2022 | $ | $ | ||||||||||||||
| Forfeited and expired | ( | ) | ||||||||||||||
| Outstanding at June 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2023 | $ | $ | ||||||||||||||
The
Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock
option expense of $
SUMMARY OF UNVESTED SHARES
Nonvested options
Number of Nonvested Options | Weighted Average Grant Date Fair Value | |||||||
| Nonvested options at October 1, 2022 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Nonvested options at June 30, 2023 | $ | |||||||
Warrants
During the nine months ended June 30, 2023, the Company granted no new warrants to purchase shares of common stock and did not issue any shares upon the exercise of outstanding warrants to purchase shares of common stock.
The following table summarizes warrant activity for the nine months ended June 30, 2023:
SCHEDULE OF WARRANT ACTIVITY
Number of Shares Issuable Upon Exercise of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at September 30, 2022 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||||||
| Exercisable at June 30, 2023 | $ | $ | ||||||||||||||
7. CONTINGENCY
Steeped Litigation
The
Company has an accrual of $
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 coffee brew bags, which is also referred to as tea-bag style coffee. In addition to our single serve pour over and coffee brew bag coffee products, we have expanded our product portfolio to offer a third type of single serve coffee format, DRIPKIT pour over products, as a result of our acquisition of substantially all of the assets of Dripkit, Inc. (“Dripkit”). Our DRIPKIT pour over format features a large-size single serve pour over pack that sits on top of the cup and delivers in our view a barista-quality coffee experience to customers in the United States, Canada, and Mexico. 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 within the North American market that has the dual capacity to pack both single serve pour over coffee and coffee brew bag coffee. We intend to leverage our position to become the commercial coffee manufacturer of choice and aim to become the preeminent leader for coffee companies seeking to enter into and grow within the single serve coffee market in North America. We 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 coffee products, we believe 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 coffee brew bag coffee products, which we believe offers consumers some of the best coffee available in a single serve application in the world. We have recently expanded our Coffee Blenders offerings to include a new Cold pressed latte product line that is available to purchase in Korea and online. We offer DRIPKIT pour over packs direct to consumers through our website, wholesale business-to-business to hospitality customers, and co-pack for coffee roasters.
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, drive growth, reduce manufacturing costs, expand our product portfolio, enter into new markets, and further penetrate the markets in which we currently operate. Our goal is to continue to expand our product portfolio to raise our visibility, consumer awareness and brand profile.
2022 Reverse Stock Split
On December 9, 2022, our stockholders approved a proposal granting the board of directors of the Company (the “Board”) discretionary authority to file an amendment (the “Certificate of Amendment”) to our Articles of Incorporation, as amended (the “Articles”), which amends the Articles to add a Section 1A to effect a reverse stock split of our common stock, at any ratio from 1-for-10 to 1-for-50 at the Board’s discretion. On December 21, 2022, the Board approved a 1-for-35 reverse stock split of our common stock (the “Reverse Stock Split”). The Certificate of Amendment was filed by the Company on December 28, 2022 and became effective upon acceptance of the Company’s filing of the Certificate of Amendment with the Secretary of State of Nevada. Accordingly, each holder of our common stock received one share of common stock for every 35 shares such stockholder held immediately prior to the effectiveness of the Reverse Stock Split
Impact of the COVID-19 Pandemic
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies, financial markets and supply chains. We do not believe, however, that these disruptions had a significant effect on our business or results of operations to date, and in some cases, we have been able to mitigate any adverse effects in part by sourcing coffee and other supplies from alternative suppliers in the United States. The COVID-19 crisis may have an adverse impact on our business and financial results going forward that we are not currently able to fully determine or quantify. The COVID-19 crisis may adversely affect the ability of our customers to pay for goods delivered on a timely basis, or at all. Any increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.
| 20 |
Geographic Concentration
Our operations are primarily split between two geographic areas: North America and South Korea.
For the three months ended June 30, 2023, net revenues attributable to our operations in North America totaled $288,621 compared to $630,496 of net revenues attributable to our operations in North America for the three months ended June 30, 2022. For the nine months ended June 30, 2023, net revenues attributable to our operations in North America totaled $1,295,338 compared to $2,031,781 of net revenues attributable to our operations in North America for the nine months ended June 30, 2022. Additionally, as of June 30, 2023, $215,756 of our property and equipment, net was attributable to our North American operations, compared to $378,546 attributable to our North American operations as of September 30, 2022.
For the three months ended June 30, 2023, net revenues attributable to our operations in Asia totaled $359,986 compared to $143,523 of net revenues attributable to our operations in Asia for the three months ended June 30, 2022. For the nine months ended June 30, 2023, net revenues attributable to our operations in Asia totaled $1,270,783 compared to $476,564 of net revenues attributable to our operations in Asia for the nine months ended June 30, 2022. Additionally, as of June 30, 2023, $144,254 of our property and equipment, net was attributable to our Asia operations, compared to $146,529 attributable to our Asia operations as of September 30, 2022.
Results of Operations
On March 15, 2023, we entered into a five-year global licensing agreement with Stone Brewing to co-manufacture and distribute Stone Brewing specialist coffee products nationwide.
On June 20, 2023, we entered into an established long term relationship with Corberosa Premium Air-Roasted Coffee to produce and distribute its air roasted coffees using our brew bag format.
On March 16, 2023, we entered our first ever private label agreement with Wakefern Food Corp., the largest retailer-owned cooperative in the United States, to pack and ship single serve coffee brew-bag products.
On March 7, 2023, entered into a manufacturing agreement with a California-based coffee roaster, to expand our manufacturing footprint on the West Coast. In addition to manufacturing, we plan to begin testing the TiMELESS® technology, a new flexible film sealing technology that eliminates the need for one-way plastic degassing valves that are commonly used in the coffee industry at the West Coast manufacturing facility.
Our results of operations for the three and nine months ended June 30, 2023 are influenced by the aforementioned transactions and includes the operations of Dripkit. The acquisition of Dripkit did not contribute to the periods prior to its acquisition in our financial statements, which therefore impacts comparisons to 2022 for our results of operations in the discussion that follows.
| 21 |
Comparison of three months ended June 30, 2023 and 2022
Revenue
| Three months ended June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Revenue | $ | 648,607 | $ | 774,019 | $ | (125,412 | ) | (16 | )% | |||||||
For the three months ended June 30, 2023, our revenue decreased by $125,412, or approximately 16%, compared with the three months ended June 30, 2022. This decrease was primarily related to decreased revenue in the US, due to customers pushing out orders in to later months.
Cost of sales and gross margin
| Three months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Cost of sales | $ | 596,454 | $ | 857,672 | $ | (216,218 | ) | (30 | )% | |||||||
| Gross profit (loss) | 52,153 | $ | (83,653 | ) | $ | 135,806 | (162 | )% | ||||||||
| Gross profit (loss) % | 8 | % | (11 | )% | ||||||||||||
For the three months ended June 30, 2023, we generated a total gross profit of $52,153 from sales of our products and co-packing services, compared to a total gross loss of $83,653 for the three months ended June 30, 2022. The gross margin rate was 8% for the three months ended June 30, 2023, and (11)% for the three months ended June 30, 2022. The increase is primarily attributable to a decrease in production salaries and temporary labor.
Operating Expenses
| Three months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Operating Expenses | $ | 2,067,915 | $ | 2,546,608 | $ | (478,693 | ) | (19 | )% | |||||||
For the three months ended June 30, 2023, the Company’s operating expenses totaled $2,067,915 compared to $2,546,608 for the three months ended June 30, 2022, representing a 19% decrease. This decrease is primarily attributable to a decrease of $441,721 in stock-based compensation expense.
Net Loss
| Three months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Net Loss | $ | 2,025,337 | $ | 2,633,892 | $ | (608,555 | ) | (23 | )% | |||||||
For the three months ended June 30, 2023, we generated a net loss of $2,025,337 compared to a net loss of $2,633,892 for the three months ended June 30, 2022. This decrease in net loss is primarily attributable to lower stock-based compensation expense as discussed above.
Comparison of nine months ended June 30, 2023 and 2022:
Revenue
| Nine months ended June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Revenue | $ | 2,566,121 | $ | 2,508,345 | $ | 57,776 | 2 | % | ||||||||
| 22 |
For the nine months ended June 30, 2023, our revenue increased by $57,776, or approximately 2%, compared with the nine months ended June 30, 2022. This increase was primarily related to increased revenue in South Korea, driven by a new co-packing arrangement with a new customer in South Korea and increased orders from an existing significant customer in South Korea in the nine months ended June 30, 2023.
Cost of sales and gross margin
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Cost of sales | $ | 2,401,806 | $ | 2,575,646 | $ | (173,840 | ) | (7 | )% | |||||||
| Gross profit (loss) | 164,315 | $ | (67,301 | ) | $ | 231,616 | (344 | )% | ||||||||
| Gross profit (loss) % | 6 | % | (3 | )% | ||||||||||||
For the nine months ended June 30, 2023, we generated a total gross profit of $164,315 from sales of our products and co-packing services, compared to a total gross loss of $67,301 for the nine months ended June 30, 2022. The gross margin rate was 6% for the nine months ended June 30, 2023, and 3% for the nine months ended June 30, 2022. The increase is primarily attributable to decrease in cost of labor in South Korea along with decrease in production and temporary labor in North America.
Operating Expenses
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Operating Expenses | $ | 6,328,044 | $ | 8,554,276 | $ | (2,226,232 | ) | (26 | )% | |||||||
For the nine months ended June 30, 2023, the Company’s operating expenses totaled $6,328,044 compared to $8,554,276 for the nine months ended June 30, 2022, representing a 26% decrease. This decrease is primarily attributable to a decrease of $2,256,420 in stock-based compensation expense.
Net Loss
| Nine months ended | ||||||||||||||||
| June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | % | |||||||||||||
| Net Loss | $ | 6,176,416 | $ | 8,661,792 | $ | (2,485,376 | ) | (29 | )% | |||||||
For the nine months ended June 30, 2023, we realized a net loss of $6,176,416 compared to a net loss of $8,661,792 for the nine months ended June 30, 2022. This decrease in net loss is primarily attributable to a decrease in stock-based compensation expense as discussed above.
| 23 |
Liquidity and Capital Resources
Since our inception in 2011, we have incurred significant losses, and as of June 30, 2023, we had an accumulated deficit of approximately $71 million. We have not yet achieved profitability and anticipate that we will continue to incur significant sales and marketing expenses prior to recording sufficient revenue from our operations to offset these expenses. In the United States, we expect to realize additional losses due to lack of positive cash flow from operations including the substantial on-going regulatory costs associated with operating as an United States exchange-listed public company. We are unable to predict the extent of any future losses or when we will realize positive cash flow from operations, if at all.
To date, we have funded our operations primarily with proceeds from registered public offerings and private placements of shares of our common stock and other equity securities. Our principal use of cash is to fund our operations, which includes the commercialization of our single serve coffee products, the continuation of efforts to improve our products, administrative support of our operations and other working capital requirements.
