UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8‑K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 19, 2013
HAVANA FURNISHINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada |
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333-176684 |
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38-3849791 |
(State or other jurisdiction of incorporation) |
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(Commission File Number) |
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(IRS Employer Identification No.) |
7940 Silverton Avenue, #109
San Diego, CA 92126
(Address of principal executive offices, including zip code)
(858) 549-6893 or toll-free 855-936-8933
(Registrant's telephone number, including area code)
Edificio Ultramar Plaza, Apt. #4A 47th Street, Panama City, Panama
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This document contains forward-looking statements which reflect the views of Havana Furnishings, Inc. and with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our Company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as "estimate," "expects", "project," "predict," "believe," "expect," "anticipate," "target," "plan," "intend," "seek," "goal," "will," "should," "may," "targets" or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect us and to take advantage of the "safe harbor" protection for forward-looking statements that applicable federal securities law affords.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which we conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services, and prices.
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in the section below entitled "Risk Factors" and other sections of this report, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements. We do not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
FORM 10 DISCLOSURES
As disclosed elsewhere in this report, on April 19, 2013, Havana Furnishings, Inc. (the "Company", or "HVFI" acquired NuZee Co., Ltd. ("NuZee") for stock. Item 2.01(f) of Form 8-K states that: if the registrant was a shell company, as we were immediately before the acquisition transaction disclosed under Item 2.01, then the registrant must disclose the information that would be required if the registrant were filing a general form for registration of securities on Form 10.
Accordingly, we are providing below the information that would be included in a Form 10, if we were to file a Form 10. Please note that the information provided below relates to the combined enterprises after the acquisition of NuZee.
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On April 19, 2013, Havana Furnishings, Inc., a Nevada corporation (the "Company") entered into a Share Exchange Agreement (the "Share Exchange Agreement") with NuZee Co., Ltd., a California corporation ("NuZee"), and the NuZee shareholders (the "NuZee Shareholders"). Pursuant to the terms of the Share Exchange Agreement, we agreed to acquire all of the issued and outstanding shares of NuZee's common stock in exchange for the issuance by our Company of 33,733,333 shares of our common stock to the NuZee Shareholders. As a result of the Share Exchange Agreement, NuZee became a wholly-owned subsidiary of the Company and the Company now carries on the business of NuZee as its primary business. The Share Exchange Agreement contains customary representations, warranties and conditions to closing. The closing of the Share Exchange Agreement (the “Closing”) occurred on April 19, 2013 (the “Closing Date”).
As a result of the Share Exchange Agreement:
(a) each outstanding NuZee Share was cancelled, extinguished and converted into and became the right to receive a pro rata portion of Company Shares which equaled the number of NuZee Shares held by each NuZee Shareholder multiplied by the exchange ratio of 1:1 (the “Exchange Ratio”), rounded, if necessary, up to the nearest whole share. Based on the Exchange Ratio, as a result of the Share Exchange Agreement, the NuZee Shareholders own a total of 33,733,333 restricted shares of common stock of the Company.
(b) Haisam Hamie irrevocably cancelled a total of 4,000,000 restricted shares of common stock of the Company.
A description of the specific terms and conditions of the Share Exchange Agreement is set forth in the Share Exchange Agreement filed herewith as Exhibit 2.01.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
THE MERGER
The information provided in Item 1.01 of this Current Report on Form 8-K related to the aforementioned Share Exchange Agreement is incorporated by reference into this Item 2.01.
As a result of the Share Exchange Agreement, (i) our principal business became the business of NuZee; and (ii) NuZee became a wholly-owned subsidiary of the Company. As the NuZee Shareholders obtained the majority of the outstanding shares of the Company through the acquisition, the acquisition is accounted for as a reverse merger or recapitalization of the Company. As such, NuZee is considered the acquirer for accounting purposes.
As of the date of the Share Exchange Agreement, there were no material relationships between the Company and NuZee or between the Company and any of NuZee’s respective affiliates, directors, or officers, or associates thereof, other than in respect of the Share Exchange Agreement.
DESCRIPTION OF BUSINESS
As used in this Current Report on Form 8-K, all references to “we”, “our” and “us” for periods prior to the closing of the Exchange refer to NuZee Co., Ltd. as a privately owned company, and for periods subsequent to the closing of the Exchange, refer to the Company and its subsidiaries (including NuZee).
HISTORY
NuZee Co. Ltd. was incorporated in the State of California in November, 2011 and is headquartered in San Diego, California. NuZee was started by its Chairman Mr. Masa Higashida, after the devastating tsunami that hit Japan in March 2011. At the time, Mr. Higashida’s singular goal was to provide safe bottled drinking water to help in the recovery effort. That humanitarian effort led to the establishment and launch of NuZee.
Since its inception, NuZee has engaged in the importation and distribution of bottled spring water from New Zealand. On September 17, 2012, NuZee purchased all rights to the proprietary formula for an energy drink from its creator, Travis Gorney of Point Blank Beverage, Inc. NuZee currently produces and markets its energy drink under the name "Torque." In addition, NuZee is exploring the importation and distribution of a line of natural skincare products. NuZee is expanding its operations across the United States by delivering products that fit one or more of the following product categories: “Protection”, “Performance”, and “Pristine.” The mission of NuZee is to produce and/or market products in these three product categories that satisfy the needs of consumers who demand high quality products with natural and organically sourced ingredients packaged for convenience and “on-the-go” use.
As described above, on April 19, 2013, NuZee entered into the Share Exchange Agreement with Havana Furnishings, Inc. "Havana") whereby NuZee became a wholly owned subsidiary of Havana. Pursuant to the Share Exchange Agreement, Havana has Filed Amended Articles of Incorporation to change its name to NuZee, Inc. The Amended Articles shall become effective on May 2, 2013.
PRODUCTS
NuZee's focus is in three product categories: “Protection”, “Performance”, and “Pristine.”
Performance Category - Energy Drinks
In 2012, NuZee purchased all rights to a proprietary formulation for the energy supplement drink it markets under the name "Torque." The Company’s Torque product has launched in select markets and is being tested using a variety of consumer promotions to gain shelf-space in retail distribution. The Company plans to expand the product line to include new flavors and derivatives to address unmet market demand.
NuZee plans to distribute its performance products through a traditional two-step distribution channel of wholesalers and distributors to retailers. The Company is building out a national footprint of stores with plans to eventually have more than 50,000 store-fronts operational using a combination of convenience, grocery, and mass merchant chains.
The Energy Supplement product category, which falls into the NuZee Performance Category, is enjoying sustainable growth for existing and new entrants. The U.S. energy supplement market surpassed $1 Billion in Sales in 2011 (Source: Forbes, 2012) and is growing at or above the beverage industry average growth rate according to independent research by Nielsen.
The market is currently dominated by Living Essentials, LLC who distributes and markets 5-Hour Energy® with more than 90 percent market share followed by a handful of smaller companies. Management believes that if it executes on its product and distribution plans it can solidify a meaningful market share percentage in categories not presently addressed by current competition.
NuZee maintains an efficient cost structure by employing contract manufacturers to source its proprietary formulated performance products allowing for flexible scale and growth. NuZee’s primary suppliers include multiple bottlers, ingredient suppliers, and co-packers located across the United States. In exchange for developing our proprietary energy blend NuZee has entered into an agreement to purchase its raw materials from one of its beverage architect for a period of three (3) years.
As the energy related product line evolves NuZee plans to monitor and respond to any US FDA or individual state licensing authorities to maintain compliance regarding energy related food and beverage regulations. As the company is currently in the development stage our energy products did not contribute significantly to our revenues in FY 2012. However, management believes that the energy products will become the dominate revenue producing product line on moving forward.
NuZee acquisition of Point Blank Beverage assisted the Company in acquiring an energy shot and beverage formula foundation that minimized its required capital investment and shorten its development time to market. The Company expects to continue to invest in new derivative formulas through a partnership with its energy beverage architects. The Company plans to allocate its development cost by amortizing the expense over the cost of raw materials. This approach to new product development will be applied to a new innovative line of energy based creamer supplement products called Coffee Blenders TM .
NuZee will continue to monitor the social and public perception as well as the government compliance regulations associated with the energy product market. To date, there are no specific FDA regulations or certification regarding the manufacturing and distribution of energy shots as they are currently classified as dietary supplements; as such the Company will continue comply with the general regulations regarding dietary supplements.
Protection Category - Organic Skin Care
For NuZee, the Protection Category includes NuZee's skin care related products. Both the NuZee Natural and NuZee Organic product lines are made in New Zealand and produced under strict oversight and requirements to comply with BioGro Certified Organic and the USDA Organic guidelines.
Our Natural Skin Care line contains up to 98.6% all natural ingredients, and contains no synthetic color, ethyl alcohol, silicon oil or added paraben preservatives. Our Organic Skin Care line contains up to 100% certified organic natural ingredients and contains no synthetic oils, added paraben preservatives, artificial fragrances, colors or Peg Emulsifiers.
The NuZee Natural and Organic Skin Care product lines are produced by CNS Laboratories New Zealand Ltd., using a proprietary formula exclusive to our distribution partner iSpring. All of our skin care products are purchased through iSpring, a New Zealand company owned by one of our Directors, Masa Higashida. iSpring has authorized NuZee to market the skin care products for North America distribution and private label opportunities globally.
In 2011, the organic skin care market in the United States surpassed more than $1.7 billion in annual sales and the entire category is growing at a rate of greater than 10% year over year, with projected sales at $5.8 Billion in 2016 (Source: Kline Group, 2012) NuZee is evaluating the market opportunity for the Skin Care business and plans to employ a strategy of working with established brands for custom private label programs rather than building a new brand in the United States.
While the Company is currently in development stage, the revenues associated with our skin care product sales did not contribute to revenues in 2012.
