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CIMG (IMG)
NASDAQ:IMG
US Market
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CIMG (IMG) Risk Factors

186 Followers
Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

CIMG disclosed 47 risk factors in its most recent earnings report. CIMG reported the most risks in the “Finance & Corporate” category.

Risk Overview Q2, 2024

Risk Distribution
47Risks
51% Finance & Corporate
15% Legal & Regulatory
11% Tech & Innovation
11% Production
11% Ability to Sell
2% Macro & Political
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020
Q4
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
CIMG Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q2, 2024

Main Risk Category
Finance & Corporate
With 24 Risks
Finance & Corporate
With 24 Risks
Number of Disclosed Risks
47
No changes from last report
S&P 500 Average: 31
47
No changes from last report
S&P 500 Average: 31
Recent Changes
0Risks added
0Risks removed
0Risks changed
Since Jun 2024
0Risks added
0Risks removed
0Risks changed
Since Jun 2024
Number of Risk Changed
0
No changes from last report
S&P 500 Average: 3
0
No changes from last report
S&P 500 Average: 3
See the risk highlights of CIMG in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 47

Finance & Corporate
Total Risks: 24/47 (51%)Above Sector Average
Share Price & Shareholder Rights9 | 19.1%
Share Price & Shareholder Rights - Risk 1
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Share Price & Shareholder Rights - Risk 2
Anti-takeover provisions in our third amended and restated bylaws and Nevada law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our securities.
Our third amended and restated bylaws contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our Board. Our third amended and restated bylaws include provisions: - limiting the liability of, and providing indemnification to, our directors, including provisions that require the Company to advance payment for defending pending or threatened claims;   - controlling the procedures for the conduct and scheduling of board and stockholder meetings; and   - limiting the number of directors on our board and the filling of vacancies or newly created seats on the board to our Board then in office. In addition, we are subject to anti-takeover laws for Nevada corporations. These anti-takeover laws prevent Nevada corporations from engaging in a business combination with any shareholder, including all affiliates and associates of the shareholder, who is the beneficial owner of 10% or more of the corporation's outstanding voting stock, for two years following the date that the shareholder first became the beneficial owner of 10% or more of the corporation's voting stock, unless specified conditions are met. If those conditions are not met, then after the expiration of the two-year period the corporation may not engage in a business combination with such shareholder unless certain other conditions are met. These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management. The existence of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that our stockholders could receive a premium for their common stock in an acquisition.
Share Price & Shareholder Rights - Risk 3
Our principal stockholder and management, including our Chief Executive Officer in particular, own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of December 31, 2023, our executive officers and directors beneficially owned approximately 12.1% of our voting stock. Our Chief Executive Officer, President and Chairman of the Board individually beneficially owns approximately 10.1% of our voting stock. This concentration of control creates a number of risks. Our executive officers and directors, along with other holders of 5% or more of our capital stock and their respective affiliates, have the ability to exert significant influence over us through this ownership position. These stockholders may be able to exert significant influence over all matters requiring stockholder approval, including with respect to elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction, and our stockholders may find it difficult to replace members of management should our stockholders disagree with the manner in which the Company is operated. Furthermore, this concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders.
Share Price & Shareholder Rights - Risk 4
A significant portion of our total outstanding shares of common stock are eligible to be sold into the market in the near future, including pursuant to Rule 144, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. We have also registered all shares of common stock that are reserved for issuance under the NuZee, Inc. 2023, 2019, and 2013 Stock Incentive Plans. As a result, these shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in our filings with the SEC. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop. We believe that a significant portion of our total outstanding shares of common stock may be sold in the public market without restriction by non-affiliates pursuant to Rule 144.
Share Price & Shareholder Rights - Risk 5
If you purchase shares of common stock in our recent offering, you will experience immediate dilution in your investment. You will experience further dilution if we issue additional equity securities in future financing transactions.
Purchasers of shares of common stock in our recent offering paid a price per share that was less than the net tangible book value per share of our common stock. After giving effect to our receipt of approximately $1.011 million of estimated net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, from our sale of common stock in this offering at the public offering price of $3.00 per share, our pro forma net tangible book value as of June 30, 2023, as adjusted, would have been $5,055,945 or $4.19 per share. This amount represents an immediate decrease in net tangible book value of $0.98 per share of our common stock to existing stockholders and an immediate increase in net tangible book value of $1.19 per share of our common stock to new investors purchasing shares of common stock in the offering. If we issue additional common stock, or securities convertible into or exchangeable or exercisable for common stock, our stockholders, including investors who purchased shares of common stock in the recent offering, may experience additional dilution, and any such issuances may result in downward pressure on the price of our common stock. We also cannot assure you that we will be able to sell shares or other securities in any future offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.
Share Price & Shareholder Rights - Risk 6
The Nasdaq Capital Market may subsequently delist our securities if we fail to comply with ongoing listing standards.
The Nasdaq Capital Market's rules for listed companies requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock. In addition to specific listing and maintenance standards, the Nasdaq Capital Market has broad discretionary authority over the continued listing of securities, which it could exercise with respect to the listing of our common stock. As a listed company, we are required to meet the continued listing requirements applicable to all Nasdaq Capital Market companies. On September 20, 2022, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating that the Company was not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing (the "Bid Price Rule"). On December 28, 2022, the Company completed a 1-for-35 reverse stock split, which became effective on December 28, 2022. On January 17, 2023, the Company received notice that the Company had regained compliance with the Bid Price Rule. In addition to the Bid Price Rule previously described, Nasdaq Capital Market listing rules require us to maintain a minimum stockholders' equity of $2.5 million under Nasdaq Listing Rule 5550(b)(1), a minimum market value of listed securities of $35 million under Nasdaq Listing Rule 5550(b)(2), or a minimum net income of $500,000 under Nasdaq Listing Rule 5550(b)(3). If we fail to meet one of those standards or any other Nasdaq Capital Market continued listing requirement, our common stock may be subject to delisting, as applied by Nasdaq in its discretion. We intend to take all commercially reasonable actions to maintain our Nasdaq Capital Market listing. If our common stock is delisted in the future, it is not likely that we will be able to list our common stock on another national securities exchange on a timely basis or at all and, as a result, we expect our securities would be quoted on an over-the-counter market; however, if this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, in the event of such delisting, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.