As of June 30, 2023, we had a cash balance of $3,280,425. Considering our current cash resources and our current and expected levels of operating expenses including the substantial on-going regulatory costs associated with being a United States exchange-listed public company, we believe that our cash and cash equivalents will be sufficient to fund our planned operations for at least three months from August 11, 2023, however, we expect to need additional capital to fund our planned operations beyond that. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable. A reduction in consumer demand for, or revenues from the sale of, our single serve coffee products could further constrain our cash resources. We have based these estimates on assumptions that may prove to be wrong, and our operating projections, including our projected revenues from sales of our single serve coffee products, may change as a result of many micro and macroeconomic and non-economic factors currently unknown to us.
In the future, we may receive additional funds upon the exercise for cash of outstanding warrants, if and when exercised for cash at the election of the warrant holders, including the Series A warrants (the “Series A Warrants”) and Series B warrants (the “Series B Warrants” and, collectively with the Series A Warrants, the “2021 Warrants”) that were issued by us in March 2021 in an underwritten registered public offering and the 2022 warrants (the “2022 Warrants”) that were issued by us in an April 2022 offering pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Securities Act. The 2021 Warrant holders are obligated to pay the exercise price ($157.46 in the case of the Series A Warrants and $204.69 in the case of the Series B Warrants) in cash upon exercise of the 2021 Warrants unless we fail to maintain a current prospectus relating to the common stock issuable upon the exercise of the 2021 Warrants (in which case, the 2021 Warrants may only be exercised via a “cashless” exercise provision). Each 2022 Warrant entitles the holder to purchase one share of our common stock at an exercise price of $69.98. The 2022 Warrant holders may exercise their 2022 Warrants on a “cashless” basis pursuant to a formula set forth in the form of 2022 Warrant.
We intend to seek to raise additional capital, including through public or private equity offerings, to support our operating activities for the next twelve months and beyond, and such funding may not be available to us on acceptable terms, or at all. The timing and amount of funds that we will need to raise will depend on a number of factors, including our ability to generate a sufficient amount of revenues from the sale of our single serve coffee products to fund our business operations and the timing and amount of funds received upon the exercise for cash of outstanding warrants by the warrant holders. Until we can generate a sufficient amount of revenue, we may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.
While we believe our plans to raise additional funds will alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, these plans are not entirely within our control and cannot be assessed as being probable of occurring at this time. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.
If we are unsuccessful in our efforts to raise additional capital, based on our current and expected levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months from August 11, 2023. These conditions raise substantial doubt about our ability to continue as a going concern.
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Contractual Obligations
Our significant contractual cash requirements as of June 30, 2023, primarily include payments for operating and finance lease liabilities and principal and interest on loans. Additionally, we may incur purchase obligations in the ordinary course of business that are enforceable and legally binding and enter into enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities to be purchased and fixed or estimated prices to be paid at the time of settlement. As of June 30, 2023, we had payments for lease and loan obligations of approximately $499,916 of which $332,910 are payable within 12 months as of June 30, 2023. We had no purchase obligations as of June 30, 2023.
Summary of Cash Flows
| Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash used in operating activities | $ | (5,025,379 | ) | $ | (5,677,298 | ) | ||
| Cash used in investing activities | $ | (34,875 | ) | $ | (627,593 | ) | ||
| Cash provided by (used in) financing activities | $ | (27,661 | ) | $ | 3,031,640 | |||
| Effect of foreign exchange on cash | $ | 53,287 | $ | (19,604 | ) | |||
| Net change in cash | $ | (5,034,628 | ) | $ | (3,292,855 | ) | ||
Operating Activities
We used $5,025,379 and $5,677,298 of cash in operating activities during the nine months ended June 30, 2023, and 2022, respectively, principally to fund our operations.
Investing Activities
We used $34,875 and $627,593 of cash in investing activities during the nine months ended June 30, 2023 and 2022, respectively. Cash used in current year, was for the purchase machinery and small office equipment for South Korea. Cash used in 2022 was mainly for the acquisition of Dripkit and for the purchase of equipment.
Financing Activities
Cash used in financing activities of $27,661 for the nine months ended June 30, 2023 was primarily related to repayments on loans and an equipment lease, and cash provided by financing activities of $3,031,640 for the nine months ended June 30, 2022 was primarily related to proceeds received upon the exercise of outstanding 2021 Warrants by the 2021 Warrant holders and an issuance of shares of our common stock under an exempt offering.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions.
There were no significant and material changes in our critical accounting policies and use of estimates during the three and nine months ended June 30, 2023, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on December 23, 2022.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is collected and communicated to management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Interim Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. In designing and evaluating our disclosure controls and procedures, management recognizes that no matter how well conceived and operated, disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
Item 1. Legal Proceedings
Next Vision Litigation
As previously disclosed, on November 23, 2021, Next Vision, Inc. (the “Consultant”) filed a complaint against the Company in the Superior Court of California, County of San Diego Central Division (Case No. 37-2021-00049557-CU-BC-CTL) (the “Next Vision Complaint”). The Next Vision Complaint alleges that the Company’s delay in issuing shares of the Company’s common stock (the “Shares”) to the Consultant after receiving due notice from the Consultant of its intent to exercise vested stock options to acquire 70,000 Shares, as initially granted in 2018 (or, as adjusted to account for the reverse stock splits effected by the Company on each of November 12, 2019 and December 28, 2022, vested stock options to acquire 667 Shares) (the “Options”), which had previously been issued to the Consultant as compensation for consulting services provided in 2018, breached express and implied contractual obligations to the Consultant and resulted in the Company reporting an overstated amount of income on the IRS Form 1099-B that was issued to the Consultant for U.S. federal tax purposes. In addition, the Next Vision Complaint alleges that the 667 Shares issued to the Consultant upon exercise of the Options improperly contained a six-month restriction on resale and that such restriction prevented the Consultant from selling the Shares at the desired time. The Next Vision Complaint seeks compensatory damages, including to recover for alleged lost profits due to the alleged improper six-month restriction on resale for the Shares, as well as punitive damages, costs of suit, attorney’s fees and interest.
On January 20, 2022, the Company filed its general denial and answer in which it raised affirmative defenses and disputed the claims contained in the Next Vision Complaint. On November 29, 2022, the parties engaged in Court-ordered mediation but did not resolve the matter. The Court has set a trial date for August 11, 2023, which has since been continued to December 1, 2023. A new legal counsel was substituted for the Company.
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We believe the allegations set forth in the Next Vision Complaint are without merit and intend to defend vigorously against the allegations. However, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in its defense.
Steeped, Inc. Litigation
As previously disclosed, on June 27, 2019, Steeped, Inc. d/b/a Steeped Coffee (the “Plaintiff”) filed a complaint (the “First Steeped Complaint”) against the Company in the United States District Court for the Northern District of California (the “District Court”), alleging that the Company’s promotion of certain coffee products and services during a trade show in 2019 constituted an infringement upon the Plaintiff’s registered trademark. In May 2021, the Company entered into a settlement agreement with the Plaintiff, pursuant to which the Company denied the allegations in the First Steeped Complaint, denied any liability arising therefrom, and agreed to pay $35,000 to resolve all claims asserted by the Plaintiff (the “Settlement Agreement”). As a result, a Joint Stipulation and Order for Dismissal was filed with the District Court on May 21, 2021, and the Order of the Court dismissing the case was entered on the same day. On January 27, 2023, the Plaintiff filed a new complaint against the Company in the Superior Court of California, Santa Cruz County (Case No. 23CV00234) (the “New Steeped Litigation”), alleging several causes of action related to the Company’s alleged breach of the Settlement Agreement. On March 29, 2023, the Company filed a demurrer and motion to strike, seeking to dismiss Plaintiff’s causes of action. On April 12, 2023, Plaintiff filed the First Amended Complaint, alleging breach of contract, intentional interference with contractual relations, intentional interference with prospective economic advantage, and fraud in the inducement of contract. Plaintiff seeks a trial by jury and relief in the form of a permanent injunction for use of “Steep Coffee” or any confusingly similar variant of “STEEPED COFFEE”; the impoundment and destruction of allegedly violating packaging materials and/or finished goods; a final judgment for all profits derived from the Company’s allegedly unlawful conduct, actual damages, damages to the Plaintiff’s reputation and goodwill among its customers and partners; and reasonable attorneys’ fees and costs. The Company believes it has basis to defend the claims, however, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in any defense or counterclaim. A new legal counsel was substituted for the Company in April and the Company filed its Answer on May 15, 2023.
On May 15, 2023, the Company filed a complaint for Declaratory Judgment of Trademark Non-Infringement in the United States District Court for the Southern District of California alleging one cause of action under the Declaratory Judgment Act (“Declaratory Judgment Matter” or “Matter”). Also on May 15, 2023, the Company filed Petitions to Cancel in the Trademark Trial and Appeal Board of the U.S. Patent and Trademark Office arguing that that Steeped’s marks for “Steeped Coffee,” “Steeped Bag,” “Steeped Pack,” and “Steeped Cold Brew” are generic under Section 23(a) of the Lanham Act. On July 12, 2023, the Company filed its First Amended Complaint in the Matter, seeking a judicial determination and declaration that the Company’s use of the term “steep” or any variations thereof generically or descriptively does not infringe any purported trademark rights of Steeped, as well as reasonable attorney’s fees and costs. The Company believes it has basis to pursue these the claims, however, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in obtaining the declaration and attorneys’ fees and costs it seeks.
Curtin Litigation
On January 6, 2023, a former employee of the Company, Rosaline Curtin (“Ms. Curtin”), filed a complaint against the Company and another former employee of the Company, Jose Ramirez (“Mr. Ramirez”), in the Superior Court of California, County of San Diego (Case No. 37-2023-00000841-CU-WT-NC) (the “Curtin Complaint”). The Curtin Complaint alleges that Ms. Curtin was subject to harassment by her supervisor, Mr. Ramirez, and gender discrimination throughout her employment, that she reported this discrimination and harassment to the Company, and that the Company retaliated against her and wrongfully terminated her for whistleblowing and failed to prevent discrimination, harassment, and retaliation. The Curtin Complaint seeks compensatory damages, including loss of past, present and future earnings, and benefits, as well as punitive damages, penalties, attorney’s fees and costs and interest. The Company has responded to the complaint on behalf of the Company and Mr. Ramirez and is in the process of securing a stipulation to transfer the case to binding arbitration. We believe the allegations set forth in the Curtin Complaint are without merit and intend to defend vigorously against the allegations. However, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in its defense.
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From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on December 23, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on December 23, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the quarter ended June 30, 2023, we issued the following securities that were not registered under the Securities Act:
On January 6, 2023, we issued 6,000 shares of our common stock to a third-party unaffiliated professional services provider in exchange for certain consulting advice to be provided to us. This issuance was made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering and/or Regulation D under the Securities Act as sales to accredited investors.
On June 20, 2023, we issued 7,500 shares of our common stock to a third-party unaffiliated professional services provider in exchange for certain consulting advice to be provided to us. This issuance was made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering and/or Regulation D under the Securities Act as sales to accredited investors.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
* Filed herewith.
† Indicates management contract or compensatory plan.
** Furnished herewith.
*** The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
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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 11, 2023 | NUZEE, INC. |
| By: | /s/ Masateru Higashida | ||
| Masateru Higashida, Chief Executive Officer and President (Principal Executive Officer), Secretary, Treasurer, and Director | |||
| By: | /s/ Shana Bowman | ||
| Shana Bowman, Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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Exhibit 10.2
NUZEE, INC.