Pristine Category – Bottled Water
The Company is proud of the source and origin of its NuZee artesian and sparkling water. NuZee water is pure New Zealand spring water sourced from an unground Blue Spring that is revered for its minerality properties, clarity, and blue hues. The water that flows from the Blue Spring is just to the east of Putaruru in the North Island of New Zealand and is rich in Silica (76g/Liter) a mineral that is prized for its health benefits. The Plateau gathers rain that fell over 100 years ago which makes its way underground into layered aquifers within fractured rock and volcanic sand aquifers. The water gushes out of the spring into the Waihou River at a rate of 42 cubic meters per minute (9,240 gallons per minute) and is a constant 11 degrees Celsius (51.8 degrees Fahrenheit) all year.
The entire area is protected and cared for and the Blue Spring is recognized as one of the purest water acquirers in the world with a TDS (Total Dissolved Solids) measured at 129 ppm parts per million. For example, filtered and treated tap water averages 200-400 ppm (US EPA Maximum Level is 500 ppm).
NuZee is the exclusive U.S. distributor for NuZee bottled spring water, which is bottled in New Zealand and shipped to our distribution center in California. Currently all bottled water products are purchased through iSpring, a New Zealand company owned by one of our Directors, Masa Higashida. NuZee plans to work directly with its bottlers to improve efficiency and stream line processes whereby iSpring will source from NuZee. The NuZee Pristine products are currently in market trials to measure sell-through and fine-tune the business model. Presently the Company plans to focus its water business sales to private label partners whereby only contracting with established brands that already have distribution and marketing capabilities as the cost of a new water entrant is capital intensive. The Company is pursuing a host of strategic partnerships with US based beverage firms that may materialize over the course of 2013.
Through NuZee’s New Zealand water source/bottler partnership we are able to achieve license and certification with local and state government agencies. The Company plans to continue to support its iSpring distribution partnership whereby iSpring utilitizes NuZee branding for its products sold throughout Asia with primary focus on Japan and South Korea.
While the Company is currently in development stage, the revenues associated with our bottled water product sales accounted for 86% of our revenue in 2012.
Patents and Trademarks
NuZee has entered into an agreement to purchase TORQ ® and TORQ WRENCH TM trademarks in the United States from the HydroPouch Corporation. In addition, NuZee has received trademark registration for the TORQUE mark in New Zealand. Separately, NuZee has filed for trademark registration for Coffee Blenders TM in preparation for a new derivative line of products.
Employees
We currently employ five (5) full-time employees with four (4) employees based in San Diego and one remote satellite employee.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
Our website address is www.nuzeeskincare.com. Information on our website does not constitute part of this Report or any other report we file or furnish with the SEC.
RISK FACTORS
RISKS RELATED TO OUR COMPANY
We Will Be Reorganized as a Start Up Company
Havana Furnishings, Inc. is reorganizing to engage in a new and different business. If successful, of which there is no assurance, the newly reorganized business, will still be deemed to be a start-up company that has generated a limited amount of revenue its inception. We expect to incur operating losses for the foreseeable future, and there can be no assurance that we will be able to validate and market products in the future that will generate revenues or that any revenues generated will be sufficient for us to become profitable or thereafter maintain profitability.
We Have Limited Operating History Upon Which to Evaluate Our Potential for Future Success.
The Company has only a limited operating history on which to base an evaluation of its business and prospects. In addition, the Company’s revenue model is evolving and relies substantially on the assumption that the Company will be able to successfully complete development of and sell its products and services in the marketplace. The Company’s prospect must be considered in light of the risk, uncertainties, expenses and difficulties frequently encountered by companies in the earliest stages of development. To be successful in the market, the Company must among other things:
· Complete development of and introduce functional and attractive product offerings;
· Attract and maintain distribution partners and their commitments;
· Establish and increase awareness of the Company’s brand and develop customer loyalty;
· Provide desirable products and services to customers at attractive prices;
· Establish and maintain relationships with manufacturing, sourcing and logistics partners and affiliates;
· Rapidly respond to regulatory and governmental requirements;
· Be in compliance with changing FDA regulations;
· Maintain cross boarder commerce and distribution operations;
· Be in compliance with changes in import and export regulations, taxes and tariffs;
· Build operations and customer service structure to support the Company’s business; and
· Attract, retain, and motivate qualified personnel.
The Company cannot guarantee that it will be able to achieve these goals and is failure to do so could have a material adverse effect on the Company’s business, results of operations and financial condition. Moreover, there can be no assurance that the Company will be able to obtain additional funding when the Company’s financial resources are exhausted. The Company expects that its revenues and operating results will fluctuate in the future. There can by no assurance that any or all of the Company’s efforts will be successful.
Our Independent Registered Public Accounting Firm Has Expressed Substantial Doubt About Our Ability To Continue As A Going Concern.
We have working capital of $13,508 and have recognized net loss of $604,573 for the cumulative period from November 9, 2011(inception) to December 31, 2012. Although the Company has a revenue stream, it has only be operational for less than one year and has no historical operations to base our anticipated future cash flows. The future of our Company is dependent upon future profitable operations from the sales of our media. Our management will need to seek additional financing in the future in order to expand our operations. These conditions raise substantial doubt about our company's ability to continue as a going concern. Although there are no assurances that our plans will be realized, our management believes that we will be able to continue operations in the future.
Our Success is Dependent on Collaborative Arrangements.
The development and commercialization of the Company’s products and services depends in large part upon the Company’s ability to selectively enter into and maintain collaborative arrangements with manufacturers, distributors, partners, providers, etc.
Need of Additional Financing; Limited Resources.
The Company’s financial resources are limited and the amount of funding that it will require developing and commercializing its products and technologies is highly uncertain. Adequate funds may not be available when needed or on term satisfactory to the Company. Lack of funds may cause the Company to delay, reduce and/or abandon certain or all aspects of its research and development programs.
Early to Market Challenge is Critical.
The success of the Company is dependent on its ability to quickly get to market and establish an early mover advantage. The Company must implement an aggressive sales and marketing campaign to solicit customers and strategic partners. Any delay could seriously affect its ability to establish and exploit effectively its early-to-market-strategy.
We face intense competition within the premium bottled water market as well as from other beverage and energy supplement providers. If we are unable to compete effectively, our business could be harmed.
The premium bottled water market is highly competitive. Our products currently represent less than 1% of this market. Many of our competitors have greater financial, marketing and other resources than we currently do, and therefore may be able to devote greater resources to the marketing and sale of their products, generate national brand recognition or adopt more aggressive pricing policies than we can, which would put us at a competitive disadvantage. Our competitors have products that have already gained wide customer acceptance in the marketplace and preferred shelf space at retail locations.
Our products also compete with less expensive, non-premium bottled water products offered by major beverage bottling companies. If consumers purchasing premium water switch to these non-premium alternatives, or other non-premium water alternatives such as residential countertop filtration systems, our business would be harmed.
If we are unable to meet the competition faced by our industry, our competitive position and our business could suffer.
Increases in transportation costs would reduce profit margins, negatively impacting profitability.
We deliver our bottled water products to retailors through a third party transportation provider on a delivered price basis. If the price of fuel increases, freight costs will increase. As a result, our freight cost is directly impacted by changes in fuel prices. Increases in fuel prices and surcharges and other factors have increased freight costs and may continue to increase freight costs in the future. The inflationary pressure of higher fuel costs and continued increases in transportation-related costs could have a material adverse effect on our profit margins and profitability.
The source of water for our business is a natural spring in New Zealand and any disruption in the flow of this spring, including exhaustion of the aquifers from which they flow, would have an adverse impact on our ability to operate.
All of our bottled water products originate from a natural spring in New Zealand. In the event there are geological shifts or other changes, natural or otherwise, that affect the flow of the spring, our ability to satisfy future customer demand and to meet our prior obligations for bottled water would be adversely affected, which would in turn adversely impact our business and results of operations. The deep aquifers from which our water springs are limited resources, and while we believe our water supply from these aquifers are more than sufficient to support our operations and any anticipated expansion thereof, we could at some point in the future experience water flow levels too low to make it economically feasible to collect, bottle and distribute our bottled water products.
Risks Relating to Regulatory and Legal Issues
The bottled water industry is regulated at both the state and federal level. If we are unable to continue to comply with applicable regulations and standards in any jurisdiction, we might not be able to sell our products in that jurisdiction, and our business could be seriously harmed.
The United States Food and Drug Administration ("FDA") regulates bottled water as a food. Our bottled water must meet FDA requirements of safety for human consumption, labeling, processing and distribution under sanitary conditions and production in accordance with FDA "good manufacturing practices." In addition, all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water Act for mineral and chemical concentration and drinking water quality and treatment, which are enforced by the FDA.
RISKS RELATING TO OUR COMMON STOCK
Risks Relating to Low Priced Stocks
Although the Company's Common Stock is approved for trading on the OTC Bulletin Board, there has only been little if any trading activity in the stock. Accordingly, there is no history on which to estimate the future trading price range of the Common Stock. If the Common Stock trades below $5.00 per share, trading in the Common Stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-FINRA equity security that has a market price share of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in the Common Stock which could severely limit the market liquidity of the Common Stock and the ability of holders of the Common Stock to sell it.
The Market Price of Our Common Stock is Volatile, Leading to the Possibility of its Value Being Depressed at a Time When Shareholder May Want to Sell Their Holdings.
The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:
· our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;
· changes in financial estimates by us or by any securities analysts who might cover our stock;
· speculation about our business in the press or the investment community;
· significant developments relating to our relationships with our consultants and out-sourced contracting companies which will be utilized for most of exploration services;
· stock market price and volume fluctuations of other publicly traded companies customer demand for our products;
· investor perceptions of the entertainment industry in general and our Company in particular;
· the operating and stock performance of comparable companies;
· general economic conditions and trends;
· announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
· changes in accounting standards, policies, guidance, interpretation or principles;
· loss of external funding sources;
· sales of our common stock, including sales by our directors, officers or significant stockholders; and
· additions or departures of key personnel.
Securities class action litigation is often instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted against us, it could result in substantial costs to us and divert our management's attention and resources.
Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us.