Share Price & Shareholder Rights - Risk 7
Despite our listing on the Nasdaq Capital Market, there can be no assurance that an active trading market for our common stock will be sustained.
In June 2020, our common stock commenced trading on the Nasdaq Capital Market under the symbol "NUZE." Although our common stock is listed on the Nasdaq Capital Market, an active trading market for our shares may never be sustained. You may not be able to sell your shares quickly or at the market price if trading in shares of our securities is not active. Further, an inactive market may also impair our ability to raise capital by selling shares of our securities and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our securities as consideration, which could have a material adverse effect on our business, financial condition, and results of operations.
Share Price & Shareholder Rights - Risk 8
The market price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be highly volatile and subject to wide fluctuations in response to various factors, some of which we cannot control. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this Report, these factors include but are not limited to: - the success of, or developments in, competitive products, services or technologies;   - regulatory actions with respect to our products and our competitors;   - the level of success of our marketing strategy;   - our ability to obtain top-grade packing equipment for coffee production;   - announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments;   - regulatory or legal developments in the United States and other countries;- recruitment or departure of key personnel;   - expenses related to any of our development programs and our business in general;   - actual or anticipated changes in financial estimates, development timelines or recommendations by securities analysts;   - failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;   - variations in our financial results or those of companies that are perceived to be similar to us;   - fluctuations in the valuation of companies perceived by investors to be comparable to us;   - share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;   - our ability or failure to raise additional capital in equity or debt transactions;   - costs associated with our sales and marketing initiatives;   - costs and timing of obtaining and maintaining FDA and other regulatory clearances and approvals for our products;   - sales of our common stock by us, our insiders or our other stockholders; and   - general economic, business, industry, market and political conditions, including prevailing interest rates and the rate of inflation. In addition, the stock market in general has in the past experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this "Risk Factors" section, could have a dramatic and material adverse impact on the market price of our common stock.
Share Price & Shareholder Rights - Risk 9
Our independent auditor's report for the fiscal year ended September 30, 2023 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, and absent additional financing we may be unable to remain a going concern.
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. These conditions raise substantial doubt about our ability to continue as a going concern. The Report of Independent Registered Public Accounting Firm at the beginning of the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report includes an explanatory paragraph about our ability to continue as a going concern. Our Consolidated Financial Statements for the year ended September 30, 2023 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business. Our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, our current financial situation, and the presence of the explanatory paragraph about our ability to continue as a going concern, could also make it more difficult to raise the capital necessary to address our current needs and may materially adversely affect the price of our common stock.
Accounting & Financial Operations10 | 21.3%
Accounting & Financial Operations - Risk 1
We have a history of net losses. We expect to continue to incur net losses in the future and we may never generate sufficient revenue to achieve or sustain profitability.
We have incurred net losses since our inception in 2013, including net losses of $8.75 million and $11.8 million for the years ended September 30, 2023, and 2022, respectively. As of September 30, 2023, our accumulated deficit was approximately $73.4 million. We expect to incur significant sales and marketing expenses, as well as costs associated with operating as an exchange-listed public company, prior to recording sufficient revenue from our operations to offset these expenses. These losses have had, and will continue to have, an adverse effect on our working capital, total assets and stockholders' equity. Our ability to become and remain profitable will depend on our ability to generate significantly higher revenues from the sales of our single serve coffee products, co-packing services and bagged coffee production and packaging, which depends upon a number of factors, including but not limited to successful sales, manufacturing, marketing and distribution of our products and services. Because of the numerous risks and uncertainties associated with our commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then sustain profitability would have a material adverse effect on our business and financial condition.
Accounting & Financial Operations - Risk 2
Our future financial results are difficult to predict, and failure to meet market expectations for our financial performance or any publicly announced guidance may cause the price of our stock to decline.
As we and our industry evolve, we expect to face new challenges with respect to our introduction of innovative products and the changing competitive landscape within the single serve category and the beverage industry. These challenges can occur at various stages, including design, supply chain and sales cycle. Any public forecasts regarding the expected performance of our business and future operating results are forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in our filings with the SEC and in our other public statements, and necessarily reflect current assumptions and judgments that may prove incorrect. As a result, there can be no assurance that our performance will be consistent with any public forecasts or that any variation from such forecasts will not be material and adverse. Failure to meet expectations, particularly with respect to operating margins, earnings per share, operating cash flows and net revenues may result in a decline and/or increased volatility in the price of our stock. In addition, broad price and volume fluctuations in the stock market as a whole, as well as general economic, business and political conditions, may adversely affect the price of our stock in ways that may be unrelated to our financial performance.
Accounting & Financial Operations - Risk 3
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
The Tax Cuts and Jobs Act (the "TCJA"), enacted in 2017, limited the use of net operating loss carryforwards arising in periods beginning after 2017 to eighty-percent of taxable income in the period to which the losses are carried. The TCJA also extended the expiration period for net operating losses arising in periods after 2017 from 20 years to an unlimited period. However, the taxable income limitation on the use of net operating loss carryforwards was eliminated by the Coronavirus Aid, Relief and Economic Security Act (the "CARES" Act) for tax years beginning before January 1, 2021. We may not be able to utilize our existing net operating losses or any portion thereof in the current tax year or any available carryforward period. In addition, Section 382 may limit the utilization of net operating loss carryforwards. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), a corporation that undergoes an "ownership change" is subject to annual limitations on its ability to use its pre-change net operating loss carryforwards, or NOLs, and certain other tax attributes to offset future taxable income or reduce taxes. Our past issuances of stock and other changes in our stock ownership may have resulted in one or more ownership changes within the meaning of Section 382 of the Code; accordingly, our pre-change NOLs may be subject to limitation under Section 382. State NOL carryforwards may be similarly limited. Furthermore, transactions in our stock that have occurred in the past and could occur in the future may trigger another ownership change pursuant to Section 382. Because of the cost and complexity involved in the analysis of a Section 382 ownership change and the fact that we do not have any taxable income to offset, we have not undertaken a study to assess whether an "ownership change" has occurred or whether there have been multiple ownership changes since we became a "loss corporation" as defined in Section 382. Future changes in our stock ownership could result in ownership changes under Section 382 of the Code further limiting our ability to utilize our NOLs. Finally, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, even if we attain profitability, we may not be able to use a material portion of our NOLs, and this could reduce our earnings and potentially affect the valuation of our stock.