RESTRICTED STOCK AWARD AGREEMENT
(2019 EQUITY INCENTIVE PLAN)
This Stock Award Agreement (the “Agreement”) is entered into as of [DATE], (the “Grant Date”), by and between NuZee, Inc., a Nevada corporation (“the Company”), and [NAME] (“Participant”) pursuant to the Company’s 2019 Equity Incentive Plan (the “Plan”). Any capitalized term not defined in this Agreement shall have the same meaning ascribed to it in the Plan.
1. Grant of Restricted Stock. The Company hereby grants to Participant an award of [ ] Restricted Shares (the “Award”). The Restricted Shares granted pursuant to the Award shall be issued in the form of book entry Shares in the name of Participant as soon as reasonably practicable after the Grant Date and shall be subject to the execution and return of this Agreement by the Participant to the Company.
2. Restrictions on Transfer. Unless otherwise determined by the Committee, the Restricted Shares issued under this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated until all restrictions on such Restricted Shares shall have lapsed in the manner provided in Section 3 or 5 hereof.
3. Lapse of Restrictions Generally. Except as provided in Sections 5 and 6 hereof, the number of the Restricted Shares issued hereunder shall vest, and the Period of Restriction will end with respect to such Restricted Stock as follows, provided Participant has not ceased to be a Service Provider on each such applicable date:
(i) on the date the Company files its financial statements for the period from [ ] through [ ], the Period of Restriction will lapse for [ ]% of the Restricted Shares upon the Company’s achievement of all of the performance metrics below in [ ]:
| a) | Operating Capital: As of [ ], the Company must have cash on hand equal to at least twelve months of operating expenses as reasonably forecasted by the Company and its Audit Committee; | |
| b) | Sales Growth: As measured over [ ], the Company must achieve at least $[ ] in gross revenue (which represents [ ]% of the Company’s $[ ] gross revenue goal), as reported on the Company’s publicly filed income statement for [ ]; | |
| c) | Margin: As measured over [ ], the Company must increase gross margin by an additional $[ ] (which represents [ ]% of the Company’s budgeted [ ]-[ ]% increase in gross margin, equating to an additional $[ ]) as compared to the fiscal year ended [ ]; and | |
| d) | Operating Loss: As measured over [ ], the Company must reduce operating losses to a total of $[ ] (which represents [ ]% of the Company’s budgeted target of $[ ]). |
(ii) on the date the Company files its financial statements for the period from [ ] through [ ], the Period of Restriction will lapse for [ ]% of the Restricted Shares upon the Company’s achievement of all of the performance metrics, which performance metrics will be set by the Company’s Board of Directors in its sole and absolute discretion on or before [ ].
4. Intentionally Deleted.
5. Effect of Change in Control. In the event of a Change in Control at any time on or after the Grant Date, provided Participant has not ceased to be a Service Provider from the Date of Grant through the effective date of the Change in Control, all Restricted Shares which have not become vested in accordance with Section 3 hereof shall vest, and the Period of Restriction with respect to such Restricted Shares shall lapse as of the effective date of the Change in Control.
6. Forfeiture of Restricted Shares. Any and all Restricted Shares which have not become vested and for which the Period of Restriction has not lapsed in accordance with Section 3 or 5 hereof shall be forfeited and shall revert to the Company upon the earlier of (i) the date any one of the performance metrics set forth in Section 3 hereof are not met for an applicable performance period or (ii) the date of the termination by Participant, or the Company, of Participant’s status as a Service Provider for any reason.
7. Delivery of Restricted Shares. Evidence of book entry Shares with respect to Restricted Shares for which the Period of Restrictions has lapsed pursuant to Section 3 or 5 hereof or, if requested by Participant prior to such lapse of the Period of Restrictions, a stock certificate with respect to such Restricted Shares, shall be delivered to the Participant as soon as practicable following the date on which the Period of Restrictions on such Restricted Shares has lapsed, free of all restrictions hereunder.
8. Dividends and Voting Rights. Upon issuance of the Restricted Shares, Participant shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect thereto; provided, however, that dividends or distributions declared or paid on the Restricted Shares by the Company prior to the lapse of the Period of Restrictions with respect to such Shares shall be deferred and reinvested in Shares of Restricted Stock based on the Fair Market Value of a Share on the date such dividend or distribution is paid or made (provided that no fractional Shares will be issued), and the additional Shares of Restricted Stock thus acquired shall be subject to the same restrictions on transfer, forfeiture, and Period of Restrictions as the Restricted Shares in respect of which such dividends or distributions were made.
9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate Participant’s status as a Service Provider, nor confer upon Participant any right to continuance of his or her status as a Service Provider by the Company or any Subsidiary.
10. Withholding of Taxes.
10.1 Prior to the delivery to Participant of a stock certificate or evidence of book entry Shares with respect to Restricted Shares for which the Period of Restrictions has lapsed, Participant shall pay to the Company the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company (the “Withholding Taxes”) with respect to such Restricted Shares. The Participant may satisfy such tax withholding obligation, in whole or in part by one or more of the following: (i) paying by cash or check, (ii) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the minimum amount required to be withheld, (iii) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (iv) selling a sufficient number of such Shares otherwise deliverable to Participant under this Award through such means as the Company may determine in its sole discretion equal to the amount required to be withheld. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the time any applicable Restricted Shares otherwise are scheduled to vest and for the Period of Restrictions to lapse, Participant will permanently forfeit such Shares.
10.2 Participant understands that Participant may elect to be taxed at the time the Restricted Shares are awarded rather than when Restricted Shares vest and the Period of Restriction lapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days from the Grant Date. THE PARTICIPANT (AND NOT THE COMPANY OR ANY OF ITS AGENTS) SHALL BE SOLELY RESPONSIBLE FOR APPROPRIATELY FILING THE 83(B) ELECTION FORM, EVEN IF PARTICIPANT REQUESTS THE COMPANY OR ITS AGENTS TO MAKE THIS FILING ON PARTICIPANT’S BEHALF. THE 83(B) ELECTION FORM MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN 30 DAYS AFTER THE DATE OF GRANT OF THIS RESTRICTED STOCK.
11. Participant Bound by the Plan. Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.
12. Modification of Agreement. This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto.
13. Notices. All notices required or permitted in connection with this Agreement shall be in writing and shall be deemed delivered and received: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile to the specified address or number, if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three days after having been sent by registered or certified mail to the specified address, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier directed to the specified address for next day delivery, with written notification of receipt. All communications shall be sent to the address of Participant set forth on the Company’s records, and, if to the Company, at the Company’s principal place of business, or at such other address or electronic mail address as any party hereto may designate in advance.
14. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
15. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Nevada without giving effect to the conflicts of laws principles thereof.
16. Assignment. The Company may assign this Agreement or any of its rights under this Agreement to single or multiple assignees. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred or delegated by Participant without the prior written consent of the Company. Any attempt by Participant without such consent to assign, transfer or delegate any rights, duties or obligations that arise under this Agreement shall be void.
17. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of Participant’s legal representatives. All obligations imposed upon Participant and all rights granted to the Company under this Agreement shall be binding upon the Participant’s heirs, executors, administrators and successors.
18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on Participant, the Participant’s heirs, executors, administrators and successors, and the Company for all purposes.
19. Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted to both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.
20. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between Participant and the Company, and supersede all other agreements, whether written or oral, with respect to the Award.
21. Headings. The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
22. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.
[Signature Page to Follow]
IN WITNESS WHEREOF, the parties have executed this Restricted Stock Award Agreement as of the date first above written.
| NUZEE, INC. | PARTICIPANT | |||
| By: | By: | |||
| Name: | Masateru Higashida | Name: | ||
| Title: | Chief Executive Officer | Title: | ||
Exhibit 10.3
NUZEE, INC.
STOCK OPTION AGREEMENT
(2023 Equity Incentive Plan)
Nonqualified Stock Options
This Stock Option Agreement (the “Agreement”) is entered into as of [__________], 20[___] (the “Grant Date”), by and between NuZee, Inc., a Nevada corporation (the “Company”), and [_____________] (the “Optionee”) pursuant to the NuZee, Inc. 2023 Equity Incentive Plan (the “Plan”). Any capitalized term used herein but not defined in this Agreement shall have the same meaning ascribed to it in the Plan. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and the Plan, the terms and conditions of the Plan shall govern.
1. Grant of Option. The Company hereby grants to Optionee an option (the “Option”) to purchase all or any portion of a total of [_________] shares of the Common Stock of the Company (the “Shares”) at a purchase price of $[________] per share (the “Exercise Price”), which price equals the per share Fair Market Value of a Share as of the Grant Date and is subject to the terms and conditions set forth herein and the provisions of the Plan. This Option is not intended to qualify as an “incentive stock option” as defined in Section 422 of the Code but shall constitute a nonqualified stock option.
2. Vesting of Option. No portion of this Option may be exercised until such portion shall have become exercisable. The right to exercise this Option shall vest pursuant to the vesting terms set forth in this Section 2. The right to exercise this Option shall vest as to [ ]% on each anniversary of the Grant Date. For the avoidance of doubt, the Option will become vested and exercisable with respect to: [#] Shares on [Date]; [#] Shares on [Date]; [#] Shares on [Date]; and [#] Shares on [Date].
No additional Shares shall vest after the date of termination of Optionee’s relationship as a Service Provider, but this Option shall continue to be exercisable in accordance with Section 3 below with respect to that number of Shares that have vested as of the date on which Optionee’s relationship as a Service Provider terminates. Optionee’s status as a Service Provider shall not be considered interrupted in the case of a transfer between the Company and any Subsidiary and otherwise shall be administered in accordance with Section 8.1 of the Plan.
3. Term of Option. Optionee’s right to exercise this Option shall terminate upon the first to occur of the following:
3.1 the expiration of ten (10) years from the date of this Agreement; or
3.2 the expiration of three (3) months from the date of Optionee’s termination as a Service Provider if such termination occurs for any reason other than permanent Disability, death or for Cause (as defined in Section 8 below); provided, however, that if Optionee dies during such three-month period the provisions of Section 3.4 below shall apply; or
3.3 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to permanent Disability of Optionee; or
3.4 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to Optionee’s death or if death occurs during the three-month period following the date of Optionee’s termination as a Service Provider pursuant to Section 3.2 above, as the case may be; or
3.5 upon the consummation of a Change in Control, unless otherwise provided pursuant to Section 8 below; or
3.6 the date of Optionee’s termination as a Service Provider as a result of a termination by the Company or a Subsidiary for Cause.