Because We Were a "Shell Company" Certain Investors in Our Company Will Not Be Able to Utilize Rule 144 to Sell Their Shares Until at Least One Year After We Cease To Be a Shell Company.
The Shares issued to investors in the Company cannot be sold pursuant to Rule 144 promulgated under the Securities Act until one year after the Company ceases to be a shell company. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted securities shares for at least six months, including persons who may be deemed "affiliates" of the Company, as that term is defined under the Securities Act, would be entitled to sell within any three month period a number of shares that does not exceed the greater of 1% of the then outstanding shares or the average weekly trading volume of shares during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions, notice requirements and the availability of current public information about the Company. A person who has not been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned his shares for at least one year, would be entitled under Rule 144 to sell such shares without regard to any volume limitations under Rule 144.
Havana Furnishings, Inc. was a shell company prior to filing this periodic report on Form 8-K and therefore a majority of its shareholders may not currently utilize Rule 144 to sell their shares. Rule 144 is not available for sales of shares of companies that are or have been "shell companies" except under certain conditions. The Company completed an acquisition and has removed its status as a shell company by filing this report on Form 8-K. Shareholders are able to utilize Rule 144 one year after the filing of this Form 8-K, assuming it files the documents it is required to file as a reporting company. Investors in the Company whose shares were registered in a registration statement will be able to sell their shares pursuant to said registration statement.
Potential Issuance of Additional Common and Preferred Stock.
The Company will be authorized to issue up to 100,000,000 shares of Common Stock. To the extent of such authorization, the board of directors of the Company will have the ability, without seeking stockholder approval, to issue additional shares of Common Stock in the future for such consideration as the board of directors may consider sufficient. The issuance of additional Common Stock in the future will reduce the proportionate ownership and voting power of the Common Stock offered hereby. The Company will also be authorized to issue up to 100,000,000 shares of preferred stock, the rights and preferences of which may be designated in series by the board of directors. To the extent of such authorization, such designations may be made without stockholder approval. The designation and issuance of series of preferred stock in the future would create additional securities which would have dividend and liquidation preferences over the Common Stock offered hereby. In addition, the ability to issue any future class or series of preferred stock could impede a non-negotiated change in control and thereby prevent stockholders from obtaining a premium for their Common Stock. See "Description of Securities."
No Assurance of a Liquid Public Market For Securities.
Although the Company's shares of Common Stock are currently eligible for quotation on the OTC Bulletin Board, there has been no significant market in such stock. There has been no long term established public trading market for the Common Stock hereto, and there can be no assurance that a regular and established market will be developed and maintained for the securities. There can also be no assurance as to the depth or liquidity of any market for the Common Stock or the prices at which holders may be able to sell the shares.
Volatility Of Stock Prices .
In the event that a public market for the Company's Common Stock is created, market prices for the Common Stock will be influenced by many factors and will be subject to significant fluctuations in response to variations in operating results of the Company and other factors such as investor perceptions of the Company, supply and demand, interest rates, general economic conditions and those specific to the industry, developments with regard to the Company's activities, future financial condition and management.
The Market Price of Our Common Stock is, and is Likely to Continue to Be, Highly Volatile and Subject to Wide Fluctuations.
The market price of the Company's common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond the Company's control, including the following:
· services by the Company or its competitors;
· additions or departures of key personnel;
· the Company's ability to execute its business plan;
· operating results that fall below expectations;
· loss of any strategic relationship;
· industry developments;
· economic and other external factors; and
· period-to-period fluctuations in the Company's financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company's common stock.
We May Be Subject to Penny Stock Regulations and Restrictions and Our Shareholders May Have Difficulty Selling Shares of Our Common Stock.
The SEC has adopted regulations which generally define so-called "penny stocks" to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. If our common stock becomes a "penny stock," we may become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and "accredited investors" (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by the Penny Stock Rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
We Do Not Expect to Pay Dividends in the Foreseeable Future.
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in our common stock.
FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Plan of Operations
Short Term Goals (12 Months)
Over the next 12 months, the Company’s growth plans include continuing efforts to:
· Build a network for our products by signing the top 3-5 distributors serving our retail segments;
· Increase points of retail product availability to number in the thousands of locations;
· Establish the NuZee brand as a leader in natural and organic Performance, Protective and Pristine products and supplements.
In order to achieve our plan of operation over the next twelve months we will be focused on our executing on our business outlined in the Operational Strategies section.
Long Term Goals (Five Years)
The Company believes that there will be significant expansion opportunities in existing markets through new products as well as in new regions outside of the United States in a combination of market development and product licensing.
The Company believes that our limited resources may pose a challenge to our expansion goals and therefore anticipates that it may require additional capital in future years to fund expansion. There can be no assurance that our expansion strategy will be accretive to our earnings within a reasonable period of time. However, the Company believes that it can improve its operational efficiencies and reduce the need for new capital by carefully managing the business based on the following economic fundamentals within accretive margin and cost contribution modeling.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Results of Operations
From inception on November 9, 2011 through December 31, 2012, we have accumulated losses of $604,573. We are presently in the start-up phase of our business and we can provide no assurance that we will be able to attain profitability.
From inception through December 31, 2012, we earned revenues of $36,825 from sales of our products and incurred operating expenses in the amount of $198,078. These operating expenses included the research and the preparation of our business plan in addition to general and administrative expenses. We anticipate our operating expenses will increase as we further undertake our plan of operations.
The increase will be attributed to costs associated with production, storage and delivery of our products as well as research and development of new products.
Liquidity and Capital Resources
As of December 31, 2012 we had cash (operating capital) of $13,508. We have not attained profitable operations since inception. We are relying on sales of our products to cover our costs over the next 12 months. For these reasons, our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
PROPERTIES
NuZee leases space for its executive office and warehouse, which are located at 7940 Silverton Ave. #109, San Diego, CA 92126.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 15, 2013 , the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of the our common stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares are owned directly and the percentage shown is based on 35,933,333 shares of common stock issued and outstanding on April 15, 2013.
(1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages as of April 19, 2013 are as follows:
NAME |
AGE |
POSITION(S) AND OFFICE(S) HELD |
Craig Hagopian |
48 |
President, Chief Executive Officer, Director |
Satoru Yukie |
57 |
Chief Financial Officer, Treasurer, Secretary, Chief Operations Officer, Director |
Fernando Corona |
52 |
Director |
Masa Higashida |
41 |
Director (Chairman) |
Arata Matsushima |
51 |
Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Craig Hagopian, President, CEO, Director
Mr. Hagopian possesses more than twenty-five years of sales and marketing experience and management experience. Since 1998 Mr. Hagopian has managed organizations with full-line P&L responsibility of $30-40 million annually, including Founder and CMO of a successful advertising firm known as xAd, President of V-Enable, CMO of Axesstel (OTCQB: AXST) wireless hardware, and GM/VP of SkyTel (consumer products). Mr. Hagopian is also the general partner with Bernardo International, Inc., a global investment and management firm. We believe that Mr. Hagopian's vast experience enables him to provide vision and leadership to NuZee’s high-growth business plans.
Mr. Hagopian is a patent holder, noted industry speaker and contributing author to numerous industry publications. He earned a Bachelor of Science in Business Administration from the University of Southern California with a dual emphasis in Financial Management and Entrepreneurship and an MBA from Duke University Fuqua School of Business.
Satoru Yukie, CFO, Treasurer, COO, Secretary and Director
Satoru Yukie is an experienced executive and for many successful companies in the past. He successfully closed several rounds of fund raising and assisted in completing reverse mergers through which two start-ups, Axesstel, Inc.(OTCQB: AXST) and Franklin Wireless, Inc.(OTCBB:FKWL), became public companies. From 2005 till 2008, Mr. Yukie was CEO of UI Magic, Inc., an advanced mobile application development company, and was responsible for the development of corporate structure, securing seed funds, managing projects with major mobile operators and international business development. Since 2008, He has been Managing Director of Bernardo International, Inc., and aggressively pursuing his management and investment practice and is acting as an executive, advisor, and a member of the Board of Directors of several venture companies.
Masa Higashida, Director and Chairman of the Board
Masa Higashida is a successful business executive who has started numerous companies in the financial and consumer product industries. Mr. Higashida started his career in the financial industry in Nagoya Japan and quickly saw an opportunity to expand operations and moved to Seoul, Korea where he established Won Cashing in 2002. He served as their CEO and grew Won Cashing became the number three consumer loan company in Korea. He successfully sold the company to a major financial institution in October of 2010. Following Won Cashing exit, Mr. Higashida established FROM EAST PTE LTD., in Singapore as an investment company where he is the Managing Director. Mr. Higashida then moved to New Zealand and established iSpring LTD. to help provide quality drinking water in Japan following the Tsunami of 2011. From iSpring Mr. Higashida helped establish NuZee to market and distribute quality products in the United States.
Fernando Corona, Director
Fernando Corona brings 30 years of experience in the IT and Wireless industry with Fortune 500 and startup companies to the NuZee board. He has worked with both, consumer and commercial products as well as various channels that include retail, distribution, Internet, and MNOs. Mr. Corona has held the following CEO and senior executive positions: VP/GM at Cricket Wireless 2005-2011, CEO at V-Enable 2002-2005 SVP at Packet Video 2000-2002, CEO at Tandberg Data 1998-2000, VP/GM at Allied Telesyn 1995-1997, VP at Western Digital 1989-1995, Director at Maxtor (1987-1989) and National Account Manager at AST Research (1983-1987)
Arata Matsushima, Director
Mr. Matsushima is a 25 year veteran of the broadcast media industry. Currently he serves as the president of Pine Isle Inc. a consulting company based in Santa Monica, California where he has provideed advisory services to major corporations including the Sony Group and Dentsu. Prior to Pine Isle Inc., Mr. Matsushima has held executive positions in Sony group as the VP of CEO strategic office based in Tokyo, VP of Strategic Planning and Business Alliance in Sony Corporation of America based in New York, VP in Sony Pictures Entertainment based in Culver City.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Significant Employees
Travis Gorney, Vice President of Sales
Mr. Gorney brings a wealth of beverage industry experience to the NuZee management team with nearly 12 years of leading and building brands. Most notably he was a founding partner of Point Blank Beverage, Inc., (PBB) where he operated as their President and CEO responsible for overseeing production, logistics, and new product development, as well as building the sales and distribution channel. At PBB he is credited with launching one of the industry first energy beverages in 2004. Prior to PBB, Mr. Gorney has held sales positions with consumer and beverage companies as a regional sales manager/southwestern sales responsible for opening both large format retailers as well as convenience store distribution.