Accounting & Financial Operations - Risk 4
We have limited operating history, which may make it difficult to evaluate our current business and to forecast our future performance.
We have little operating history and are addressing an emerging market. As a result, our current and future business prospects are difficult to evaluate. All potential investors must consider our business prospects in light of the risks and difficulties we have encountered and will continue to encounter as a company operating in a rapidly evolving market. Some of these risks relate to our potential inability to: - effectively manage our business and proprietary information;   - recruit and retain sales and marketing, technical and managerial personnel;   - recruit and retain appropriate distributor relationships;   - successfully develop and protect our intellectual property portfolio;   - successfully provide high quality products and co-packing services as our business expands; and   - successfully address other risks, as described in this Report or otherwise. If we do not address these risks successfully, it could have a material adverse effect on our business and financial condition.
Accounting & Financial Operations - Risk 5
We have never paid dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future. Consequently, any profits from an investment in our common stock will depend on whether the price of our common stock increases.
We have not paid dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders' sole source of gain for the foreseeable future.
Accounting & Financial Operations - Risk 6
We expect to continue to experience inflationary pressure on our cost structure, and price increases may not be sufficient to offset cost increases or may result in sales volume declines.
Although inflation in the United States had been relatively low for many years, there was a significant increase in inflation beginning in the second half of 2021, which has continued into 2023. We expect for the foreseeable future to experience inflationary pressure on our cost structure. We may be able to pass some or all raw materials, energy and other input cost increases to customers by increasing the selling prices of our products or decreasing the size of our products; however, higher product prices or decreased product sizes may also result in a reduction in sales volume and/or consumption. If we are not able to mitigate these inflationary pressures, such as by increasing our selling prices or reducing product sizes sufficiently to offset increased raw material, energy or other input costs, including but not limited to packaging, direct labor, overhead and employee benefits, or if our sales volume decreases significantly, there could be a negative impact on our results of operations and financial condition.
Accounting & Financial Operations - Risk 7
We have broad discretion in the use of the net proceeds from our recent offering and may not use them effectively, which could affect our results of operations and cause our stock price to decline.
Our management will have broad discretion in the application of the net proceeds from our recent offering. We intend to use the net proceeds from the offering to acquire complementary businesses, acquire or license products or technologies that are complementary to our own, although we have no current plans, commitments or agreements with respect to any such use of proceeds for acquisitions or licenses as of the date of this prospectus supplement, and for working capital, general corporate purposes and the expansion and growth of certain recently announced co-packing relationships, including Stone Brewing and other large customers. As a result, you will be relying upon management's judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of the offering. You will not have the opportunity, as part of your investment decision, to assess whether we are using the proceeds appropriately. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. If we do not invest or apply the net proceeds from the offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Accounting & Financial Operations - Risk 8
If we are unable to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or prevent fraud.
Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, detected or corrected on a timely basis. If material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, then there exists a risk that our consolidated financial statements may contain material misstatements that are unknown to us at that time, and such misstatements could require us to restate our financial results. The existence of a material weakness in our internal control over financial reporting may result in current and potential stockholders losing confidence in our financial reporting, which could negatively impact the market price of our common stock. In addition, the existence of any material weaknesses in our internal control over financial reporting may affect our ability to timely file periodic reports under the Exchange Act and may consequently result in the SEC revoking the registration of our common stock, or the delisting of our common stock. Any of these events, if they were to occur, could have a material adverse effect on the market price of our common stock or on our business, financial condition and results of operations.
Accounting & Financial Operations - Risk 9
We expect to incur significant costs and devote substantial management time to maintaining our disclosure controls and procedures and internal control over financial reporting, and regardless we may be unable to prevent or detect all errors or acts of fraud or to accurately and timely report our financial results or file our periodic reports in a timely manner.
As a publicly traded company, our management is required to report annually on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected. We cannot assure you that the measures we have taken will be effective in mitigating or preventing significant deficiencies or material weaknesses in our internal control over financial reporting in the future. If we fail to maintain effective internal control over financial reporting to meet the demands that are placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or to report them within the timeframes required by law or exchange regulations. Additionally, we have engaged only a very limited number of accounting and finance personnel and we rely in part on outside consultants. We may need to incur additional expenses to hire additional personnel with public company financial reporting expertise to build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures. In the event we need to hire additional personnel with public company financial reporting expertise but we are unable to do so, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Accounting & Financial Operations - Risk 10
Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.
Debt & Financing1 | 2.1%
Debt & Financing - Risk 1
We expect to need to obtain additional capital to fund our existing operations and, if we are unable to obtain such financing, we may be unable to continue to operate as a going concern.
Considering our current cash resources and our current and expected levels of operating expenses for the next twelve months, we expect to need additional capital to fund our planned operations for at least twelve months. This evaluation is based on relevant conditions and events that are currently known or reasonably foreseeable. A reduction in consumer demand for, or revenues from the sale of, our single serve coffee products, co-packing services and bagged coffee production and packaging could further constrain our cash resources. We intend to seek to raise additional capital through public or private equity offerings. However, we may not be able raise such additional capital on favorable terms or at all. If we are unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. We may also consider raising additional capital in the future to expand our business, to pursue strategic investments or acquisitions, to take advantage of financing opportunities or for other reasons, including to: - fund development of our products and co-packing services;   - acquire, license or invest in technologies or intellectual property relating to our existing products;   - acquire or invest in complementary businesses or assets; and   - finance capital expenditures and general and administrative expenses. Our present and future funding requirements will depend on many factors, including: - success of our current marketing efforts;   - our revenue growth rate and ability to generate cash flows from sales of our products and co-packing services;   - effects of competing technological and market developments; and   - changes in regulatory oversight applicable to our products. The various alternatives for raising additional capital include short-term or long-term debt financings, equity offerings, collaborations or licensing arrangements and each one carries potential risks. If we raise funds by issuing equity securities, our stockholders will be further diluted. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations or our ability to issue additional equity securities or issue additional indebtedness. We may also be required under additional debt financing to grant security interests on our assets, including our intellectual property. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our intellectual property, or grant licenses on terms that are not favorable to us which could lower the economic value of those items to us. The credit markets and the financial services industry have in the past experienced turmoil and upheaval characterized by the bankruptcy, failure, collapse, or sale of various financial institutions and intervention from the U.S. federal government. Furthermore, the capital markets and the financial services industry are currently and expected to continue to be unpredictable and volatile. These events typically make equity and debt financing more difficult to obtain. Accordingly, additional equity or debt financing might not be available on reasonable terms, if at all. If we cannot secure additional funding when needed, including due to changes in our business plan, a lower demand for our products or co-packing services or other risks described in this Report, we may have to delay, reduce the scope of or eliminate one or more sales and marketing initiatives and development programs, which would have a materially adverse effect on our business.