4. Exercise of Option. On or after the vesting of any portion of this Option in accordance with Sections 2 or 8 hereof, and until termination of the right to exercise this Option in accordance with Section 3 above, the portion of this Option which has vested may be exercised in whole or in part by Optionee (or, after his or her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices:
4.1 A written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);
4.2 A payment of the exercise price for Shares the Optionee is purchasing, to the extent permitted by law, in one of the following forms:
(a) A check or cash;
(b) By a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise of the Option by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price. Optionee must pay any remaining balance of the aggregate exercise price not satisfied by the “net exercise” in cash or other permitted form of payment;
(c) By delivery to the Company (either by actual delivery or attestation) of previously owned Shares that are owned free and clear of any liens, claims, encumbrances or security interests. The Fair Market Value of the Shares will be determined as of the effective date of the option exercise. The Option may not be exercised by delivery to the Company of previously owned Shares if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s Common Stock;
(d) Pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board (“Regulation T”) that, following the exercise of this Option but prior to the issuance of the Shares, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate Exercise Price to the Company from the sales proceeds. For avoidance of doubt, this manner of payment is also known as a “broker-assisted cashless exercise” in which Optionee exercises his or her Option to acquire Shares and sell enough of the Shares to cover the aggregate Exercise Price, estimated income taxes, and any applicable fees; or
(e) A combination of (a), (b), (c) or (d) above.
4.3 Payment of any and all applicable taxes, including, without limitation, any penalties or interest based upon such tax obligations associated with the exercise of this Option. Optionee may not exercise this Option unless Optionee has made acceptable arrangements to satisfy any withholding or other taxes that may be due as a result of the exercise of this Option or sale of Shares acquired under this Option, including any amount to satisfy the Company’s withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by Optionee in connection with the exercise of this Option. In accordance with Regulation T, such withholding taxes may be settled by “broker-assisted cashless exercise” which results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay such withholding taxes from the sales proceeds. To the extent approved by the Committee in its discretion and with all terms and conditions determined by the Committee, payment of withholding taxes may be made in another form of legal consideration acceptable to the Committee and in accordance with the terms of the Plan.
4.4 Any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Shares upon exercise of the Option (and any subsequent resale of the Shares) will be in compliance with applicable laws and regulations.
The Shares issued upon exercise of the Option shall be transferred to Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Committee with all requirements under applicable laws or regulations in connection with such transfer and with the requirements of this Agreement and the Plan. The determination of the Committee as to such compliance shall be final and binding on Optionee.
5. Death of Optionee; No Assignment. The rights of Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If Optionee’s relationship as a Service Provider terminates as a result of his or her death and provided Optionee’s rights hereunder shall have vested pursuant to Section 2 above, Optionee’s legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of Optionee (individually, a “Successor”) shall succeed to Optionee’s rights and obligations under this Agreement. After the death of Optionee, only a Successor may exercise this Option.
6. Incorporation of Plan. Notwithstanding anything herein to the contrary, the Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee. Optionee acknowledges receipt of a copy of the Plan.
7. Adjustments Upon Changes in Capital Structure. In the event that the outstanding Shares are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Committee to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of Optionee under this Option, in accordance with the provisions of the Plan.
8. Change in Control. In the event of a Change in Control of the Company:
8.1 Notwithstanding Section 2 above, provided Optionee’s relationship as a Service Provider has not terminated from the Grant Date through the effective date of the Change in Control, the right to exercise this Option shall accelerate automatically and vest in full effective as of immediately prior to the consummation of such a Change in Control unless this Option is to be assumed by the acquiring or successor entity (or parent thereof) or new options or new incentives are to be issued in exchange therefor, as provided in subsection (b) below. If vesting of this Option will accelerate, the Committee in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of this Option for an amount of cash or other property having a value equal to the difference (or “spread”) between: (x) the value of the cash or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and (y) the aggregate Exercise Price for such Shares (and, for the avoidance of doubt, if as of the date of the occurrence of such transaction the Committee determines in good faith that no amount would have been attained upon the exercise of this Option, then the Option may be terminated by the Company without payment). If the vesting of this Option will accelerate, the Committee shall cause written notice of the Change in Control transaction to be given to Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction.
8.2 The vesting of this Option shall not accelerate if and to the extent that:
(a) this Option (including the unvested portion thereof) is to be assumed by the acquiring or successor entity (or parent thereof) or a new option of comparable value is to be issued in exchange therefor pursuant to the terms of the Change in Control transaction, or
(b) this Option (including the unvested portion thereof) is to be replaced by the acquiring or successor entity (or parent thereof) with new incentives containing such terms and provisions as the Committee in its discretion may consider equitable. If this Option is assumed, or if a new option of comparable value is issued in exchange therefor, then this Option or the new option shall be appropriately adjusted, concurrently with the Change in Control, to apply to the number and class of securities or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and appropriate adjustment also shall be made to the Exercise Price such that the aggregate Exercise Price of this Option or the new option shall remain the same as nearly as practicable and in a manner satisfying the provisions of Section 409A of the Code.
8.3 If the provisions of subsection (b) above apply, then this Option, the new option or the new incentives shall continue to vest in accordance with the provisions of Section 2 above and shall continue in effect for the remainder of the term of this Option in accordance with the provisions of Section 3 above. However, in the event of an Involuntary Termination (as defined below) of Optionee’s relationship as a Service Provider on or following such Change in Control, then vesting of this Option, the new option or the new incentives shall accelerate in full automatically effective upon such Involuntary Termination.
8.4 As defined and used for purposes of this Agreement, “Involuntary Termination” shall mean the termination of Optionee’s relationship as a Service Provider for any reason other than (i) termination for Cause or (ii) Optionee’s voluntary resignation (unless such resignation is at the request of the acquirer in which case Optionee’s termination will deemed involuntary).
8.5 The determination that a termination of Optionee’s relationship as a Service Provider is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the termination of Optionee’s relationship as a Service Provider was terminated by reason of dismissal without Cause for the purposes of outstanding Options held by Optionee shall have no effect upon any determination of the rights or obligations of the Company or Optionee for any other purpose. If, subsequent to the termination of Optionee’s relationship as a Service Provider, it is discovered that Optionee could have been terminated for Cause, Optionee shall, at the election of the Company, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred. In such event, any amounts or Shares received under this Agreement, or the cash equivalent thereof, shall be returned to the Company within thirty (30) days of the Company’s written demand.
9. No Agreement to Continue Service Relationship. Nothing in this Agreement shall be construed as granting to Optionee any right with respect to the continuance of any relationship that Optionee might have as a Service Provider. To the extent applicable, the right of the Company or any Subsidiary to terminate at will Optionee’s employment or service relationship at any time (whether by dismissal, discharge or otherwise), and, if applicable, Optionee’s service as a Director pursuant to the bylaws of the Company, and any applicable provisions of governing state law, with or without Cause, is specifically reserved.
10. Rights as Stockholder. Optionee (or Successor) shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any of the Shares unless and until this Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to Optionee, and Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, Optionee shall have full voting, dividend and other ownership rights with respect to such Shares for which the Option has been exercised.
11. Notices. All notices required or permitted in connection with this Agreement shall be in writing and shall be deemed delivered and received: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile to the specified address or number, if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three days after having been sent by registered or certified mail to the specified address, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier directed to the specified address for next day delivery, with written notification of receipt. All communications shall be sent to the address of Optionee set forth on the Company’s records, and, if to the Company, at the Company’s principal place of business, or at such other address or electronic mail address as any party hereto may designate in advance.
12. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Nevada without giving effect to the conflicts of laws principles thereof.
14. Clawback. Pursuant to Section 12.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Option Award, Optionee agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.
15. Data Privacy. In order to administer the Plan, the Company may process personal data about Optionee. Such data includes, but is not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about Optionee such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Optionee gives explicit consent to the Company to process any such personal data.
16. Fractions. To the extent that a fractional number of Shares vest or that the Company is obligated to issue a fractional number of Shares, such number will be rounded down to the nearest whole share number.
17. Captions and Section Headings. Captions and section headings used herein are for convenience only, and are not part of this Agreement and shall not be used in construing it.
18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on Optionee, Optionee’s heirs, executors, administrators and successors, and the Company for all purposes.
19. Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted to both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.
20. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between Optionee and the Company, and supersede all other agreements, whether written or oral, with respect to the Award.
21. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.
22. Section 409A. The intent of the parties is that the Options be exempt from the provisions of Section 409A of the Code and, accordingly, to the maximum extent permitted, this agreement shall be interpreted to be limited, construed and interpreted in accordance with such intent. In no event whatsoever shall the Company, any Subsidiary or Parent be liable for any additional tax, interest or penalties that may be imposed on Optionee by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code hereunder or otherwise.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement as of the date first above written.
| NUZEE, INC. | OPTIONEE | |||
| By: | By: | |||
| Name: | Name: | |||
| Title: | ||||
[Signature Page to Stock Option Agreement]
Exhibit 10.4
NUZEE, INC.
STOCK OPTION AGREEMENT
(2023 Equity Incentive Plan)
Nonqualified Stock Options
This Stock Option Agreement (the “Agreement”) is entered into as of [__________], (the “Grant Date”), by and between NuZee, Inc., a Nevada corporation (the “Company”), and [_____________] (the “Optionee”) pursuant to the NuZee, Inc. 2023 Equity Incentive Plan (the “Plan”). Any capitalized term used herein but not defined in this Agreement shall have the same meaning ascribed to it in the Plan. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and the Plan, the terms and conditions of the Plan shall govern.
1. Grant of Option. The Company hereby grants to Optionee an option (the “Option”) to purchase all or any portion of a total of [_________] shares of the Common Stock of the Company (the “Shares”) at a purchase price of $[________] per share (the “Exercise Price”), which price equals the per share Fair Market Value of a Share as of the Grant Date and is subject to the terms and conditions set forth herein and the provisions of the Plan. This Option is not intended to qualify as an “incentive stock option” as defined in Section 422 of the Code but shall constitute a nonqualified stock option.
2. Vesting of Option. No portion of this Option may be exercised until such portion shall have become exercisable. The right to exercise this Option shall vest pursuant to the vesting terms set forth in this Section 2. The Option may be exercised, in whole or in part, in accordance with the following vesting schedule:
2.1 [_____] Shares upon the Company’s achievement of [__________];
2.2 [_____] Shares upon the Company’s achievement of [__________]; and
2.3 [_____] Shares upon the Company’s achievement of [__________].
The Committee shall, on an annual basis and in its sole discretion: (i) determine whether the applicable vesting terms set forth herein were satisfied and (ii) approve the actual amount of Shares that vested in the applicable fiscal year, in each case as promptly as practicable following the Company’s public filing of its audited financial statements for the applicable fiscal year. In the event that any applicable performance target is not satisfied in a respective fiscal year, the Shares that would have vested in the applicable fiscal year shall be forfeited, regardless of whether any performance targets are satisfied in any subsequent fiscal year.
No additional Shares shall vest after the date of termination of Optionee’s relationship as a Service Provider, but this Option shall continue to be exercisable in accordance with Section 3 below with respect to that number of Shares that have vested as of the date on which Optionee’s relationship as a Service Provider terminates. Optionee’s status as a Service Provider shall not be considered interrupted in the case of a transfer between the Company and any Subsidiary and otherwise shall be administered in accordance with Section 8.1 of the Plan.
3. Term of Option. Optionee’s right to exercise this Option shall terminate upon the first to occur of the following:
3.1 the expiration of ten (10) years from the date of this Agreement; or
3.2 the expiration of three (3) months from the date of Optionee’s termination as a Service Provider if such termination occurs for any reason other than permanent Disability, death or for Cause (as defined in Section 8 below); provided, however, that if Optionee dies during such three-month period the provisions of Section 3.4 below shall apply; or
3.3 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to permanent Disability of Optionee; or
3.4 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to Optionee’s death or if death occurs during the three-month period following the date of Optionee’s termination as a Service Provider pursuant to Section 3.2 above, as the case may be; or
3.5 upon the consummation of a Change in Control, unless otherwise provided pursuant to Section 8 below; or
3.6 the date of Optionee’s termination as a Service Provider as a result of a termination by the Company or a Subsidiary for Cause.