Family Relationships
There are no family relationships among our directors or officers
Involvement in Certain Legal Proceedings.
To our knowledge, during the past five years, no present director or executive officer of our company: (1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent, or similar officer appointed by a court for the business or present of such a person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer within two years before the time of such filing; (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodity laws; (4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law and the judgment was not subsequently reversed, suspended or vacated; (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated.
Limitation of Liability of Directors
Pursuant to Nevada Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director's liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us for the last three fiscal years. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid or named executive officers.
|
|
|
|
|
|
Non- |
Nonqualified |
|
|
|
|
|
|
|
|
Equity |
Deferred |
All |
|
Name |
|
|
|
|
|
Incentive |
Compensa- |
Other |
|
and |
|
|
|
Stock |
Option |
Plan |
tion |
Compen- |
|
Principal |
|
Salary |
Bonus |
Awards |
Awards |
Compensation |
Earnings |
sation |
Total |
Position |
Year |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(a) |
(b) |
(c) |
(d) |
(e) |
(f) |
(g) |
(h) |
(i) |
(j) |
|
|
|
|
|
|
|
|
|
|
Craig Hagopian (1) |
2012 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
2011 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
|
2010 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Satoru Yukie (2) |
2012 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
2011 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
2010 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Haisam Hamie (3) |
2012 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
2011 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
2010 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
(1) Craig Hagopian was appointed as our President and Chief Executive Officer on April 19, 2013.
(2) Satoru Yukie was appointed as our Chief Financial Officer, Treasurer, Secretary, Chief Operations Officer on April 19, 2013.
(3) Haisam Hammie resigned as the Company's sole officer on the closing of the Share Exchange Agreement on April 19, 2013.
The compensation discussed herein addresses all compensation awarded to, earned by, or paid to our named executive officers.
Narrative Disclosure to the Summary Compensation Table
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time. We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
Outstanding Equity Awards At Fiscal Year-End
No named executive officer or director received any equity awards, or holds exercisable or unexercisable options, as of the years ended September 30, 2012 and 2011.
Executive Employment Agreements as a Result of the Share Exchange
Mr. Hagopian and Mr. Yukie entered into Executive Employment Agreements with the Company on the date of the Share Exchange to be effective on May 1, 2013. The terms of the agreements are:
Craig Hagopian: Mr. Hagopian will be employed at will. For services as President and Chief Executive Officer, Mr. Hagopian will receive a salary of $150,000 per year plus health insurance reimbursement. Mr. Hagopian may also be eligible to receive quarterly bonuses up to $25,000 based on milestones to be agreed upon by both the Company and Mr. Hagopian. Upon approval by the Board of an Equity and Incentive Plan (which is not in existence at present), Mr. Hagopian will be given an option to purchase no less than 4.5% of the Company's stock ("Option"), based on the fully-diluted capitalization of the Company as of the Effective Date of the Employment Agreement. Mr. Hagopian's Options shall vest as follows: 25% upon the Effective Date of Executive Employment Agreement, and the balance in equal installments on the last day of each month for eighteen months thereafter, subject to Mr. Hagopian's ongoing employment with the Company. A copy of Mr. Hagopian's Executive Employment Agreement is included with this filing as Exhibit 10.1.
Satoru Yukie: Mr. Yukie will be employed at will. For services as Chief Financial Officer, Chief Financial Officer, Treasurer, Secretary, and Chief Operations Officer. Mr. Yukie will receive a salary of $150,000 per year plus health insurance reimbursement. Mr. Yukie may also be eligible to receive quarterly bonuses up to $25,000 based on milestones to be agreed upon by both the Company and Mr. Yukie. Upon approval by the Board of an Equity and Incentive Plan (which is not in existence at
present), Mr. Yukie will be given an option to purchase no less than 4% of the Company's stock ("Option"), based on the fully-diluted capitalization of the Company as of the Effective Date of the Employment Agreement. Mr. Yukie's Options shall vest as follows: 25% upon the Effective Date of Executive Employment Agreement, and the balance in equal installments on the last day of each month for eighteen months thereafter, subject to Mr. Yukie's ongoing employment with the Company. A copy of Mr. Yukie's Executive Employment Agreement is included with this filing as Exhibit 10.2.
COMPENSATION OF DIRECTORS
No director received or accrued any compensation for his or her services as a director since our inception. We have no formal plan for compensating our directors for their services in their capacity as directors. Our directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
THE COMPANY
As of January 31, 2013, the Company received advances from its sole officer and director in the amount of $22,015 to pay for general operating expenses. The amounts due to the related party are unsecured and non-interest bearing with no set terms of repayment. As a result of the Share Exchange Agreement with the Company described above under Item 1.01 of this Report, the amounts owed to the Director were forgiven.
NUZEE
During the period from November 9, 2011 (inception) through September 30, 2012, NuZee purchased $10,454 of skin care products, for resale, from an entity controlled by NuZee’s majority shareholder. Those items are included in inventory at September 30, 2012. NuZee has received advances, from its majority shareholder totaling, $150,014, due on demand, which are included with other liabilities on the Balance Sheet for the period ending September 30, 2012.
During the period from October 1, 2012 through December 31, 2012, NuZee made a deposit of $139,661 towards the purchase of skin care products, for resale, from an entity controlled by NuZee’s majority shareholder. Subsequent to this commitment, NuZee decided to focus its sales and marketing efforts on the energy drink market, and has provided a loss contingency against this deposit of $139,661 which is included in the cost of goods sold for the three months ending December 31, 2012.
With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manner:
· Disclosing such transactions in reports where required;
· Disclosing in any and all filings with the SEC, where required;
· Obtaining disinterested directors consent; and
· Obtaining shareholder consent where required.
DIRECTOR INDEPENDENCE
We are not currently a “listed company” under SEC rules and are therefore not required to have a Board comprised of a majority of independent directors or separate committees comprised of independent directors. We consider Fernando Corona and Arata Matsushima independent directors as the term “independent” is defined by the rules of the NASDAQ Stock Market.
REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings. Our agent for service of process in Nevada is National Registered Agents, Inc. of NV.
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Since October 2012, our shares of common stock have been quoted on the OTC Bulletin Board and the OTCQB tier of OTC Markets, under the stock symbol "HVFI.” The following table shows the reported high and low closing bid prices per share for our common stock based on information provided by the OTCQB. The over-the-counter market quotations set forth for our common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
|
BID PRICE PER
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|
|||||
|
|
HIGH |
|
|
LOW |
|
||
Three Months Ended January 31, 2013 |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Three Months Ended October 31, 2012 |
|
|
0.00 |
|
|
|
0.00 |
|
Three Months Ended July 31, 2012 |
|
|
0.00 |
|
|
|
0.00 |
|
Three Months Ended April 30, 2012 |
|
|
0.00 |
|
|
|
0.00 |
|
Three Months Ended October 31, 2011 |
|
|
0.00 |
|
|
|
0.00 |
|
Three Months Ended July 31, 2011 |
|
|
0.00 |
|
|
|
0.00 |
|
Three Months Ended April 30, 2011 |
|
|
0.00 |
|
|
|
0.00 |
|
The Securities Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
We are subject to the penny stock rules, and disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock and stockholders may have difficulty selling those securities.
Holders of Our Common Stock
As of April 22, 2013, as a result of the Share Exchange, we had 46 shareholders of record.
Stock Option Grants
To date, we have not granted any stock options.
Registration Rights
We have not granted registration rights to the selling shareholders or to any other persons.
DESCRIPTION OF CAPITAL STOCK
Common Stock
Our authorized common stock consists of 100,000,000 shares of common stock, par value $0.00001 per share. The holders of our common stock:
* |
have equal ratable rights to dividends if and when a dividend is declared by our board of directors; |
* |
are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; |
* |
do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and |
* |
are entitled to one non-cumulative vote per share on all matters on which stockholders may vote. |
We refer you to our Articles of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of our securities.
Non-cumulative voting
Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
Cash dividends
As of the date of this prospectus, we have not paid any cash dividends to our stockholders. The declaration of any future cash dividend will be at the discretion of our board of directors and will depend upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Preferred Stock
We are authorized to issue 100,000,000 shares of preferred stock with a par value of $0.00001 per share. The terms of the preferred shares are at the discretion of the board of directors. Currently no preferred shares are issued and outstanding.
Anti-takeover provisions
There are no Nevada anti-takeover provisions that may have the affect of delaying or preventing a change in control.
Stock transfer agent
Our stock transfer agent for our securities will be Aspen Stock Transfer, 6623 Las Vegas Blvd. South #255, Las Vegas, NV 89119 ; the telephone number is 702-463-8832.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
P ursuant to the Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
The information provided in Item 1.01 of this Current Report on Form 8-K related to the aforementioned Share Exchange Agreement is incorporated by reference into this Item 3.02.
On April 22, 2013, under the Share Exchange Agreement, we issued 33,733,333 shares of restricted common stock to the existing shareholders of NuZee Co., Ltd. With the issuance of the 33,733,333 shares to the NuZee Shareholders, they own a controlling interest in HVFI. See Item 5.01 - Changes in Control of Registrant, "Recent Sales of Unregistered Securities" below, which is incorporated herein by reference.
ITEM 4.01 CHANGES IN CERTIFYING ACCOUNTANT
(a) Resignation of Independent Certifying Accountant
Effective April 23, 2013, MaloneBailey, LLP (the "Former Accountant") resigned as the Company's independent registered public accounting firm.