Corporate Activity and Growth4 | 8.5%
Corporate Activity and Growth - Risk 1
Future acquisitions of and investments in new businesses could impact our business and financial condition.
From time to time, we may acquire or invest in businesses or partnerships that we believe could complement our business. The pursuit of such acquisitions or investments may divert the attention of management and cause us to incur various expenses, regardless of whether the acquisition or investment is ultimately completed. In addition, acquisitions and investments may not perform as expected and we may be unable to realize the expected benefits, synergies, or developments that we may initially anticipate. Further, if we are able to successfully identify and acquire additional businesses, we may not be able to successfully integrate the acquired personnel or operations, or effectively manage the combined business following the acquisition, any of which could harm our business and financial condition. In addition, to the extent we finance any acquisition or investment in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with shares of our common stock, it could be dilutive to our current stockholders.
Corporate Activity and Growth - Risk 2
We incur significant costs as a result of operating as a public company, and our management must devote substantial time to compliance initiatives as a result of the listing of our common stock on the Nasdaq Capital Market.
As a listed company, we are required to meet the continued listing requirements applicable to all NASDAQ Capital Market companies. We expect our ongoing compliance with such rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These requirements may divert the attention of our management and personnel from other business concerns, and they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot accurately predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as executive officers.
Corporate Activity and Growth - Risk 3
We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
While we are currently a small company and, therefore, limited in our product development, marketing and sales activities, we anticipate continued growth in our business operations commensurate with the expansion of our sales and support operations and distribution network and the commercialization of our coffee products. Any future growth could impose significant added responsibilities on members of our existing management and create strain on our organizational, administrative, and operational infrastructure, including sales and marketing, quality control, and customer service. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures, which in the past have been determined to be inadequate. Our status as an exchange-listed public company will require us to increase our investment in financial accounting and reporting. If our current infrastructure is unable to handle our growth, we may need to expand our infrastructure, to identify and recruit new staff and to implement new reporting systems. The time and resources required to implement such expansion and systems could adversely affect our operations. Our future financial performance and our ability to expand and market our single serve coffee products and to compete effectively will depend, in part, on our ability to manage this potential future growth effectively, without compromising quality.
Corporate Activity and Growth - Risk 4
Because our management structure is not centralized, the management of our business operations may be more expensive and more difficult.
As part of our strategy to attract the most qualified individuals, we do not require the members of our management team to relocate to a particular geographic area. Accordingly, the members of our management team are geographically dispersed. This decentralized structure might cause additional expenses in the conduct of our business, and may also delay communication between members of our management team, lower the quality of our management decisions or decrease our ability to take action quickly.
Legal & Regulatory
Total Risks: 7/47 (15%)Below Sector Average
Regulation3 | 6.4%
Regulation - Risk 1
Failure to comply with applicable transfer pricing and similar regulations could harm our business and financial results.
In many countries, including the United States, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned and are taxed accordingly. Although we believe that we are in substantial compliance with all applicable regulations and restrictions, we are subject to the risk that governmental authorities could audit our transfer pricing and related practices and assert that additional taxes are owed. In the event that the audits or assessments are concluded adversely to us, we may or may not be able to offset or mitigate the consolidated effect of foreign income tax assessments through the use of U.S. foreign tax credits. Because the laws and regulations governing U.S. foreign tax credits are complex and subject to periodic legislative amendment, we cannot be sure that we would in fact be able to take advantage of any foreign tax credits in the future.
Regulation - Risk 2
Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products.
Various jurisdictions may seek to adopt significant additional product labeling (such as requiring labeling of products that contain genetically modified organisms) or warning requirements or limitations on the availability of our products relating to the content or perceived adverse health consequences of certain of our products. If these types of requirements become applicable to one or more of our major products under current or future environmental or health laws or regulations, they may inhibit sales of such products. One such law, which is in effect in California and is known as Proposition 65, requires that a warning appear on any product sold in California that contains a substance that, in the view of the state, causes cancer or birth defects. The state maintains lists of these substances and periodically adds other substances to these lists. Proposition 65 exposes all food and beverage producers to the possibility of having to provide warnings on their products in California because it does not provide for any generally applicable quantitative threshold below which the presence of a listed substance is exempt from the warning requirement. Consequently, the detection of even a trace amount of a listed substance can subject an affected product to the requirement of a warning label. However, Proposition 65 does not require a warning if the manufacturer of a product can demonstrate that the use of the product in question exposes consumers to a daily quantity of a listed substance that is below a "safe harbor" threshold that may be established, is naturally occurring, is the result of necessary cooking, or is subject to another applicable exception. While currently substances created by and inherent in the processes of roasting coffee beans or brewing coffee have been determined by the State of California not to pose a significant risk, such chemicals could be added to the Proposition 65 lists in the future. With respect to substances that have not yet been listed under Proposition 65, the Company takes the position that listing is not scientifically justified. The State of California or other parties, however, may take a contrary position. If we were required to add Proposition 65 warnings on the labels of one or more of our beverage products produced for sale in California, the resulting consumer reaction to the warnings and possible adverse publicity could negatively affect our sales both in California and in other marketplaces.
Regulation - Risk 3
Changes in regulatory standards could adversely affect our business.
Our business is subject to extensive domestic and international regulatory requirements regarding distribution, production, labeling and marketing. Changes to regulation of the beverage industry could include increased limitations on advertising and promotional activities or other non-tariff measures that could adversely impact our business. In addition, we face government regulations pertaining to the health and safety of our employees and our consumers as well as regulations addressing the impact of our business on the environment, domestically as well as internationally. Compliance with these health, safety and environmental regulations may require us to alter our manufacturing processes and our sourcing. Such actions could adversely impact our results of operations, cash flows and financial condition, and our inability to effectively and timely comply with such regulations could adversely impact our competitive position.