4. Exercise of Option. On or after the vesting of any portion of this Option in accordance with Sections 2 or 8 hereof, and until termination of the right to exercise this Option in accordance with Section 3 above, the portion of this Option which has vested may be exercised in whole or in part by Optionee (or, after his or her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices:
4.1 A written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);
4.2 A payment of the exercise price for Shares the Optionee is purchasing, to the extent permitted by law, in one of the following forms:
(a) A check or cash;
(b) By a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise of the Option by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price. Optionee must pay any remaining balance of the aggregate exercise price not satisfied by the “net exercise” in cash or other permitted form of payment;
(c) By delivery to the Company (either by actual delivery or attestation) of previously owned Shares that are owned free and clear of any liens, claims, encumbrances or security interests. The Fair Market Value of the Shares will be determined as of the effective date of the option exercise. The Option may not be exercised by delivery to the Company of previously owned Shares if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s Common Stock;
(d) Pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board (“Regulation T”) that, following the exercise of this Option but prior to the issuance of the Shares, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate Exercise Price to the Company from the sales proceeds. For avoidance of doubt, this manner of payment is also known as a “broker-assisted cashless exercise” in which Optionee exercises his or her Option to acquire Shares and sell enough of the Shares to cover the aggregate Exercise Price, estimated income taxes, and any applicable fees; or
(e) A combination of (a), (b), (c) or (d) above.
4.3 Payment of any and all applicable taxes, including, without limitation, any penalties or interest based upon such tax obligations associated with the exercise of this Option. Optionee may not exercise this Option unless Optionee has made acceptable arrangements to satisfy any withholding or other taxes that may be due as a result of the exercise of this Option or sale of Shares acquired under this Option, including any amount to satisfy the Company’s withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by Optionee in connection with the exercise of this Option. In accordance with Regulation T, such withholding taxes may be settled by “broker-assisted cashless exercise” which results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay such withholding taxes from the sales proceeds. To the extent approved by the Committee in its discretion and with all terms and conditions determined by the Committee, payment of withholding taxes may be made in another form of legal consideration acceptable to the Committee and in accordance with the terms of the Plan.
4.4 Any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Shares upon exercise of the Option (and any subsequent resale of the Shares) will be in compliance with applicable laws and regulations.
The Shares issued upon exercise of the Option shall be transferred to Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Committee with all requirements under applicable laws or regulations in connection with such transfer and with the requirements of this Agreement and the Plan. The determination of the Committee as to such compliance shall be final and binding on Optionee.
5. Death of Optionee; No Assignment. The rights of Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If Optionee’s relationship as a Service Provider terminates as a result of his or her death and provided Optionee’s rights hereunder shall have vested pursuant to Section 2 above, Optionee’s legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of Optionee (individually, a “Successor”) shall succeed to Optionee’s rights and obligations under this Agreement. After the death of Optionee, only a Successor may exercise this Option.
6. Incorporation of Plan. Notwithstanding anything herein to the contrary, the Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee. Optionee acknowledges receipt of a copy of the Plan.
7. Adjustments Upon Changes in Capital Structure. In the event that the outstanding Shares are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Committee to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of Optionee under this Option, in accordance with the provisions of the Plan.
8. Change in Control. In the event of a Change in Control of the Company:
8.1 Notwithstanding Section 2 above, provided Optionee’s relationship as a Service Provider has not terminated from the Grant Date through the effective date of the Change in Control, the right to exercise this Option shall accelerate automatically and vest in full effective as of immediately prior to the consummation of such a Change in Control unless this Option is to be assumed by the acquiring or successor entity (or parent thereof) or new options or new incentives are to be issued in exchange therefor, as provided in subsection (b) below. If vesting of this Option will accelerate, the Committee in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of this Option for an amount of cash or other property having a value equal to the difference (or “spread”) between: (x) the value of the cash or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and (y) the aggregate Exercise Price for such Shares (and, for the avoidance of doubt, if as of the date of the occurrence of such transaction the Committee determines in good faith that no amount would have been attained upon the exercise of this Option, then the Option may be terminated by the Company without payment). If the vesting of this Option will accelerate, the Committee shall cause written notice of the Change in Control transaction to be given to Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction.
8.2 The vesting of this Option shall not accelerate if and to the extent that:
(a) this Option (including the unvested portion thereof) is to be assumed by the acquiring or successor entity (or parent thereof) or a new option of comparable value is to be issued in exchange therefor pursuant to the terms of the Change in Control transaction, or
(b) this Option (including the unvested portion thereof) is to be replaced by the acquiring or successor entity (or parent thereof) with new incentives containing such terms and provisions as the Committee in its discretion may consider equitable. If this Option is assumed, or if a new option of comparable value is issued in exchange therefor, then this Option or the new option shall be appropriately adjusted, concurrently with the Change in Control, to apply to the number and class of securities or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and appropriate adjustment also shall be made to the Exercise Price such that the aggregate Exercise Price of this Option or the new option shall remain the same as nearly as practicable and in a manner satisfying the provisions of Section 409A of the Code.
8.3 If the provisions of subsection (b) above apply, then this Option, the new option or the new incentives shall continue to vest in accordance with the provisions of Section 2 above and shall continue in effect for the remainder of the term of this Option in accordance with the provisions of Section 3 above. However, in the event of an Involuntary Termination (as defined below) of Optionee’s relationship as a Service Provider on or following such Change in Control, then vesting of this Option, the new option or the new incentives shall accelerate in full automatically effective upon such Involuntary Termination.
8.4 As defined and used for purposes of this Agreement, “Involuntary Termination” shall mean the termination of Optionee’s relationship as a Service Provider for any reason other than (i) termination for Cause or (ii) Optionee’s voluntary resignation (unless such resignation is at the request of the acquirer in which case Optionee’s termination will deemed involuntary).
8.5 The determination that a termination of Optionee’s relationship as a Service Provider is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the termination of Optionee’s relationship as a Service Provider was terminated by reason of dismissal without Cause for the purposes of outstanding Options held by Optionee shall have no effect upon any determination of the rights or obligations of the Company or Optionee for any other purpose. If, subsequent to the termination of Optionee’s relationship as a Service Provider, it is discovered that Optionee could have been terminated for Cause, Optionee shall, at the election of the Company, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred. In such event, any amounts or Shares received under this Agreement, or the cash equivalent thereof, shall be returned to the Company within thirty (30) days of the Company’s written demand.
9. No Agreement to Continue Service Relationship. Nothing in this Agreement shall be construed as granting to Optionee any right with respect to the continuance of any relationship that Optionee might have as a Service Provider. To the extent applicable, the right of the Company or any Subsidiary to terminate at will Optionee’s employment or service relationship at any time (whether by dismissal, discharge or otherwise), and, if applicable, Optionee’s service as a Director pursuant to the bylaws of the Company, and any applicable provisions of governing state law, with or without Cause, is specifically reserved.
10. Rights as Stockholder. Optionee (or Successor) shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any of the Shares unless and until this Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to Optionee, and Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, Optionee shall have full voting, dividend and other ownership rights with respect to such Shares for which the Option has been exercised.
11. Notices. All notices required or permitted in connection with this Agreement shall be in writing and shall be deemed delivered and received: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile to the specified address or number, if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three days after having been sent by registered or certified mail to the specified address, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier directed to the specified address for next day delivery, with written notification of receipt. All communications shall be sent to the address of Optionee set forth on the Company’s records, and, if to the Company, at the Company’s principal place of business, or at such other address or electronic mail address as any party hereto may designate in advance.
12. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Nevada without giving effect to the conflicts of laws principles thereof.
14. Clawback. Pursuant to Section 12.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Option Award, Optionee agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.
15. Data Privacy. In order to administer the Plan, the Company may process personal data about Optionee. Such data includes, but is not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about Optionee such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Optionee gives explicit consent to the Company to process any such personal data.
16. Fractions. To the extent that a fractional number of Shares vest or that the Company is obligated to issue a fractional number of Shares, such number will be rounded down to the nearest whole share number.
17. Captions and Section Headings. Captions and section headings used herein are for convenience only, and are not part of this Agreement and shall not be used in construing it.
18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on Optionee, Optionee’s heirs, executors, administrators and successors, and the Company for all purposes.
19. Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted to both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.
20. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between Optionee and the Company, and supersede all other agreements, whether written or oral, with respect to the Award.
21. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.
22. Section 409A. The intent of the parties is that the Options be exempt from the provisions of Section 409A of the Code and, accordingly, to the maximum extent permitted, this agreement shall be interpreted to be limited, construed and interpreted in accordance with such intent. In no event whatsoever shall the Company, any Subsidiary or Parent be liable for any additional tax, interest or penalties that may be imposed on Optionee by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code hereunder or otherwise.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement as of the date first above written.
| NUZEE, INC. | OPTIONEE | |||
| By: | By: | |||
| Name: | Name: | |||
| Title: | ||||
[Signature Page to Stock Option Agreement]
Exhibit 10.5
NUZEE, INC.
STOCK OPTION AGREEMENT
(2023 Equity Incentive Plan)
Incentive Stock Options
This Stock Option Agreement (the “Agreement”) is entered into as of [__________], (the “Grant Date”), by and between NuZee, Inc., a Nevada corporation (the “Company”), and [_____________] (the “Optionee”) pursuant to the NuZee, Inc. 2023 Equity Incentive Plan (the “Plan”). Any capitalized term used herein but not defined in this Agreement shall have the same meaning ascribed to it in the Plan. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and the Plan, the terms and conditions of the Plan shall govern.
1. Grant of Option. The Company hereby grants to Optionee an option (the “Option”) to purchase all or any portion of a total of [_________] shares of the Common Stock of the Company (the “Shares”) at a purchase price of $[________] per share (the “Exercise Price”), which price equals the per share Fair Market Value of a Share as of the Grant Date and is subject to the terms and conditions set forth herein and the provisions of the Plan. This Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code. Nevertheless, to the extent the Option exceeds the $100,000 limitation described in Section 422(d) of the Code and in Section 5.5 of the Plan, the Option shall be treated as a nonqualified stock option. If this Option fails in whole or in part to qualify as an incentive stock option, then this Option, in such whole or part, shall constitute a nonqualified stock option. The Company shall not be liable to Optionee if this Option, in whole or in part, for any reason is deemed not to be an “incentive stock option” within the meaning of Section 422 of the Code.
2. Vesting of Option. No portion of this Option may be exercised until such portion shall have become exercisable. The right to exercise this Option shall vest pursuant to the vesting terms set forth in this Section 2. The right to exercise this Option shall vest as to [ ]% on each anniversary of the Grant Date. For the avoidance of doubt, the Option will become vested and exercisable with respect to: [#] Shares on [Date]; [#] Shares on [Date]; [#] Shares on [Date]; and [#] Shares on [Date].