The reports of the Former Accountant regarding the Company's financial statements for the fiscal years ended July 31, 2011 and July 31, 2012 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit report of the Former Accountant on the Company's financial statements for the fiscal years ended July 31, 2011 and July 31, 2012 contained an explanatory paragraph which noted that there was substantial doubt about the Company's ability to continue as a going concern.
During the fiscal years ended July 31, 2011 and July 31, 2012, and during the period from July 31, 2012 to April 23, 2013, the date of resignation, (i) there were no disagreements with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of the Former Accountant would have caused it to make reference to such disagreement in its reports; and (ii) there were no reportable events as defined in Item 304(a)(l)(v) of Regulation S-K.
The Company has provided the Former Accountant with a copy of the foregoing disclosures and requested that the Former Accountant furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter is filed as Exhibit 16.1 to this Current Report on Form 8-K.
(b) Engagement of Independent Certifying Accountant
Effective April 23, 2013, the Board of Directors of the Company engaged Anton & Chia, LLP ("A&C") as its independent registered public accounting firm to audit the Company's financial statements for the Company's current fiscal year.
During the Company's most recent fiscal year and through the interim periods preceding the engagement of A&C, the Company (a) has not engaged A&C as either the principal accountant to audit the Company's financial statements, or as an independent accountant to audit a significant subsidiary of the Company and on whom the principal accountant is expected to express reliance in its report; and (b) has not consulted with A&C regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and no written report or oral advice was provided to the Company by A&C concluding there was an important factor to be considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(l)(iv) of Regulation S-K or a reportable event, as that term is described in Item 304(a)(l)(v) of Regulation S-K.
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT
The information provided in Item 1.01 of this Current Report on Form 8-K related to the aforementioned Share Exchange Agreement is incorporated by reference into this Item 5.01.
As a result of the Share Exchange Agreement, the NuZee Shareholders own a total of 33,733,333 restricted shares of the Company, which represents 93.88% of our issued and outstanding shares of common stock. The Share Exchange Agreement is being accounted for as a "reverse acquisition," as the NuZee Shareholders own a majority of the outstanding shares of the Company's capital stock immediately following the Closing of the Share Exchange Agreement. Accordingly, NuZee is deemed to be the acquirer in the reverse acquisition. After the Closing of the Share Exchange Agreement, the Board of Directors and management of the Company are comprised of NuZee’s management team and the operations of NuZee are the continuing operations of the Company.
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN DIRECTORS
On April 19, 2013, prior to the Closing Date of the Share Exchange Agreement referred to in Item 1.01 above and as a condition to the Closing, Haisam Hamie resigned as the President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and sole member of the Board of Directors of the Company.
Additionally, on April 19, 2013, prior to the Closing Date of the Share Exchange Agreement and as a condition to the Closing, the Board increased the number of Directors from 1 to 5 and appointed the following to the Board of Directors: Masa Higashida, Craig Hagopian, Satoru Yukie, Fernando Corona, and Arata Matsushima. The Board also appointed the following officers:
* Craig Hagopian: President and Chief Executive Officer
* Satoru Yukie: Chief Financial Officer, Secretary and Treasurer
Biographies for the above-mentioned Officers and Directors are set forth in Item 2.01above.
ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR
On April 23, 2013, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of Nevada. As a result of the Amendment, the Company has changed its name with the State of Nevada from Havana Furnishings, Inc. to NuZee, Inc. The Amendment will be effective on May 3, 2013 A copy of the Amendment is filed herewith as Exhibit 3.01.
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
Reference is made to the disclosures set forth under Item 2.01 and 5.01 of this report, which disclosure is incorporated herein by reference. As a result of the acquisition of NuZee Co., Ltd. pursuant to the Share Exchange Agreement entered into on April 19, 2013, we are no longer considered a "shell company" (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), as the Company now has significant non-cash assets. See Item 5.01 - Changes in Control of Registrant, above, which is incorporated herein by reference.
ITEM 8.01 OTHER EVENTS
The Company’s Board of Directors, having received the written consent of shareholders holding a majority of the Company’s outstanding shares of common stock, approved: (i) an amendment to the Company’s Articles of Incorporation to change the Company’s name from Havana Furnishings, Inc. to NuZee, Inc. (the “Corporate Name Change”); and (ii) a change to the Company’s OTC trading symbol from HVFI to NUZE, or if unavailable, to NZEE or NEWZ (the “Symbol Change”). Under Nevada corporation law, the consent of the holders of a majority of the voting power is effective as stockholders' approval. We expect the Corporate Name Change and Symbol Change to be declared effective by FINRA on or before May 3, 2013.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(1) Previously filed with the SEC on September 6, 2011 as part of our Registration Statement on Form S-1.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: |
April 24, 2013 |
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HAVANA FURNISHINGS, INC. |
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/s/ Craig Hagopian |
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By: |
Craig Hagopian, President |
Exhibit 2.01
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT , dated as of April 19, 2013 ( the “Agreement”), is made by and among HAVANA FURNISHINGS INC. , a Nevada corporation (“Purchaser”) and NuZee Co., Ltd. , a California corporation, (the “Company”), and each of the shareholders of the Company set forth on Schedule A hereof (collectively, the “Sellers”).
WITNESSETH
WHEREAS , the Company is in the business of distributing natural and organically sourced cosmetics, bottled water and energy drinks, and
WHEREAS , the Sellers desire to sell to Purchaser and the Purchaser desires to purchase from the Sellers, 100% of the outstanding securities of the Company in exchange for shares of common stock of the Purchaser and upon the terms and conditions hereinafter set forth; and
WHEREAS , certain terms used in this Agreement are defined in Article 1; and
WHEREAS , it is intended that the Acquisition shall qualify for United States federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended.
NOW THEREFORE in consideration of the premises and the mutual covenants, agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
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Any other terms defined within the text of this Agreement will have the meanings so ascribed to them.
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The Sellers acknowledge that the certificates representing the Acquisition Shares shall bear the following legend:
NO SALE, OFFER TO SELL, OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, IN RESPECT OF SUCH SHARES IS THEN IN EFFECT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT IS THEN IN FACT APPLICABLE TO SAID SHARES.
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The Company and Sellers hereby jointly and severally represent and warrant to Purchaser, that:
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(d) certificates of good standing with respect to the Company issued by the Secretary of the State of the Nevada and for each state in which the Company is qualified to do business as a foreign corporation;
(e) undated resignation of Haisam Hamie as the sole member of the Board of Directors of Purchaser;
(f) undated resignation of Haisam Hamie as the sole officer of the Purchaser;
(g) resolution of the Board of Directors appointing the following:
a. Masa Higashida, Craig Hagopian, Satoru Yukie, Fernando Corona and Arata Matsushima as directors of the Purchaser;
b. Craig Hagopian as President and Chief Executive Officer of Purchaser; and
c. Satoru Yukie as Chief Financial Officer, Secretary and Treasurer of Purchaser; and
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If to Purchaser to: |
HAVANA FURNISHINGS INC. |
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Attn: Haisam Hamie, President |
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Edificio Ultramar Plaza. Apt. #4A 47th Street |
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Panama City, Panama |
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Tel. 507.269.1315 |
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If to Company or Sellers to: |
NUZEE CO., LTD. |
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Attn: Satoru Yukie, Chief Financial Officer |
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7940 Silverton Ave. #109 |
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San Diego, CA 92126 |
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Tel. 760.536.6945 |
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Fax. 413.235.3541 |
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With copies to: |
Synergen Law Group, APC |
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Attn: Karen A. Batcher, Esq. |
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819 Anchorage Place, Suite 28 |
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Chula Vista, CA 91914 |
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Tel. 619.475.7882 |
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Fax. 866.352.4342 |
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt, and (iii) if delivered by courier to the address as provided for in this Section, be deemed given on the earlier of the second Business Day following the date sent by such courier or upon receipt. Any party from time to time may change its address or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.
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IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written.
HAVANA FURNISHINGS INC. |
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By: |
/s/ Haisam Hamie |
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Haisam Hamie, President |
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NUZEE CO., LTD. |
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By: |
/s/ Masa Higashida |
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Masa Higashida, President |
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HAVANA FURNISHINGS, INC.'S MAJORITY STOCKHOLDERS: |
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/s/ Haisam Hamie |
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Haisam Hamie (64.52%) |
SHAREHOLDER SIGNATURE PAGE FOLLOWS:
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Exhibit 3.01
Exhibit 10.1
MANAGEMENT EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement” ) is made and entered into on April 23, 2013 by and between Havana Furnishings, Inc., (the “Company” ), and Craig Hagopian (the “Executive” ). The Company and the Executive may be hereinafter collectively referred to as the “Parties” , and each individually referred to as a “Party” .
A. The Company desires assurance of the association and services of the Executive in order to retain the Executive’s experience, skills, abilities, background and knowledge, and is willing to engage the Executive’s services on the terms and conditions set forth in this Agreement.
B. The Executive desires to be in the employ of the Company, and is willing to accept such employment on the terms and conditions set forth in this Agreement.
Agreement
In consideration of the foregoing recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:
1. Employment.
1.1 Effective Date. This agreement shall take effect as of May 1, 2013 (the "Effective Date").
1.2 Employment At Will. The Company hereby employs the Executive, and the Executive hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement. The Executive’s employment with the Company shall be at will. Either the Executive or the Company may terminate the employment relationship at any time and for any reason, with or without cause or prior notice.
1.3 Title . The Executive shall have the title of President and “Chief Executive Officer” and will also serve in such other capacity or capacities as the Company’s Board of Directors (the “Board” ) may from time to time prescribe. The Executive shall report to the Board.
1.4 Duties. The Executive shall do and perform all services, acts and things reasonably necessary or advisable to manage and conduct the business of the Company and that are normally associated with the position of Chief Executive Officer, as well as any other services, acts and things as may be required from time to time by the Board.