Litigation & Legal Liabilities4 | 8.5%
Litigation & Legal Liabilities - Risk 1
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our third amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Nevada law. In addition, our third amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide for the following: - We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Nevada law. Nevada law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person's conduct was unlawful.   - We will also indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.   - We are required to advance expenses, as incurred, to any indemnitee in connection with defending a proceeding, except that such indemnitee shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.   - The rights conferred in our third amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.
Litigation & Legal Liabilities - Risk 2
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock has been, and may in the future be, volatile. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities litigation, including but not limited to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could have a material adverse effect on our business and financial condition.
Litigation & Legal Liabilities - Risk 3
Currently pending, threatened or future litigation or governmental or regulatory proceedings or inquiries could result in material adverse consequences, including judgments or settlements.
We are, or may from time to time become, involved in lawsuits and other legal, governmental or regulatory proceedings or inquiries. See "Item 3. Legal Proceedings" included in this Annual Report for information regarding currently pending litigation that could have a material impact on the Company. Many of these matters raise complicated factual and legal issues and are subject to uncertainties and complexities, all of which make the matters costly to address. The timing of the final resolutions to any such lawsuits, inquiries, and other legal proceedings is uncertain. Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our consolidated financial condition, results of operations and cash flows. Any judgment against us, the entry into any settlement agreement, or the imposition of any fine could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.
Litigation & Legal Liabilities - Risk 4
Employment litigation and unfavorable publicity could negatively affect our future business.
Employees may, from time to time, bring lawsuits against us regarding injury, creation of a hostile work place, discrimination, wage and hour, sexual harassment and other employment issues. In recent years there has been an increase in the number of discrimination and harassment claims generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Companies that have faced employment or harassment related lawsuits have had to terminate management or other key personnel and have suffered reputational harm that has negatively impacted their sales. If we were to face any employment related claims, our business could be negatively affected.
Tech & Innovation
Total Risks: 5/47 (11%)Below Sector Average
Innovation / R&D1 | 2.1%
Innovation / R&D - Risk 1
Continued innovation and the successful development and timely launch of new products and co-packing services are critical to our financial results and achievement of our growth strategy.
Our primary focus is the development of single serve coffee products in the North American market targeting the individual consumer for use at home and office or other settings. Under our private label coffee development program, we intend to continue working with current and new customers in developing private labels of signature coffees and, in this regard, use our expertise to source, roast (utilizing our third-party roasting or manufacturing partners), blend, and package coffee to their exact specifications. We have also developed and sell NuZee and DRIPKIT branded products. Our growth strategy includes, among other things, further developing our NuZee and DRIPKIT branded product lines and growing our private label coffee development program to reach new co-packing customers, as well as increasing sales of our coffee brew bag and bagged coffee products. In the future, as part of our growth strategy, we may also consider co-packaging other products that are complementary to our current single serve coffee product offerings and provide us with a deeper access to our customers. Our future success depends, largely, on our ability to implement these and our other growth strategies effectively. However, achievement of our growth strategy is dependent, among other things, on our ability to extend the product offerings of our existing brands and introduce innovative new products and co-packing services. Although we devote significant focus to the development of new products, including NuZee and DRIPKIT branded products, we may not be successful in developing innovative new products or our new products may not be commercially successful. We also may be unsuccessful in expanding our co-packaging services to other products that are complementary to our current single serve coffee product offerings. Additionally, our new product introductions are often time sensitive, and thus failure to deliver innovations on schedule could be detrimental to our ability to successfully launch such new products and retain partners, in addition to potentially harming our reputation and customer loyalty. If we fail to implement our growth strategies or if we invest resources in growth strategies that ultimately prove unsuccessful, our sales and profitability may be negatively affected, which would materially and adversely affect our business, financial condition and results of operations. Our financial results and our ability to maintain or improve our competitive position will depend on our ability to effectively gauge the direction of our key marketplaces and successfully identify, develop, manufacture, market and sell new or improved products and co-packing services in these changing marketplaces.
Trade Secrets2 | 4.3%
Trade Secrets - Risk 1
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time subject to legal proceedings and claims relating to the intellectual property rights of others. There may be third-party intellectual property that is infringed by our products, services or other aspects of our business. There could also be existing patents or other intellectual property rights of which we are not aware that our products may inadvertently infringe. We cannot assure you that holders of the relevant intellectual property rights purportedly relating to some aspect of our technology platform or business, if any such holders exist, would not seek to enforce such intellectual property rights against us in the United States or any other jurisdiction. We also cannot be certain that our efforts will be effective in completely preventing the infringement of trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management's time and other resources from our business and operations to defend against these third-party infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question.
Trade Secrets - Risk 2
We may not be able to adequately protect our intellectual property rights, and our competitors may be able to offer similar products and services, which would harm our competitive position.
Our success depends in part upon our intellectual property rights. We rely primarily on trademark, trade secret laws, confidentiality procedures, license agreements and contractual provisions to establish and protect our proprietary rights over our products, procedures and services. Other persons could copy or otherwise obtain and use our intellectual properties without authorization or create intellectual properties similar to ours independently. We may also pursue the registration of our domain names, trademarks and service marks in other jurisdictions, including the United States. However, we cannot assure you that we will be able to protect our proprietary rights. Further, our competitors may be able to independently develop similar intellectual property, duplicate our products and services or design around any intellectual property rights we hold. Further, our intellectual property rights may be subject to termination or expirations. The loss of intellectual property protections or the inability to timely regain intellectual property protections could harm our business and ability to compete.
Cyber Security1 | 2.1%
Cyber Security - Risk 1
If we are unable to protect our information systems against service interruption or failure, misappropriation of data or breaches of security, our operations could be disrupted, we could be subject to costly government enforcement actions and private litigation and our reputation may be damaged.