No additional Shares shall vest after the date of termination of Optionee’s relationship as a Service Provider, but this Option shall continue to be exercisable in accordance with Section 3 below with respect to that number of Shares that have vested as of the date on which Optionee’s relationship as a Service Provider terminates. Optionee’s status as a Service Provider shall not be considered interrupted in the case of a transfer between the Company and any Subsidiary and otherwise shall be administered in accordance with Section 8.1 of the Plan.
3. Term of Option. Optionee’s right to exercise this Option shall terminate upon the first to occur of the following:
3.1 the expiration of ten (10) years from the date of this Agreement; or
3.2 the expiration of three (3) months from the date of Optionee’s termination as a Service Provider if such termination occurs for any reason other than permanent Disability, death or for Cause (as defined in Section 8 below); provided, however, that if Optionee dies during such three-month period the provisions of Section 3.4 below shall apply; or
3.3 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to permanent Disability of Optionee; or
3.4 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to Optionee’s death or if death occurs during the three-month period following the date of Optionee’s termination as a Service Provider pursuant to Section 3.2 above, as the case may be; or
3.5 upon the consummation of a Change in Control, unless otherwise provided pursuant to Section 8 below; or
3.6 the date of Optionee’s termination as a Service Provider as a result of a termination by the Company or a Subsidiary for Cause.
4. Exercise of Option. On or after the vesting of any portion of this Option in accordance with Sections 2 or 8 hereof, and until termination of the right to exercise this Option in accordance with Section 3 above, the portion of this Option which has vested may be exercised in whole or in part by Optionee (or, after his or her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices:
4.1 A written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);
4.2 A payment of the exercise price for Shares the Optionee is purchasing, to the extent permitted by law, in one of the following forms:
(a) A check or cash;
(b) By delivery to the Company (either by actual delivery or attestation) of previously owned Shares that are owned free and clear of any liens, claims, encumbrances or security interests. The Fair Market Value of the Shares will be determined as of the effective date of the option exercise. The Option may not be exercised by delivery to the Company of previously owned Shares if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s Common Stock;
(c) Pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board (“Regulation T”) that, following the exercise of this Option but prior to the issuance of the Shares, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate Exercise Price to the Company from the sales proceeds. For avoidance of doubt, this manner of payment is also known as a “broker-assisted cashless exercise” in which Optionee exercises his or her Option to acquire Shares and sell enough of the Shares to cover the aggregate Exercise Price, estimated income taxes, and any applicable fees; or
(d) A combination of (a), (b) or (c) above.
4.3 Payment of any and all applicable taxes, including, without limitation, any penalties or interest based upon such tax obligations associated with the exercise of this Option. Optionee may not exercise this Option unless Optionee has made acceptable arrangements to satisfy any withholding or other taxes that may be due as a result of the exercise of this Option or sale of Shares acquired under this Option, including any amount to satisfy the Company’s withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by Optionee in connection with the exercise of this Option. In accordance with Regulation T, such withholding taxes may be settled by “broker-assisted cashless exercise” which results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay such withholding taxes from the sales proceeds. To the extent approved by the Committee in its discretion and with all terms and conditions determined by the Committee, payment of withholding taxes may be made in another form of legal consideration acceptable to the Committee and in accordance with the terms of the Plan.
4.4 Any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Shares upon exercise of the Option (and any subsequent resale of the Shares) will be in compliance with applicable laws and regulations.
The Shares issued upon exercise of the Option shall be transferred to Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Committee with all requirements under applicable laws or regulations in connection with such transfer and with the requirements of this Agreement and the Plan. The determination of the Committee as to such compliance shall be final and binding on Optionee.
5. Death of Optionee; No Assignment. The rights of Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If Optionee’s relationship as a Service Provider terminates as a result of his or her death, and provided Optionee’s rights hereunder shall have vested pursuant to Section 2 above, Optionee’s legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of Optionee (individually, a “Successor”) shall succeed to Optionee’s rights and obligations under this Agreement. After the death of Optionee, only a Successor may exercise this Option.
6. Incorporation of Plan. Notwithstanding anything herein to the contrary, the Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee. Optionee acknowledges receipt of a copy of the Plan.
7. Adjustments Upon Changes in Capital Structure. In the event that the outstanding Shares are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Committee to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of Optionee under this Option, in accordance with the provisions of the Plan.
8. Change in Control. In the event of a Change in Control of the Company:
8.1 Notwithstanding Section 2 above, provided Optionee’s relationship as a Service Provider has not terminated from the Grant Date through the effective date of the Change in Control, the right to exercise this Option shall accelerate automatically and vest in full effective as of immediately prior to the consummation of such a Change in Control unless this Option is to be assumed by the acquiring or successor entity (or parent thereof) or new options or new incentives are to be issued in exchange therefor, as provided in subsection (b) below. If vesting of this Option will accelerate, the Committee in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of this Option for an amount of cash or other property having a value equal to the difference (or “spread”) between: (x) the value of the cash or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and (y) the aggregate Exercise Price for such Shares (and, for the avoidance of doubt, if as of the date of the occurrence of such transaction the Committee determines in good faith that no amount would have been attained upon the exercise of this Option, then the Option may be terminated by the Company without payment). If the vesting of this Option will accelerate, the Committee shall cause written notice of the Change in Control transaction to be given to Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction.
8.2 The vesting of this Option shall not accelerate if and to the extent that:
(a) this Option (including the unvested portion thereof) is to be assumed by the acquiring or successor entity (or parent thereof) or a new option of comparable value is to be issued in exchange therefor pursuant to the terms of the Change in Control transaction, or
(b) this Option (including the unvested portion thereof) is to be replaced by the acquiring or successor entity (or parent thereof) with new incentives containing such terms and provisions as the Committee in its discretion may consider equitable. If this Option is assumed, or if a new option of comparable value is issued in exchange therefor, then this Option or the new option shall be appropriately adjusted, concurrently with the Change in Control, to apply to the number and class of securities or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and appropriate adjustment also shall be made to the Exercise Price such that the aggregate Exercise Price of this Option or the new option shall remain the same as nearly as practicable and in a manner satisfying the provisions of Sections 409A and 424 of the Code.
8.3 If the provisions of subsection (b) above apply, then this Option, the new option or the new incentives shall continue to vest in accordance with the provisions of Section 2 above and shall continue in effect for the remainder of the term of this Option in accordance with the provisions of Section 3 above. However, in the event of an Involuntary Termination (as defined below) of Optionee’s relationship as a Service Provider on or following such Change in Control, then vesting of this Option, the new option or the new incentives shall accelerate in full automatically effective upon such Involuntary Termination.
8.4 As defined and used for purposes of this Agreement, “Involuntary Termination” shall mean the termination of Optionee’s relationship as a Service Provider for any reason other than (i) termination for Cause or (ii) Optionee’s voluntary resignation (unless such resignation is at the request of the acquirer in which case Optionee’s termination will deemed involuntary).
8.5 The determination that a termination of Optionee’s relationship as a Service Provider is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the termination of Optionee’s relationship as a Service Provider was terminated by reason of dismissal without Cause for the purposes of outstanding Options held by Optionee shall have no effect upon any determination of the rights or obligations of the Company or Optionee for any other purpose. If, subsequent to the termination of Optionee’s relationship as a Service Provider, it is discovered that Optionee could have been terminated for Cause, Optionee shall, at the election of the Company, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred. In such event, any amounts or Shares received under this Agreement, or the cash equivalent thereof, shall be returned to the Company within thirty (30) days of the Company’s written demand.
9. Effect of Failure to Qualify for Incentive Stock Option Treatment. To the extent that any portion of the Option does not qualify as an “incentive stock option,” it shall not affect the validity of the remainder of the Option and the portion which does not so qualify as an incentive stock option shall constitute a separate nonqualified stock option. If the Optionee disposes of any Shares acquired pursuant to the exercise of this Option before the later of (i) two years from the Grant Date and (ii) one year from the date the Shares are acquired, or if any other event occurs such that Optionee recognizes compensation income with respect to this Option, Optionee shall deliver to the Company any amount of federal, state or local income and employment tax withholding required by law. If Optionee fails to pay the withholding tax, the Company is authorized to withhold from any cash remuneration then or thereafter payable to Optionee any tax required to be withheld by reason of any disposition or other event described in this paragraph.
10. No Agreement to Continue Service Relationship. Nothing in this Agreement shall be construed as granting to Optionee any right with respect to the continuance of any relationship that Optionee might have as a Service Provider. To the extent applicable, the right of the Company or any Subsidiary to terminate at will Optionee’s employment or service relationship at any time (whether by dismissal, discharge or otherwise), and, if applicable, Optionee’s service as a Director pursuant to the bylaws of the Company, and any applicable provisions of governing state law, with or without Cause, is specifically reserved.
11. Rights as Stockholder. Optionee (or Successor) shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any of the Shares unless and until this Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to Optionee, and Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, Optionee shall have full voting, dividend and other ownership rights with respect to such Shares for which the Option has been exercised.
12. Notices. All notices required or permitted in connection with this Agreement shall be in writing and shall be deemed delivered and received: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile to the specified address or number, if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three days after having been sent by registered or certified mail to the specified address, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier directed to the specified address for next day delivery, with written notification of receipt. All communications shall be sent to the address of Optionee set forth on the Company’s records, and, if to the Company, at the Company’s principal place of business, or at such other address or electronic mail address as any party hereto may designate in advance.
13. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
14. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Nevada without giving effect to the conflicts of laws principles thereof.
15. Clawback. Pursuant to Section 12.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Option Award, Optionee agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.
16. Data Privacy. In order to administer the Plan, the Company may process personal data about Optionee. Such data includes, but is not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about Optionee such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Optionee gives explicit consent to the Company to process any such personal data.
17. Fractions. To the extent that a fractional number of Shares vest or that the Company is obligated to issue a fractional number of Shares, such number will be rounded down to the nearest whole share number.
18. Captions and Section Headings. Captions and section headings used herein are for convenience only, and are not part of this Agreement and shall not be used in construing it.
19. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on Optionee, Optionee’s heirs, executors, administrators and successors, and the Company for all purposes.
20. Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted to both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.
21. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between Optionee and the Company, and supersede all other agreements, whether written or oral, with respect to the Award.
22. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.
23. Section 409A. The intent of the parties is that the Options be exempt from the provisions of Section 409A of the Code and, accordingly, to the maximum extent permitted, this agreement shall be interpreted to be limited, construed and interpreted in accordance with such intent. In no event whatsoever shall the Company, any Subsidiary or Parent be liable for any additional tax, interest or penalties that may be imposed on Optionee by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code hereunder or otherwise.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement as of the date first above written.
| NUZEE, INC. | OPTIONEE | |||
| By: | By: | |||
| Name: | Name: | |||
| Title: | ||||
[Signature Page to Stock Option Agreement]
Exhibit 10.6
NUZEE, INC.
STOCK OPTION AGREEMENT
(2023 Equity Incentive Plan)
Incentive Stock Options
This Stock Option Agreement (the “Agreement”) is entered into as of [__________], (the “Grant Date”), by and between NuZee, Inc., a Nevada corporation (the “Company”), and [_____________] (the “Optionee”) pursuant to the NuZee, Inc. 2023 Equity Incentive Plan (the “Plan”). Any capitalized term used herein but not defined in this Agreement shall have the same meaning ascribed to it in the Plan. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and the Plan, the terms and conditions of the Plan shall govern.