1.5 Location . Unless the Parties otherwise agree in writing, the Executive shall perform services pursuant to this Agreement from Company’s home office in San Diego, California. In addition, the Company may from time to time require the Executive to travel temporarily to other locations in connection with the Company’s business.
1.6 Policies and Practices. The employment relationship between the Parties shall be governed by this Agreement along with the policies and practices established by the Company and the Board. In the event that the terms of this Agreement differ from or are in conflict with the Company’s policies or practices or the Company’s Employee Handbook, this Agreement shall control.
2. Loyal and Conscientious Performance; Noncompetition.
2.1 Loyalty . During the Executive’s employment by the Company, the Executive shall devote the Executive’s business energies, interest, abilities and productive time based on a standard work week to the proper and efficient performance of the Executive’s duties under this Agreement. The Executive is not precluded from devoting energies to non-Company related businesses, projects, and activities so long as they are not competitive and will not negatively affect the activities of the Company.
2.2 Covenant not to Compete . Except with the prior written consent of the Board, which shall not be unreasonably conditioned, delayed, or withheld, the Executive will not, during his employment with the Company or during any post-employment period when the Executive is receiving compensation or other consideration from the Company, including but not limited to severance pay pursuant to Section 4 herein, engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing or marketing of products or services that are in the same field of use or which otherwise compete with the products or services or proposed products or services of the Company and/or any of its Affiliates. For purposes of this Agreement, “Affiliate” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.
2.3 Agreement not to Participate in Company’s Competitors . During his employment with the Company, the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise, or in any company, person, or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates. Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this paragraph.
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3. Compensation Of The Executive.
3.1 Base Salary. The Company shall pay the Executive based on the following Milestone Compensation Schedule. The base salary per year, less any required withholdings and deductions, payable in regular periodic payments in accordance with Company policy (the “Base Salary” ). Executive shall be entitled and receive annual merit reviews by the Board.
milestone compensation schedule:
Revenue/Value Creation Milestones |
Annual Base USD$ |
Other |
Initial salary upon execution of this Offer Letter.
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$150,000 |
-Health Insurance Reimbursement (with proof) |
After Company recognizes sales traction, revenue contribution, closing of additional financing or other value creation agreed to by the Board.
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$180,000 Minimum |
-Health Insurance Reimbursement (with proof) |
3.2 Quarterly Bonus. In addition to the Executive’s Base Salary, the Executive shall also be eligible to receive a quarterly bonus of up to Twenty-Five Thousand Dollars ($25,000.00) based on the achievement of quarterly milestones to be agreed upon by the Company and the Executive (the “Quarterly Bonus” ). In the event the Company and the Executive do not agree upon the milestones, the Board shall establish the applicable milestones in its sole and absolute discretion. In order to earn any Bonus, the Executive must remain employed by the Company through the last day of the quarter for which the Bonus is awarded.
3.3 Stock Options. Subject to approval of the Board and the terms of the Company’s Equity and Incentive Plan (the “Plan” ), the Executive will be granted a stock option to purchase a number of shares of the Company’s common stock that is not less than four and one-half percent (4.5%) of the Company’s stock, which percentage shall be based on the fully-diluted capitalization of the Company as of the Effective Date of this Agreement (the “Option” ). To the maximum extent possible, the Option shall be an Incentive Stock Option as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended. The Option will be governed by and granted pursuant to a separate Stock Option Agreement and the Plan. The exercise price per share of the Option will be equal to the fair market value of a share of the Company’s common stock on the date of grant.
3.3.1 Vesting of Stock Options.
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3.3.1.1 Subject to Section 3.3.1.2 below, twenty-five percent (25%) of the Option shall vest upon the Effective Date of this Agreement. The balance of the Option shall vest in equal installments on the last day of each month for eighteen (18) months thereafter, subject to the Executive’s continued employment, such that the Executive shall be vested in full in the Option if he completes two (2) full years of employment with the Company. The Executive’s right to exercise the vested shares, and all other rights and obligations with respect to the Option, will be as set forth in the stock option agreement, grant notice and applicable Plan documents.
3.3.1.2 Notwithstanding the provisions of Section 3.3.1.1 above, in the event of a Change in Control (as defined below) the Option shall be subject to partial or full accelerated vesting in accordance with the following provisions, and the Option shall terminate if not exercised at or prior to the effective time of the Change in Control:
(i) Subject to adjustment pursuant to subsection (iv), in the event of a Change in Control in which the net sale proceeds to the Company are equal to or exceed Five Million Dollars ($5,000,000.00) (excluding the conversion of any debt) (“ Trigger Amount A ”), fifty percent (50%) of the then unvested shares subject to the Option shall immediately vest contingent upon the Change in Control and effective as of the date immediately preceding the effective date of the Change in Control; or
(ii) Subject to adjustment pursuant to subsection (iv), in the event of a Change in Control in which the net sale proceeds to the Company are equal to or exceed Ten Million Dollars ($10,000,000.00) (excluding the conversion of any debt) (“ Trigger Amount B ”), seventy-five percent (75%) of the then unvested shares subject to the Option shall immediately vest contingent upon the Change in Control and effective as of the date immediately preceding the effective date of the Change in Control; or
(iii) Subject to adjustment pursuant to subsection (iv), in the event of a Change in Control in which the net sale proceeds to the Company are equal to or exceed Fifteen Million Dollars ($15,000,000.00) (excluding the conversion of any debt) or acceptance of Company on major exchange such as NASDAQ or other exchange (“ Trigger Amount C ”), one hundred percent (100%) of the then unvested shares subject to the Option shall immediately vest contingent upon the Change in Control and effective as of the date immediately preceding the effective date of the Change in Control.
3.4 Changes to Compensation. The Executive’s compensation may be changed from time to time in the Company’s discretion.
3.5 Employment Taxes . All of the Executive’s compensation shall be subject to withholding taxes and any other employment taxes required by applicable law.
3.6 Benefits. The Executive shall be eligible to participate in the Company’s standard employee benefit plans, subject to Company policy and the terms of the applicable plans or be reimbursed for benefits with proof of policy.
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3.7 Expense Reimbursements. The Executive shall be entitled to be reimbursed for all reasonable business expenses incurred in connection with carrying on the Executive's duties hereunder in accordance with the Company’s expense reimbursement policies.
4. Termination.
4.1 Termination for Cause or Resignation Without Good Reason. If the Executive’s employment is terminated by the Company for Cause (as defined below), or if the Executive voluntarily resigns his employment without Good Reason (as defined below), the Company shall pay the Executive all Base Salary and accrued but unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings. The Company shall thereafter have no further obligations to the Executive under this Agreement.
4.2 Termination Without Cause or Resignation for Good Reason. If the Company terminates the Executive’s employment without Cause or if the Executive resigns for Good Reason, whether before or following a Change in Control (as defined below), the Company shall pay the Executive all Base Salary and accrued but unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings. In addition, upon the Executive furnishing to the Company an effective waiver and release of claims (in the form attached hereto as Exhibit A , or in such other form as may be required by the Company), the Executive shall also receive:
(i) if the termination date is on or before the second anniversary of the Effective Date, continuation of his Base Salary then in effect, less standard deductions and withholdings, for a period of six (6) months following the termination date; or
(ii) if the termination date is after the second anniversary of the Effective Date, continuation of his Base Salary then in effect, less standard deductions and withholdings, for a period of six (6) months following the termination date, plus an additional one (1) month continuation of Base Salary payments for every four (4) months that the Executive has been employed following the second anniversary of the Effective Date, up to a maximum total of twelve (12) months continuation of Base Salary payments following the termination date. For example, if the Executive is terminated without Cause or resigns for Good Reason nine (9) months following the second anniversary of the Effective Date, the Executive will receive a total of eight (8) months continuation of Base Salary payments.
4.3 Application of Internal Revenue Code Section 409A . If the Company determines that any severance benefit payment described in Section 4.2 above fails to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code as a result of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, the payment of such benefit shall be accelerated to the minimum extent necessary so that the benefit is not subject to the provisions of Section 409A(a)(1) of the Internal Revenue Code. (It is the intention of the preceding sentence to apply the short-term deferral provisions of
NuZee Management Contract - Craig Hagopian
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Section 409A of the Internal Revenue Code, and the regulations and other guidance thereunder, to the Severance Benefits payments, and the payment schedule as revised after the application of the preceding sentence shall be referred to as the " Revised Payment Schedule .") However, if there is no Revised Payment Schedule that would avoid the application of Section 409A(a)(1) of the Internal Revenue Code, the payment of such benefits shall not be paid pursuant to a Revised Payment Schedule and instead shall be delayed to the minimum extent necessary so that such benefits are not subject to the provisions of Section 409A(a)(1) of the Internal Revenue Code. The Board may attach conditions to or adjust the amounts paid pursuant to this Section 4.4 to preserve, as closely as possible, the economic consequences that would have applied in the absence of this Section 4.4; provided, however, that no such condition or adjustment shall result in the payments being subject to Section 409A(a)(1) of the Internal Revenue Code.
4.4 Definitions . For purposes of this Agreement, the following terms shall have the following meanings:
4.4.1 Cause . “Cause” for the Company to terminate the Executive’s employment hereunder shall mean a reasonable and good faith determination by the Board or any committee thereof that any of the following events has occurred or exists:
(a) the Executive’s repeated failure satisfactorily to perform the Executive’s job duties as set forth by the Board, provided that the Company first provides the Executive with written notice of such failure and a reasonable opportunity to cure the failure if the failure is subject to cure;
(b) the Executive’s commission of an act that materially injures the business of the Company;
(c) the Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude that is likely to inflict, or has inflicted, material injury on the business of the Company; or
(d) the Executive’s material violation of any provision of Section 2 or Section 5 hereof and/or the Executive’s Proprietary Information and Inventions Agreement with the Company.
4.4.2 Good Reason. For purposes of this Agreement, the Executive shall be deemed to have resigned for “ Good Reason ” if he voluntarily resigns immediately following:
( a ) a material reduction in the Executive’s compensation without the Executive’s written consent, except in the case of a Board-approved reduction in salary applicable to the Company’s executive management team; or
(b) a material change in the Executive’s title and/or job duties without the Executive’s written consent.