Our businesses involve the collection, storage and transmission of personal, financial or other information that is entrusted to us by our customers and employees. Our information systems also contain the Company's proprietary and other confidential information related to our businesses. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; telecommunications or system failures; server or cloud provider breaches; computer viruses; physical or electronic break-ins; cyber-attacks; catastrophic events; or breaches due to employee error or malfeasance or other attempts to harm our systems. Cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology networks and systems to more sophisticated and targeted measures, known as advanced persistent threats, directed at the Company, its products, its customers and/or its third-party service providers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures in time. We could also experience a loss of critical data and delays or interruptions in our ability to manage inventories or process transactions. Some of our commercial partners, such as those that help us deliver our website, may receive or store information provided by us or our users through our websites. If these third parties fail to adopt or adhere to adequate information security practices, or fail to comply with our online policies, or in the event of a breach of their networks, our users' data may be improperly accessed, used or disclosed. If our systems are harmed or fail to function properly, we may need to expend significant financial resources to repair or replace systems or to otherwise protect against security breaches or to address problems caused by breaches. If we experience a significant security breach or fail to detect and appropriately respond to a significant security breach, we could be exposed to costly legal or regulatory actions against us in connection with such incidents, which could result in orders or consent decrees forcing us to modify our business practices. Any incidents involving unauthorized access to or improper use of user information, or incidents that are a violation of our online privacy policy, could harm our brand reputation and diminish our competitive position. Any of these events could have a material and adverse effect on our business, reputation or financial results. Our insurance policies carry coverage limits, which may not be adequate to reimburse us for losses caused by security breaches.
Technology1 | 2.1%
Technology - Risk 1
Our business operations are conducted in multiple languages and could be disrupted due to miscommunications or translation errors.
The success of our business depends in part on our marketing efforts in the United States and various countries in East Asia and Latin America, each of which is conducted in the local language. Additionally, our operations often require that complex contracts, communications and technical information be accurately translated into foreign languages. Miscommunications or inaccurate foreign language translations could have a material adverse effect on our business operations and financial condition.
Production
Total Risks: 5/47 (11%)Below Sector Average
Manufacturing1 | 2.1%
Manufacturing - Risk 1
Product safety and quality concerns could negatively affect our business.
Our success depends in part on our ability to maintain consumer confidence in the safety and quality of all of our products. While we are committed to the safety and quality of our products, we may not achieve our product safety and quality standards. Product safety or quality issues, or mislabeling, actual or perceived, or allegations of product contamination or quality or safety issues, even when false or unfounded, could subject us to product liability and consumer claims, negative publicity, a loss of consumer confidence and trust, may require us from time to time to conduct costly recalls from some or all of the channels in which the affected product was distributed, could damage the goodwill associated with our brands, and may cause consumers to choose other products. Such issues could result in the destruction of product inventory and lost sales due to the unavailability of product for a period of time, which could cause our business to suffer and affect our results of operations.
Employment / Personnel1 | 2.1%
Employment / Personnel - Risk 1
The loss of any member of our senior management team or our inability to attract and retain highly skilled personnel could have a material adverse effect on our business.
Our success depends on the skills, experience and performance of key members of our senior management team. The individual and collective efforts of our senior management team will be important as we continue to expand our commercial activities and develop additional products. The loss or incapacity of existing members of our senior management team could have a material adverse effect on our business and financial condition if we experience difficulties in hiring qualified successors. Our employment agreements with our executive officers are "at will", and the retention of our executive officers for any period of time cannot be guaranteed. We do not maintain "key person" insurance on any of our employees. Due to the specialized nature of the business and our small size, we are highly dependent upon our ability to attract and retain qualified sales and marketing, technical and managerial personnel. The loss of the services of existing personnel, as well as the failure to recruit key sales, marketing, technical and managerial personnel in a timely manner would be detrimental to our development and could have a material adverse effect on our business and financial condition. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as sales and marketing, may require the addition of new management personnel, both domestic and international. All of our employees may terminate their employment at any time with short or no advance notice. We may have difficulties locating, recruiting or retaining qualified sales people. Recruiting and retention difficulties will limit our ability to support our development and sales programs and to build a commercially viable business. The competition for talent is currently extremely high. In this competitive environment, our business could be adversely impacted by increases in labor costs, including wages and benefits, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers' compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets, and increased wages, and benefits and other costs. In addition, our wages and benefits programs, combined with the periodic challenges in the labor market, may be insufficient to attract and retain talent.
Supply Chain2 | 4.3%
Supply Chain - Risk 1
Interruption or increased costs of our supply chain and sales network, including a disruption in operations at any of our facilities or our manufacturer partners' facilities, could affect our ability to manufacture or distribute products and could adversely affect our business and sales.
A disruption in operations at any of our facilities or any other disruption in our supply chain or increase in prices relating to service by our retailers, distributors, common carriers that ship goods within our distribution channels, or otherwise, whether as a result of shipping costs and delays, trade restrictions, casualty, natural disaster, weather, power loss, telecommunications failure, terrorism, labor shortages, contractual disputes, interruptions in port operations or highway arteries, pandemic, strikes, work stoppages, the financial or operational instability of key suppliers, distributors and transportation providers, or other causes, could significantly impair our ability to operate our business, adversely affect our relationship with our customers, and impact our financial condition or results of operations. In the fiscal years ended September 30, 2023 and September 30, 2022, we have experienced delays in the shipment to us of coffee and packaging materials for co-packing for a variety of reasons including seasonal availability, supply chain delays and supplier interruptions. To date, in some cases we have been able to mitigate these adverse effects in part by sourcing coffee and other supplies from alternative suppliers in the United States, but any such mitigation efforts may not be successful in the future.
Supply Chain - Risk 2
Our business, growth and profitability depend on the performance of third-parties and our relationship with them.