1. Grant of Option. The Company hereby grants to Optionee an option (the “Option”) to purchase all or any portion of a total of [_________] shares of the Common Stock of the Company (the “Shares”) at a purchase price of $[________] per share (the “Exercise Price”), which price equals the per share Fair Market Value of a Share as of the Grant Date and is subject to the terms and conditions set forth herein and the provisions of the Plan. This Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code. Nevertheless, to the extent the Option exceeds the $100,000 limitation described in Section 422(d) of the Code and in Section 5.5 of the Plan, the Option shall be treated as a nonqualified stock option. If this Option fails in whole or in part to qualify as an incentive stock option, then this Option, in such whole or part, shall constitute a nonqualified stock option. The Company shall not be liable to Optionee if this Option, in whole or in part, for any reason is deemed not to be an “incentive stock option” within the meaning of Section 422 of the Code.
2. Vesting of Option. No portion of this Option may be exercised until such portion shall have become exercisable. The right to exercise this Option shall vest pursuant to the vesting terms set forth in this Section 2. The Option may be exercised, in whole or in part, in accordance with the following vesting schedule:
2.1 [_____] Shares upon the Company’s achievement of [__________];
2.2 [_____] Shares upon the Company’s achievement of [__________]; and
2.3 [_____] Shares upon the Company’s achievement of [__________].
The Committee shall, on an annual basis and in its sole discretion: (i) determine whether the applicable vesting terms set forth herein were satisfied and (ii) approve the actual amount of Shares that vested in the applicable fiscal year, in each case as promptly as practicable following the Company’s public filing of its audited financial statements for the applicable fiscal year. In the event that any applicable performance target is not satisfied in a respective fiscal year, the Shares that would have vested in the applicable fiscal year shall be forfeited, regardless of whether any performance targets are satisfied in any subsequent fiscal year.
No additional Shares shall vest after the date of termination of Optionee’s relationship as a Service Provider, but this Option shall continue to be exercisable in accordance with Section 3 below with respect to that number of Shares that have vested as of the date on which Optionee’s relationship as a Service Provider terminates. Optionee’s status as a Service Provider shall not be considered interrupted in the case of a transfer between the Company and any Subsidiary and otherwise shall be administered in accordance with Section 8.1 of the Plan.
3. Term of Option. Optionee’s right to exercise this Option shall terminate upon the first to occur of the following:
3.1 the expiration of ten (10) years from the date of this Agreement; or
3.2 the expiration of three (3) months from the date of Optionee’s termination as a Service Provider if such termination occurs for any reason other than permanent Disability, death or for Cause (as defined in Section 8 below); provided, however, that if Optionee dies during such three-month period the provisions of Section 3.4 below shall apply; or
3.3 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to permanent Disability of Optionee; or
3.4 the expiration of one (1) year from the date of Optionee’s termination as a Service Provider if such termination is due to Optionee’s death or if death occurs during the three-month period following the date of Optionee’s termination as a Service Provider pursuant to Section 3.2 above, as the case may be; or
3.5 upon the consummation of a Change in Control, unless otherwise provided pursuant to Section 8 below; or
3.6 the date of Optionee’s termination as a Service Provider as a result of a termination by the Company or a Subsidiary for Cause.
4. Exercise of Option. On or after the vesting of any portion of this Option in accordance with Sections 2 or 8 hereof, and until termination of the right to exercise this Option in accordance with Section 3 above, the portion of this Option which has vested may be exercised in whole or in part by Optionee (or, after his or her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices:
4.1 A written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);
4.2 A payment of the exercise price for Shares the Optionee is purchasing, to the extent permitted by law, in one of the following forms:
(a) A check or cash;
(b) By delivery to the Company (either by actual delivery or attestation) of previously owned Shares that are owned free and clear of any liens, claims, encumbrances or security interests. The Fair Market Value of the Shares will be determined as of the effective date of the option exercise. The Option may not be exercised by delivery to the Company of previously owned Shares if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s Common Stock;
(c) Pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board (“Regulation T”) that, following the exercise of this Option but prior to the issuance of the Shares, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate Exercise Price to the Company from the sales proceeds. For avoidance of doubt, this manner of payment is also known as a “broker-assisted cashless exercise” in which Optionee exercises his or her Option to acquire Shares and sell enough of the Shares to cover the aggregate Exercise Price, estimated income taxes, and any applicable fees; or
(d) A combination of (a), (b) or (c) above.
4.3 Payment of any and all applicable taxes, including, without limitation, any penalties or interest based upon such tax obligations associated with the exercise of this Option. Optionee may not exercise this Option unless Optionee has made acceptable arrangements to satisfy any withholding or other taxes that may be due as a result of the exercise of this Option or sale of Shares acquired under this Option, including any amount to satisfy the Company’s withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by Optionee in connection with the exercise of this Option. In accordance with Regulation T, such withholding taxes may be settled by “broker-assisted cashless exercise” which results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay such withholding taxes from the sales proceeds. To the extent approved by the Committee in its discretion and with all terms and conditions determined by the Committee, payment of withholding taxes may be made in another form of legal consideration acceptable to the Committee and in accordance with the terms of the Plan.
4.4 Any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Shares upon exercise of the Option (and any subsequent resale of the Shares) will be in compliance with applicable laws and regulations.
The Shares issued upon exercise of the Option shall be transferred to Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Committee with all requirements under applicable laws or regulations in connection with such transfer and with the requirements of this Agreement and the Plan. The determination of the Committee as to such compliance shall be final and binding on Optionee.
5. Death of Optionee; No Assignment. The rights of Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If Optionee’s relationship as a Service Provider terminates as a result of his or her death, and provided Optionee’s rights hereunder shall have vested pursuant to Section 2 above, Optionee’s legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of Optionee (individually, a “Successor”) shall succeed to Optionee’s rights and obligations under this Agreement. After the death of Optionee, only a Successor may exercise this Option.
6. Incorporation of Plan. Notwithstanding anything herein to the contrary, the Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Committee. Optionee acknowledges receipt of a copy of the Plan.
7. Adjustments Upon Changes in Capital Structure. In the event that the outstanding Shares are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Committee to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of Optionee under this Option, in accordance with the provisions of the Plan.
8. Change in Control. In the event of a Change in Control of the Company:
8.1 Notwithstanding Section 2 above, provided Optionee’s relationship as a Service Provider has not terminated from the Grant Date through the effective date of the Change in Control, the right to exercise this Option shall accelerate automatically and vest in full effective as of immediately prior to the consummation of such a Change in Control unless this Option is to be assumed by the acquiring or successor entity (or parent thereof) or new options or new incentives are to be issued in exchange therefor, as provided in subsection (b) below. If vesting of this Option will accelerate, the Committee in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of this Option for an amount of cash or other property having a value equal to the difference (or “spread”) between: (x) the value of the cash or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and (y) the aggregate Exercise Price for such Shares (and, for the avoidance of doubt, if as of the date of the occurrence of such transaction the Committee determines in good faith that no amount would have been attained upon the exercise of this Option, then the Option may be terminated by the Company without payment). If the vesting of this Option will accelerate, the Committee shall cause written notice of the Change in Control transaction to be given to Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction.
8.2 The vesting of this Option shall not accelerate if and to the extent that:
(a) this Option (including the unvested portion thereof) is to be assumed by the acquiring or successor entity (or parent thereof) or a new option of comparable value is to be issued in exchange therefor pursuant to the terms of the Change in Control transaction, or
(b) this Option (including the unvested portion thereof) is to be replaced by the acquiring or successor entity (or parent thereof) with new incentives containing such terms and provisions as the Committee in its discretion may consider equitable. If this Option is assumed, or if a new option of comparable value is issued in exchange therefor, then this Option or the new option shall be appropriately adjusted, concurrently with the Change in Control, to apply to the number and class of securities or other property that Optionee would have received pursuant to the Change in Control transaction in exchange for the Shares issuable upon exercise of this Option had this Option been exercised immediately prior to the Change in Control, and appropriate adjustment also shall be made to the Exercise Price such that the aggregate Exercise Price of this Option or the new option shall remain the same as nearly as practicable and in a manner satisfying the provisions of Sections 409A and 424 of the Code.
8.3 If the provisions of subsection (b) above apply, then this Option, the new option or the new incentives shall continue to vest in accordance with the provisions of Section 2 above and shall continue in effect for the remainder of the term of this Option in accordance with the provisions of Section 3 above. However, in the event of an Involuntary Termination (as defined below) of Optionee’s relationship as a Service Provider on or following such Change in Control, then vesting of this Option, the new option or the new incentives shall accelerate in full automatically effective upon such Involuntary Termination.
8.4 As defined and used for purposes of this Agreement, “Involuntary Termination” shall mean the termination of Optionee’s relationship as a Service Provider for any reason other than (i) termination for Cause or (ii) Optionee’s voluntary resignation (unless such resignation is at the request of the acquirer in which case Optionee’s termination will deemed involuntary).
8.5 The determination that a termination of Optionee’s relationship as a Service Provider is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the termination of Optionee’s relationship as a Service Provider was terminated by reason of dismissal without Cause for the purposes of outstanding Options held by Optionee shall have no effect upon any determination of the rights or obligations of the Company or Optionee for any other purpose. If, subsequent to the termination of Optionee’s relationship as a Service Provider, it is discovered that Optionee could have been terminated for Cause, Optionee shall, at the election of the Company, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred. In such event, any amounts or Shares received under this Agreement, or the cash equivalent thereof, shall be returned to the Company within thirty (30) days of the Company’s written demand.
9. Effect of Failure to Qualify for Incentive Stock Option Treatment. To the extent that any portion of the Option does not qualify as an “incentive stock option,” it shall not affect the validity of the remainder of the Option and the portion which does not so qualify as an incentive stock option shall constitute a separate nonqualified stock option. If the Optionee disposes of any Shares acquired pursuant to the exercise of this Option before the later of (i) two years from the Grant Date and (ii) one year from the date the Shares are acquired, or if any other event occurs such that Optionee recognizes compensation income with respect to this Option, Optionee shall deliver to the Company any amount of federal, state or local income and employment tax withholding required by law. If Optionee fails to pay the withholding tax, the Company is authorized to withhold from any cash remuneration then or thereafter payable to Optionee any tax required to be withheld by reason of any disposition or other event described in this paragraph.
10. No Agreement to Continue Service Relationship. Nothing in this Agreement shall be construed as granting to Optionee any right with respect to the continuance of any relationship that Optionee might have as a Service Provider. To the extent applicable, the right of the Company or any Subsidiary to terminate at will Optionee’s employment or service relationship at any time (whether by dismissal, discharge or otherwise), and, if applicable, Optionee’s service as a Director pursuant to the bylaws of the Company, and any applicable provisions of governing state law, with or without Cause, is specifically reserved.
11. Rights as Stockholder. Optionee (or Successor) shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any of the Shares unless and until this Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to Optionee, and Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, Optionee shall have full voting, dividend and other ownership rights with respect to such Shares for which the Option has been exercised.