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4.4.3 “Change in Control” shall mean a transaction (excluding in each case transactions in which securities are purchased from the Company for the principal purpose of raising capital for the Company) in which one of the following occurs:
(a) (A) a merger or consolidation occurs in which the Company is not the surviving entity, or (B) any reverse merger occurs in which the Company is the surviving entity, or (C) any merger involving a subsidiary of the Company occurs in which the Company is a surviving entity, but in each case in which holders of the Company’s outstanding voting securities immediately prior to such transaction, as such, do not hold, immediately following such transaction, securities possessing fifty percent (50%) or more of the total combined voting power of the surviving entity’s outstanding securities (in the case of clause (A)) or the Company’s outstanding voting securities (in the case of clauses (B) and (C)); or
(b) all or substantially all of the Company’s assets are sold of transferred other than in connection with an internal reorganization of the Company or the Company’s complete liquidation (other than a liquidation of the Company into a wholly-owned subsidiary).
4.5 Parachute Payment. If any payment or benefit Executive would receive pursuant to a Change of Control or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless the Executive elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the effective date of the event that triggers the Payment): reduction of cash payments; cancellation of accelerated vesting of stock awards. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Executive’s stock awards unless the Executive elects in writing a different order for cancellation.
The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, then the Company shall appoint a nationally recognized accounting firm to make the determinations
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required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Executive and the Company within fifteen (15) calendar days after the date on which the Executive’s right to a Payment is triggered (if requested at that time by the Executive or the Company) or such other time as requested by the Executive or the Company. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Executive and the Company with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Executive and the Company.
4.6 Survival of Certain Provisions. Sections 2.2, 4, 5, 15, and 17 shall survive the termination of this Agreement.
5. Confidential And Proprietary Information; Nonsolicitation .
5.1 As a condition of employment, the Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as Exhibit B .
5.2 While employed by the Company and for one (1) year thereafter, the Executive agrees that in order to protect the Company’s trade secrets and confidential and proprietary information from unauthorized use, the Executive will not, either directly or through others, solicit or attempt to solicit any employee, consultant or independent contractor of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or business entity.
6. Assignment and Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive’s heirs, executors, personal representatives, assigns, administrators and legal representatives. Because of the unique and personal nature of the Executive’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by the Executive. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives.
7. Choice of Law.
This Agreement is made in San Diego, California. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of California.
NuZee Management Contract - Craig Hagopian
8.
8. Integration.
This Agreement, including Exhibits A and B, contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions of the Executive’s employment and the termination of the Executive’s employment, and supersedes any prior or contemporaneous oral or written employment agreements or arrangements between the Parties, including the Consulting Agreement. To the extent this Agreement conflicts with the Proprietary Information and Inventions Agreement attached as Exhibit B hereto, the Proprietary Information and Inventions Agreement controls.
9. Amendment.
This Agreement cannot be amended or modified except by a written agreement signed by the Executive and a member of the Board other than the Executive.
10. Waiver.
No term, covenant, or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.
11. Severability.
The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision that most accurately represents the Parties’ intentions with respect to the invalid or unenforceable term or provision.
12. Interpretation; Construction.
The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with the Executive’s own independent counsel with respect to the terms of this Agreement. The Parties acknowledge that each Party and its counsel have reviewed and revised, or have had an opportunity to review and revise, this Agreement, and the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.
13. Representations and Warranties.
The Executive represents and warrants that the Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that Executive’s execution and performance of this
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9.
Agreement will not violate or breach any other agreements between the Executive and any other person or entity. The Executive represents and warrants that he is eligible to work in the U.S., and has provided documentation of such to the Company as required by law.
14. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument.
15. Arbitration.
To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to Executive’s employment, or the termination of that employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Diego, California conducted by the Judicial Arbitration and Mediation Services ( “JAMS” ), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. Both the Executive and the Company shall be entitled to all rights and remedies that either the Executive or the Company would be entitled to pursue in a court of law. The Company shall pay all fees in excess of those that would be required if the dispute were decided in a court of law, including the arbitrator’s fee. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute involving confidential, proprietary or trade secret information, or intellectual property rights, by court action instead of arbitration.
16. Trade Secrets Of Others.
It is the understanding of both the Company and the Executive that the Executive shall not divulge to the Company and/or its Affiliates any confidential information or trade secrets belonging to others, including the Executive’s former employers, nor shall the Company and/or its Affiliates seek to elicit from the Executive any such information. Consistent with the foregoing, the Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its Affiliates shall not request, any documents or copies of documents containing such information.
17. Advertising Waiver .
Subject to the Executive’s prior approval, which approval shall not be unreasonably conditioned, delayed, or withheld, the Executive agrees to permit the Company and/or its Affiliates, and persons or other organizations authorized by the Company and/or its Affiliates, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company and/or its Affiliates, in which the Executive’s name
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10.
and/or pictures of the Executive taken in the course of the Executive’s provision of services to the Company and/or its Affiliates, appear. The Executive hereby waives and releases any claim or right the Executive may otherwise have arising out of such use, publication or distribution.
In Witness Whereof , the Parties have executed this Agreement as of the date first above written.
EXECUTIVE |
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HAVANA FURNISHINGS, INC. |
/s/ Craig Hagopian |
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/s/ Satoru Yukie |
Craig Hagopian |
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By: Satoru Yukie, Secretary |
NuZee Management Contract - Craig Hagopian
11.
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In consideration of the payments and other benefits set forth in the Employment Agreement dated April 23, 2013, to which this form is attached, I, Craig Hagopian , hereby furnish Havana Furnishings, Inc. (the “Company” ), with the following release and waiver ( “Release and Waiver” ).
In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) ( “ADEA” ), and the California Fair Employment and Housing Act (as amended). The foregoing shall not affect in any way my right to receive any severance or other benefits pursuant to and in accordance with the terms of Section 4 of the Employment Agreement in exchange for this effective Release and Waiver.
I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “ A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. ” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.
I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I have the right to consult with an attorney prior to executing this Release and Waiver (although I may
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choose voluntarily not to do so); and (c) I have twenty-one (21) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired.
If I am less than 40 years of age upon execution of this Release and Waiver, I acknowledge that I have the right to consult with an attorney prior to executing this Release and Waiver (although I may choose voluntarily not to do so); and (c) I have five (5) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier).
I acknowledge my continuing obligations under my Proprietary Information and Inventions Agreement , a copy of which is attached hereto as Exhibit A . Pursuant to the Proprietary Information and Inventions Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control. I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions Agreement .
This Release and Waiver, including Exhibit A hereto, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.
Date: April 23, 2013 By: /s/ Craig Hagopian
Craig Hagopian
NuZee Management Contract - Craig Hagopian
2.
EXHIBIT B
EMPLOYEE CONFIDENTIALITY AND INVENTIONS ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Havana Furnishings, Inc. (the “Company” ), and the compensation now and hereafter paid to me, I hereby agree as follows:
1.
Confidentiality
.
1.1
Nondisclosure; Recognition of Company’s Rights.
At all times during my employment and thereafter, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as such use is required in connection with my work for Company, or unless the Chief Executive Officer (the “
CEO
”) of Company expressly authorizes in writing such disclosure or publication. I will obtain the CEO’s written approval before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at Company and/or incorporates any Confidential Information. I hereby assign to Company any rights I have or acquire in any and all Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns.
1.2
Confidential Information.
The term “
Confidential Information
” shall mean any and all confidential knowledge, data or information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation (a) trade secrets, inventions, ideas, processes, computer source and object code, data, formulae, programs, other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques; (b) information regarding products, plans for research and development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (c) information regarding the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (d) the existence of any business discussions, negotiations, or agreements between Company and any third party.
1.3
Third Party Information.
I understand, in addition, that Company has received and in the future will receive from third parties confidential or proprietary information (
“Third Party Information”
) subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, except in connection with my work for Company, Third Party Information, unless expressly authorized by an officer of Company in writing.
1.4
No Improper Use of Information of Prior
Employers and Others.
I represent that my employment by Company does not and will not breach any agreement with any former employer, including any noncompete agreement or any agreement to keep in confidence information acquired by me in confidence or trust prior to my employment by Company. I further represent that I have not entered into, and will not enter into, any agreement, either written or oral, in conflict herewith. During my employment by Company, I will not improperly use or disclose any confidential information or trade secrets of any former employer or other third party to whom I have an obligation of confidentiality, and I will not bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or other third party to whom I have an obligation of confidentiality, unless consented to in writing by that former employer or person. I will use in the performance of my duties
only information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by Company.
2.
Inventions
.
2.1
Inventions and Intellectual Property Rights.
As used in this Agreement, the term
“Invention”
means any ideas, concepts, information, materials, processes, data, programs, know-how, improvements,
discoveries, developments, designs, artwork, formulae, other copyrightable works, and techniques and all Intellectual Property Rights therein. The term
“Intellectual Property Rights”
means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country.
2.2
Prior Inventions.