In connection with the manufacture of NuZee and DRIPKIT branded products and private labels for our co-packing customers under our private label development program, we rely on third-party roasters and manufacturing partners to roast green whole bean coffee according to our specifications before shipping to us for grinding, blending, packing and packaging. We also rely on our manufacturing partners to provide us with additional manufacturing, coffee roasting and co-packing capabilities, and facilitate distribution efforts throughout the United States. Our reliance on third-party roasters and manufacturing partners subjects us to additional risks, including the possible termination of the arrangement by a third-party roaster or manufacturing partner at a time that is costly or inconvenient for us. Our third-party roasters and manufacturing partners are independent entities subject to their own unique operational and financial risks that are out of our control. If any of these third-party roasters or manufacturing partners fail to perform as required, this could cause delays in our receipt of roasted whole-bean coffee that is necessary to manufacture our products and provide our co-packing services or otherwise adversely affect our business. In addition, a significant portion of our distribution network, and correspondingly our success in distributing our single serve coffee products, depends on the performance of third-parties. Any non-performance or deficient performance by such parties may undermine our operations and profitability. For distribution of our single serve coffee products as well as our bagged coffee products to our co-packing customers, we typically rely on third party distribution networks, including freight companies and common carriers. At the request of our co-packing customers, we may also utilize a freight broker for the distribution and delivery of our products according to our co-packing customers' instructions. The success of these distribution networks depends on the performance of brokers, distributors, common carriers and retailers, as well as our third-party manufacturing partners as it relates to distribution of certain of our products. There is a risk that a broker, distributor, common carrier or retailer may refuse to or cease to market or carry our product, or that any such entity or our third-party manufacturing partner may not adequately perform its functions within the network by, without limitation, failing to distribute our products. Furthermore, such third-parties' financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sale activities. We must also maintain good commercial relationships with third-party brokers, distributors and retailers so that they will promote and carry our product. Any adverse consequences resulting from the performance of third-parties or our relationship with them could undermine our operations and profitability.
Costs1 | 2.1%
Costs - Risk 1
Increases in the cost of high-quality coffee beans or other commodities or decreases in the availability of high quality coffee beans or other commodities could have an adverse impact on our business and financial results.
Under our co-packing arrangements, our co-packing customers typically supply us with roasted, whole bean coffee that we then produce and package into single serve pour over, DRIPKIT pour over and coffee brew bag coffee products according to their formulations and specifications. We also purchase green whole bean coffee from multiple green coffee suppliers to support the manufacture of our NuZee and DRIPKIT branded coffee products and the development of private labels under our private label development program, in which we work with co-packing customers in developing private labels of signature coffees by sourcing, blending, and packaging coffee to their exact specifications. After being sourced by us, the green whole bean coffee is then shipped to our roasting partners where the coffee is roasted and then shipped to us for grinding, blending and packaging. The price of coffee is subject to significant volatility, and may increase due to the factors described below. The high-quality coffee beans we and our co-packing customers seek tend to trade on a negotiated basis at a premium above the commodity trading price of coffee as quoted on the Intercontinental Exchange, also known as the "C" price of coffee. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the "C" coffee commodity price do increase the price of high-quality coffee and also impact our ability to enter into fixed-price purchase commitments. The supply and price of coffee we and our co-packing customers purchase can also be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease (such as coffee rust) and pests, general increase in farm inputs and costs of production, armed conflict, labor actions, government actions and trade barriers or tariffs, inventory levels and political and economic conditions, as well as real or perceived supply shortages, an increase in green coffee purchased and sold on a negotiated basis rather than directly on commodity markets in response to higher production costs relative to "C" market prices, pandemics or other disease outbreaks, and the actions of certain organizations and associations that have historically attempted to influence prices of coffee through agreements establishing export quotas or by restricting coffee supplies. Recently, there has been increased volatility in the "C" market price, with prices at times increasing to five-year highs. The uncertainty over several factors, including the impact of weather patterns in coffee producing regions, and global supply chain constraints and shipping shortages, caused greater uncertainty in the markets. In addition, the political situation in many of the coffee growing regions, including Africa, Indonesia, and Central and South America, can be unstable, and such instability could also reduce supply and increase cost. Speculative trading in coffee commodities can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality coffee beans could have an adverse impact on our profitability, financial condition or results of operations. Maintaining a steady supply of roasted coffee beans from our co-packing customers is essential to our co-packing arrangements, and securing an adequate supply of green whole bean coffee is essential to our ability to manufacture NuZee and DRIPKIT branded products and to support the development of private labels for our co-packing customers. We and certain of our co-packing customers rely upon relationships with key suppliers to source coffee. If any of these supply relationships deteriorate or we or our co-packing customers are unable to renegotiate contracts with suppliers (with similar or more favorable terms) or find alternative sources for supply, we or our co-packing customers may be unable to procure a sufficient quantity of high-quality coffee beans at acceptable prices or at all. If we or our co-packing customers are not able to purchase sufficient quantities of coffee due to any of the above factors or a worldwide or regional shortage, we may not be able to fulfill the demand for our products or may suffer reduced demand for our co-packing services, which could have an adverse impact on our business and financial results.
Ability to Sell
Total Risks: 5/47 (11%)Below Sector Average
Competition1 | 2.1%
Competition - Risk 1
Increased competition, including as a result of industry consolidation, could hurt our businesses.
The beverage industry is intensely competitive and we compete with respect to product, quality, convenience, technology, innovation, and price. We face significant competition in each of our channels and marketplaces. We compete with major international beverage companies that operate in multiple geographic areas, many of which have greater financial and other resources than we do, as well as numerous companies that are primarily local in operation. Our NuZee and DRIPKIT branded products also compete against local or regional brands as well as against private label brands developed by retailers. Our ability to gain or maintain share of sales in the global marketplace or in various local marketplaces or maintain or enhance our relationships with our partners and customers may be limited as a result of actions by competitors, including as a result of increased consolidation in the food and beverage industry.
Demand3 | 6.4%
Demand - Risk 1
Sales to a limited number of customers represent a significant portion of our net sales. The loss of a key customer, including by consolidation in the retail channel, and efforts by our customers to improve their profitability could reduce sales of NuZee branded products and sales from our co-packing services which would adversely affect our financial performance.