12. Notices. All notices required or permitted in connection with this Agreement shall be in writing and shall be deemed delivered and received: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile to the specified address or number, if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three days after having been sent by registered or certified mail to the specified address, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier directed to the specified address for next day delivery, with written notification of receipt. All communications shall be sent to the address of Optionee set forth on the Company’s records, and, if to the Company, at the Company’s principal place of business, or at such other address or electronic mail address as any party hereto may designate in advance.
13. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
14. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Nevada without giving effect to the conflicts of laws principles thereof.
15. Clawback. Pursuant to Section 12.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Option Award, Optionee agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.
16. Data Privacy. In order to administer the Plan, the Company may process personal data about Optionee. Such data includes, but is not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about Optionee such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Optionee gives explicit consent to the Company to process any such personal data.
17. Fractions. To the extent that a fractional number of Shares vest or that the Company is obligated to issue a fractional number of Shares, such number will be rounded down to the nearest whole share number.
18. Captions and Section Headings. Captions and section headings used herein are for convenience only, and are not part of this Agreement and shall not be used in construing it.
19. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on Optionee, Optionee’s heirs, executors, administrators and successors, and the Company for all purposes.
20. Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted to both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.
21. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between Optionee and the Company, and supersede all other agreements, whether written or oral, with respect to the Award.
22. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.
23. Section 409A. The intent of the parties is that the Options be exempt from the provisions of Section 409A of the Code and, accordingly, to the maximum extent permitted, this agreement shall be interpreted to be limited, construed and interpreted in accordance with such intent. In no event whatsoever shall the Company, any Subsidiary or Parent be liable for any additional tax, interest or penalties that may be imposed on Optionee by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code hereunder or otherwise.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement as of the date first above written.
| NUZEE, INC. | OPTIONEE | |||
| By: | By: | |||
| Name: | Name: | |||
| Title: | ||||
[Signature Page to Stock Option Agreement]
Exhibit 10.7
NUZEE, INC.
RESTRICTED STOCK AWARD AGREEMENT
(2023 EQUITY INCENTIVE PLAN)
This Stock Award Agreement (the “Agreement”) is entered into as of [ ] (the “Grant Date”), by and between NuZee, Inc., a Nevada corporation (the “Company”), and [ ] (the “Participant”) pursuant to the Company’s 2023 Equity Incentive Plan (the “Plan”). Any capitalized term used herein but not defined in this Agreement shall have the same meaning ascribed to it in the Plan. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and the Plan, the terms and conditions of the Plan shall govern.
1. Grant of Restricted Stock. The Company hereby grants to Participant an award of [ ] Restricted Shares (the “Award”). The Restricted Shares granted pursuant to the Award shall be issued in the form of book entry Shares in the name of Participant as soon as reasonably practicable after the Grant Date and shall be subject to the execution and return of this Agreement by Participant to the Company.
2. Restrictions on Transfer. Unless otherwise determined by the Committee, the Restricted Shares issued under this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated until all restrictions on such Restricted Shares shall have lapsed in the manner provided in Section 3, 4 or 5 hereof.
3. Lapse of Restrictions Generally. Except as provided in Sections 4, 5 and 6 hereof, the number of the Restricted Shares issued hereunder shall vest, and the Period of Restriction will end with respect to such Restricted Stock as follows, provided Participant has not ceased to be a Service Provider on each such applicable date: the Period of Restriction will lapse for 100% of the Restricted Shares on the one year anniversary of the Grant Date.
4. Effect of Certain Terminations of Employment. If Participant’s status as a Service Provider is terminated by the Company, a Parent or Subsidiary without Cause, all Restricted Shares which have not become vested in accordance with Section 3 or 5 hereof shall vest, and the Period of Restriction with respect to such Restricted Shares shall lapse, as of the date of the termination of Participant as a Service Provider by the Company, a Parent or Subsidiary without Cause.
5. Effect of Change in Control. In the event of a Change in Control at any time on or after the Grant Date, provided Participant has not ceased to be a Service Provider from the Date of Grant through the effective date of the Change in Control, all Restricted Shares which have not become vested in accordance with Section 3 or 4 hereof shall vest, and the Period of Restriction with respect to such Restricted Shares shall lapse as of the effective date of the Change in Control.
6. Forfeiture of Restricted Shares. Any and all Restricted Shares which have not become vested and for which the Period of Restriction has not lapsed in accordance with Section 3, 4 or 5 hereof shall be forfeited and shall revert to the Company upon the termination by Participant, or the Company, Parent or Subsidiary, of Participant’s status as a Service Provider for any reason other than those set forth in Section 4 hereof prior to such vesting and the lapse of the Period of Restriction.
7. Delivery of Restricted Shares. Evidence of book entry Shares with respect to Restricted Shares for which the Period of Restrictions has lapsed pursuant to Section 3, 4 or 5 hereof or, if requested by Participant prior to such lapse of the Period of Restrictions, a stock certificate with respect to such Restricted Shares, shall be delivered to Participant as soon as practicable following the date on which the Period of Restrictions on such Restricted Shares has lapsed, free of all restrictions hereunder.
8. Dividends and Voting Rights. Upon issuance of the Restricted Shares, Participant shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect thereto; provided, however, that dividends or distributions declared or paid on the Restricted Shares by the Company prior to the lapse of the Period of Restrictions with respect to such Shares shall be deferred and reinvested in Shares of Restricted Stock based on the Fair Market Value of a Share on the date such dividend or distribution is paid or made (provided that no fractional Shares will be issued), and the additional Shares of Restricted Stock thus acquired shall be subject to the same restrictions on transfer, forfeiture, and Period of Restrictions as the Restricted Shares in respect of which such dividends or distributions were made.
9. No Right to Continue as a Service Provider. Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company, any Subsidiary or Parent to terminate Participant’s status as a Service Provider, nor confer upon Participant any right to continuance of his or her status as a Service Provider by the Company, any Subsidiary or Parent. To the extent applicable, the right of the Company, Subsidiary or Parent to terminate at will Participant’s employment or service relationship at any time (whether by dismissal, discharge or otherwise), and, if applicable, Participant’s service as a Director pursuant to the bylaws of the Company, and any applicable provisions of governing state law, with or without Cause, is specifically reserved.
10. Withholding of Taxes.
10.1 Prior to the delivery to Participant of a stock certificate or evidence of book entry Shares with respect to Restricted Shares for which the Period of Restrictions has lapsed, Participant shall pay to the Company the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company (the “Withholding Taxes”) with respect to such Restricted Shares. Participant may satisfy such tax withholding obligation, in whole or in part by one or more of the following: (i) payment by cash or check, (ii) electing to have the Company withhold otherwise deliverable Shares under this Award having a Fair Market Value equal to the minimum amount required to be withheld or (iii) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the time any applicable Restricted Shares otherwise are scheduled to vest and for the Period of Restrictions to lapse, Participant will permanently forfeit such Shares.
10.2 Participant understands that Participant may elect to be taxed at the time the Restricted Shares are awarded rather than when Restricted Shares vest and the Period of Restriction lapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days from the Grant Date. PARTICIPANT (AND NOT THE COMPANY OR ANY OF ITS AGENTS) SHALL BE SOLELY RESPONSIBLE FOR APPROPRIATELY FILING THE 83(b) ELECTION FORM, EVEN IF PARTICIPANT REQUESTS THE COMPANY OR ITS AGENTS TO MAKE THIS FILING ON PARTICIPANT’S BEHALF. THE 83(b) ELECTION FORM MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN 30 DAYS AFTER THE DATE OF GRANT OF THIS RESTRICTED STOCK. PARTICIPANT MUST ALSO PROVIDE THE COMPANY A COPY OF SUCH 83(b) ELECTION FILING UPON MAKING SUCH FILING.
11. Participant Bound by the Plan. Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.
12. Adjustments Upon Changes in Capital Structure. In the event that the outstanding Shares are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Committee to the number of Restricted Shares which remain unvested, in order to preserve, as nearly as practical, but not to increase, the benefits of the Restricted Shares, in accordance with the provisions of the Plan.
13. Modification of Agreement. This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto.
14. Notices. All notices required or permitted in connection with this Agreement shall be in writing and shall be deemed delivered and received: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile to the specified address or number, if sent during normal business hours of the recipient; if not, then on the next business day, (iii) three days after having been sent by registered or certified mail to the specified address, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier directed to the specified address for next day delivery, with written notification of receipt. All communications shall be sent to the address of Participant set forth on the Company’s records, and, if to the Company, at the Company’s principal place of business, or at such other address or electronic mail address as any party hereto may designate in advance.
15. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Nevada without giving effect to the conflicts of laws principles thereof.
17. Clawback. Pursuant to Section 12.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Restricted Stock Award, Participant agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.
18. Data Privacy. In order to administer the Plan, the Company may process personal data about Participant. Such data includes, but is not limited to, the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about Participant such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Participant gives explicit consent to the Company to process any such personal data.
19. Fractions. To the extent that a fractional number of Shares vest or that the Company is obligated to issue a fractional number of Shares, such number will be rounded down to the nearest whole share number.
20. Assignment. The Company may assign this Agreement or any of its rights under this Agreement to single or multiple assignees. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred or delegated by Participant without the prior written consent of the Company. Any attempt by Participant without such consent to assign, transfer or delegate any rights, duties or obligations that arise under this Agreement shall be void.
21. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of Participant’s legal representatives. All obligations imposed upon Participant and all rights granted to the Company under this Agreement shall be binding upon Participant’s heirs, executors, administrators and successors.
22. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on Participant, Participant’s heirs, executors, administrators and successors, and the Company for all purposes.
23. Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted to both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.
24. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between Participant and the Company, and supersede all other agreements, whether written or oral, with respect to the Award.
25. Headings. The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
26. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.
[Signature Page to Follow]
IN WITNESS WHEREOF, the parties have executed this Restricted Stock Award Agreement as of the date first above written.
| NUZEE, INC. | PARTICIPANT | |||
| By: | By: | |||
| Name: | Masateru Higashida | Name: | ||
| Title: | Chief Executive Officer | Title: | ||
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Masateru Higashida, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of NuZee, Inc. for the quarter ended June 30, 2023; |
| 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. | The registrant’s other certifying officer and I are 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 our 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 our 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; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor 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 11, 2023 | NUZEE, INC. | ||
| By: | /s/ Masateru Higashida | |||
| Masateru Higashida, Chief Executive Officer and President (Principal Executive Officer), Secretary, Treasurer, and Director | ||||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shana Bowman, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of NuZee, Inc. for the quarter ended June 30, 2023; |
| 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. | The registrant’s other certifying officer and I are 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 our 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 our 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; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor 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 11, 2023 | NUZEE, INC. | ||
| By: | /s/ Shana Bowman | |||
| Shana Bowman, Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NuZee, Inc. and its subsidiaries (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the Company’s Chief Executive Officer, Masateru Higashida, 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 13(a) or 15(d) 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 11, 2023 | NUZEE, INC. | ||
| By: | /s/ Masateru Higashida | |||
| Masateru Higashida, Chief Executive Officer and President (Principal Executive Officer), Secretary, Treasurer, and Director | ||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NuZee, Inc. and its subsidiaries (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the Company’s Interim Chief Financial Officer, Shana Bowman, 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 13(a) or 15(d) 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 11, 2023 | NUZEE, INC. | ||
| By: | /s/ Shana Bowman | |||
| Shana Bowman, Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||