Sales to relatively few co-packing customers account for a significant percentage of our net sales, and our success depends in part on our ability to maintain good relationships with these and other key retail and grocery customers. Currently, Amazon and our Coffee Blenders website are our only established domestic retail channels for direct sales to consumers of NuZee branded products. However, we can provide no assurance that any of these customers or any of our other customers will continue to utilize our products or our co-packing services at current levels, or at all. We have arrangements with our co-packing customers primarily based on purchase orders which stipulate key terms including order quantity, product specifications, price, payment terms, packaging method and delivery instructions. As a result, many of our key customers may cease purchasing our products or utilizing our co-packing services at any time without penalty and are free to purchase products from our competitors. There can be no assurance that our customers will continue to purchase our products or utilize our co-packing services in the same mix or quantities or on the same terms as they have in the past. The loss of one or more of our key customers, or cancellation of or reduction in the amount of purchases by our key customers, could have an adverse effect on our results of operations and financial condition. In addition, because of the competitive environment facing retailers, many of our customers have increasingly sought to improve their profitability through increased promotional programs, pricing concessions, more favorable trade terms and increased emphasis on private label products. To the extent we provide concessions or trade terms that are favorable to customers, our margins would be reduced. Further, if we are unable to continue to offer terms that are acceptable to our significant customers or our customers determine that they need fewer inventories to service consumers, these customers could reduce purchases of our products or may increase purchases of products from our competitors, which would harm our sales and profitability. Our industry is also being affected by the trend toward consolidation in the retail channel. Retailers have and will likely continue to seek lower prices from us and demand increased marketing or promotional expenditures. Large retailers also may be more likely to use their distribution networks to introduce and develop private label brands. Strategic partners may also choose to vertically integrate their brands' manufacturing and distribution. Any of the foregoing could negatively affect sales of our products and co-packing services and our profitability.
Demand - Risk 2
Changes in the coffee, tea and beverage environment and retail landscape could impact our financial results.
The coffee, tea and beverage environment is rapidly evolving as a result of, among other things, changes in consumer preferences; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, the beverage retail landscape is dynamic and constantly evolving, not only in emerging and developing marketplaces, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed marketplaces, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace. If we are unable to successfully adapt to the rapidly changing environment and retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.
Demand - Risk 3
Any failure by us to accurately forecast customer demand for our products, or to quickly adjust to forecast changes, could adversely affect our business and financial results.
There is inherent risk in forecasting demand due to the uncertainties involved in assessing the current level of maturity of the single serve component of our business as well as the current and future needs of our customers. We set target levels for the manufacture of our coffee products and for the purchase of coffee in advance of customer orders based upon our forecasts of customer demand and those of our business partners. If our forecasts exceed demand, we could experience excess inventory in the short-term, excess manufacturing capacity in the short and long-term, and/or price decreases, all of which could impact our financial performance. Alternatively, if demand exceeds our forecasts significantly beyond our current manufacturing capacity, we may not be able to satisfy customer demand, which could result in a loss of share if our competitors are able to meet customer demands. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income.
Sales & Marketing1 | 2.1%
Sales & Marketing - Risk 1
A substantial portion of our sales are completed on a purchase order basis without any written agreements, including sales under our co-packing arrangements as well as purchase orders for NuZee branded products from nationally recognized retailers. Such co-packing customers or retailers may issue fewer or smaller purchase orders than we expect under our co-packing arrangements, which could negatively impact our revenues. In addition, although these purchase orders are generally not cancelable, such customers may decide to delay or cancel orders, which could also negatively impact our revenues.
Generally, under our co-packing arrangements as well as our fulfillment of purchase orders for the distribution of NuZee branded products through nationally recognized retailers, customers must issue purchase orders for our products and co-packing services. Although these purchase orders stipulate key terms including order quantity, product specifications, price, payment terms, packaging method and delivery instructions, our co-packing arrangements and our arrangements with nationally recognized retailers are typically not governed by any written agreement and have no ongoing minimum purchase requirements. Accordingly, we cannot predict or make any guarantee of the amount of any future orders from co-packing customers or national retailers. In addition, although orders covered by firm purchase orders are generally not cancelable, customers may decide to delay or cancel orders, and we may have difficulty enforcing the provisions of the purchase order. In the event that customers with whom we have co-packing or retail fulfillment arrangements issue fewer or smaller purchase orders than we expect, or we experience any delays or cancellations in orders (due to continued distress in the global economy for any reason, including supply chain disruptions, inflation, commodity price fluctuations, etc.), our revenues could decline substantially. Any such decline could result in us incurring additional net losses, increasing our accumulated deficit and needing to raise additional capital to fund our operations.
Macro & Political
Total Risks: 1/47 (2%)Below Sector Average
International Operations1 | 2.1%
International Operations - Risk 1
Our international sales and operations subject us to various additional legal, regulatory, financial and other risks.
We have a manufacturing and sales office in Seoul, Korea. We operate globally and are attempting to develop products and provide co-packing services in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which may expose us to certain financial and other risks. International operations are subject to a variety of risks, including: - foreign currency exchange rate fluctuations;   - greater difficulty in overseeing foreign operations;   - logistical and communications challenges;   - potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;   - burdens and costs of compliance with a variety of foreign laws;   - political and economic instability;   - foreign tax laws and potential increased costs associated with overlapping tax structures;   - greater difficulty in protecting intellectual property;   - the risk of third-party disputes over ownership of intellectual property and infringement of third-party intellectual property by our products; and   - general social, economic and political conditions in these foreign markets.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
    The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
      They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
        It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
          How do companies disclose their risk factors?
          Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
            Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
              Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
                According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
                  How can I use TipRanks risk factors in my stock research?
                  Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
                    You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
                      Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
                        A simplified analysis of risk factors is unique to TipRanks.
                          What are all the risk factor categories?
                          TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
                          1. Financial & Corporate
                          • Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
                          • Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
                          • Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
                          • Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
                          2. Legal & Regulatory
                          • Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
                          • Regulation – risks related to compliance, GDPR, and new legislation.
                          • Environmental / Social – risks related to environmental regulation and to data privacy.
                          • Taxation & Government Incentives – risks related to taxation and changes in government incentives.
                          3. Production
                          • Costs – risks related to costs of production including commodity prices, future contracts, inventory.
                          • Supply Chain – risks related to the company’s suppliers.
                          • Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
                          • Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
                          4. Technology & Innovation
                          • Innovation / R&D – risks related to innovation and new product development.
                          • Technology – risks related to the company’s reliance on technology.
                          • Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
                          • Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
                          5. Ability to Sell
                          • Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
                          • Competition – risks related to the company’s competition including substitutes.
                          • Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
                          • Brand & Reputation – risks related to the company’s brand and reputation.
                          6. Macro & Political
                          • Economy & Political Environment – risks related to changes in economic and political conditions.
                          • Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
                          • International Operations – risks related to the global nature of the company.
                          • Capital Markets – risks related to exchange rates and trade, cryptocurrency.
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