I agree that I will not incorporate, or permit to be incorporated, Prior Inventions (defined below) in any Company Inventions (defined below) without Company’s prior written consent. In addition, I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU GPL or LGPL or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company. I have disclosed on
Exhibit A
a complete list of all Inventions that I have, or I have caused to be, alone or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my
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employment by Company, in which I have an ownership interest or which I have a license to use, and that I wish to have excluded from the scope of this Agreement (collectively referred to as “ Prior Inventions ”). If no Prior Inventions are listed in Exhibit A , I warrant that there are no Prior Inventions. If, in the course of my employment with Company, I incorporate a Prior Invention into a Company process, machine or other work, I hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Prior Invention. 2.3 Assignment of Company Inventions. Subject to the section titled “Government or Third Party” and except for Inventions that I can prove qualify fully under the provisions of California Labor Code section 2870 and I have set forth in Exhibit A , I hereby assign and agree to assign in the future (when any such Inventions or Intellectual Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company. Inventions assigned to Company or to a third party as directed by Company pursuant to the section titled “Government or Third Party” are referred to in this Agreement as “Company Inventions.” 2.4 Obligation to Keep Company Informed. During the period of my employment and for one (1) year thereafter, I will promptly and fully disclose to Company in writing (a) all Inventions authored, conceived, or reduced to practice by me, either alone or with others, including any that might be covered under California Labor Code section 2870, and (b) all patent applications filed by me or in which I am named as an inventor or co-inventor. 2.5 Government or Third Party. I also agree to assign all my right, title, and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by Company. 2.6 Enforcement of Intellectual Property Rights and Assistance. During the period of my employment and thereafter, I will assist Company in every proper way to obtain and enforce United States and foreign Intellectual Property Rights relating to Company Inventions in all countries. In the event Company is unable to secure my signature on any document needed in connection with such purposes, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal force and effect as if executed by me. |
3. Records. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by Company) of all Inventions made by me during the period of my employment by Company, which records shall be available to, and remain the sole property of, Company at all times. 4. Additional Activities . I agree that (a) during the term of my employment by Company, I will not, without Company’s express written consent, engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company, and (b) for the period of my employment by Company and for one (l) year thereafter, I will not, either directly or indirectly, solicit or attempt to solicit any employee, independent contractor, or consultant of Company to terminate his, her or its relationship with Company in order to become an employee, consultant, or independent contractor to or for any other person or entity. 5. Return Of Company Property. Upon termination of my employment or upon Company’s request at any other time, I will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Inventions, Third Party Information or Confidential Information of Company and certify in writing that I have fully complied with the foregoing obligation. I agree that I will not copy, delete, or alter any information contained upon my Company computer before I return it to Company. I further agree that any property situated on Company’s premises and owned by Company is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with Company in attending an exit interview and completing and signing Company’s termination statement. 6. Notification Of New Employer . In the event that I leave the employ of Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement, by Company’s providing a copy of this Agreement or otherwise.
7. General Provisions .
7.1 Governing Law and Venue. This Agreement and any action related thereto will be governed, controlled, interpreted, and defined by and under the laws of the State of California, without giving effect to any conflicts of laws principles that require the application of the law of a different state. I hereby expressly consent to the personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place |
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of business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.
7.2 Severability. If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will be unimpaired and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.
7.3 Survival. This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company to any successor-in-interest or other assignee and be binding upon my heirs and legal representatives.
7.4 Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by Company, nor shall it interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause and with or without advance notice.
7.5 Notices . Each party must deliver all notices or other communications required or permitted under this Agreement in writing to the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt requested), or by a nationally-recognized express mail service. Notice will be effective upon receipt or refusal of delivery. If delivered by certified or registered mail, any such notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, any such notice shall be considered to have been given on the delivery date reflected by the courier or express mail service receipt. Each party may change its address for receipt of notice by giving notice of such change to the other party. |
7.6 Injunctive Relief . I acknowledge that, because my services are personal and unique and because I will have access to the Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance). The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.
7.7 Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of any other provision or of such provision on any other occasion.
7.8 Export . I agree not to export, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, to countries outside the United States, because such export could be in violation of the United States export laws or regulations.
7.9 Entire Agreement. The obligations pursuant to sections of this Agreement titled “Confidentiality” and “Inventions” shall apply to any time during which I was previously employed, or am in the future employed, by Company as an independent contractor if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matters hereof and supersedes and merges all prior communications between us with respect to such matters. No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and the CEO of Company. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. |
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CRAIG HAGOPIAN : |
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HAVANA FURNISHINGS, INC. : |
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I acknowledge that I have read and understand this agreement and have been given the opportunity to discuss it with independent legal counsel. |
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Accepted and agreed:
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/s/ Craig Hagopian |
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/s/ Satoru Yukie |
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Craig Hagopian |
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By: Satoru Yukie, Secretary |
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Exhibit A
INVENTIONS
1. Prior Inventions Disclosure. The following is a complete list of all Prior Inventions:
¨ None
¨ See immediately below:
2. Limited Exclusion Notification.
This is to notify you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a. Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or
b. Result from any work performed by you for Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.
1.
Exhibit 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement” ) is made and entered into April 23, 2013, by and between Havana Furnishings, Inc., (the “Company” ), and Satoru Yukie (the “Executive” ). The Company and the Executive may be hereinafter collectively referred to as the “Parties” , and each individually referred to as a “Party” .
A. The Company desires assurance of the association and services of the Executive in order to retain the Executive’s experience, skills, abilities, background and knowledge, and is willing to engage the Executive’s services on the terms and conditions set forth in this Agreement.
B. The Executive desires to be in the employ of the Company, and is willing to accept such employment on the terms and conditions set forth in this Agreement.
Agreement
In consideration of the foregoing recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:
1. Employment.
1.1 Effective Date. This agreement shall take effect as of May 1, 2013 (the "Effective Date").
1.2 Employment At Will. The Company hereby employs the Executive, and the Executive hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement. The Executive’s employment with the Company shall be at will. Either the Executive or the Company may terminate the employment relationship at any time and for any reason, with or without cause or prior notice.
1.3 Title . The Executive shall have the title of “Chief Financial Officer”, Chief Financial Officer, Treasurer, Secretary, and Chief Operations Officer and will also serve in such other capacity or capacities as the Company’s Board of Directors (the “Board” ) may from time to time prescribe. The Executive shall report to the Board.
1.4 Duties. The Executive shall do and perform all services, acts and things reasonably necessary or advisable to manage and conduct the business of the Company and that are normally associated with the position of Chief Executive Officer, as well as any other services, acts and things as may be required from time to time by the Board.
1.5 Location . Unless the Parties otherwise agree in writing, the Executive shall perform services pursuant to this Agreement from Company’s home office in San Diego, California. In addition, the Company may from time to time require the Executive to travel temporarily to other locations in connection with the Company’s business.
1.6 Policies and Practices. The employment relationship between the Parties shall be governed by this Agreement along with the policies and practices established by the Company and the Board. In the event that the terms of this Agreement differ from or are in conflict with the Company’s policies or practices or the Company’s Employee Handbook, this Agreement shall control.
2. Loyal and Conscientious Performance; Noncompetition.
2.1 Loyalty . During the Executive’s employment by the Company, the Executive shall devote the Executive’s business energies, interest, abilities and productive time based on a standard work week to the proper and efficient performance of the Executive’s duties under this Agreement. The Executive is not precluded from devoting energies to non-Company related businesses, projects, and activities so long as they are not competitive and will not negatively affect the activities of the Company.
2.2 Covenant not to Compete . Except with the prior written consent of the Board, which shall not be unreasonably conditioned, delayed, or withheld, the Executive will not, during his employment with the Company or during any post-employment period when the Executive is receiving compensation or other consideration from the Company, including but not limited to severance pay pursuant to Section 4 herein, engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing or marketing of products or services that are in the same field of use or which otherwise compete with the products or services or proposed products or services of the Company and/or any of its Affiliates. For purposes of this Agreement, “Affiliate” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.
2.3 Agreement not to Participate in Company’s Competitors . During his employment with the Company, the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise, or in any company, person, or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates. Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this paragraph.
NuZee Management Contract - Satoru Yukie
2.
3. Compensation Of The Executive.
3.1 Base Salary. The Company shall pay the Executive based on the following Milestone Compensation Schedule. The base salary per year, less any required withholdings and deductions, payable in regular periodic payments in accordance with Company policy (the “Base Salary” ). Executive shall be entitled and receive annual merit reviews by the Board.
milestone compensation schedule:
Revenue/Value Creation Milestones |
Annual Base USD$ |
Other |
Initial salary upon execution of this Offer Letter.
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$150,000 |
-Health Insurance Reimbursement (with proof) |
After Company recognizes sales traction, revenue contribution, closing of additional financing or other value creation agreed to by the Board.
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$180,000 Minimum |
-Health Insurance Reimbursement (with proof) |
3.2 Quarterly Bonus. In addition to the Executive’s Base Salary, the Executive shall also be eligible to receive a quarterly bonus of up to Twenty-Five Thousand Dollars ($25,000.00) based on the achievement of quarterly milestones to be agreed upon by the Company and the Executive (the “Quarterly Bonus” ). In the event the Company and the Executive do not agree upon the milestones, the Board shall establish the applicable milestones in its sole and absolute discretion. In order to earn any Bonus, the Executive must remain employed by the Company through the last day of the quarter for which the Bonus is awarded.
3.3 Stock Options. Subject to approval of the Board and the terms of the Company’s Equity and Incentive Plan (the “Plan” ), the Executive will be granted a stock option to purchase a number of shares of the Company’s common stock that is not less than four percent (4%) of the Company’s stock, which percentage shall be based on the fully-diluted capitalization of the Company as of the Effective Date of this Agreement (the “Option” ). To the maximum extent possible, the Option shall be an Incentive Stock Option as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended. The Option will be governed by and granted pursuant to a separate Stock Option Agreement and the Plan. The exercise price per share of the Option will be equal to the fair market value of a share of the Company’s common stock on the date of grant.
3.3.1 Vesting of Stock Options.
NuZee Management Contract - Satoru Yukie
3.
3.3.1.1 Subject to Section 3.3.1.2 below, twenty-five percent (25%) of the Option shall vest upon the Effective Date of this Agreement. The balance of the Option shall vest in equal installments on the last day of each month for eighteen (18) months thereafter, subject to the Executive’s continued employment, such that the Executive shall be vested in full in the Option if he completes two (2) full years of employment with the Company. The Executive’s right to exercise the vested shares, and all other rights and obligations with respect to the Option, will be as set forth in the stock option agreement, grant notice and applicable Plan documents.
3.3.1.2 Notwithstanding the provisions of Section 3.3.1.1 above, in the event of a Change in Control (as defined below) the Option shall be subject to partial or full accelerated vesting in accordance with the following provisions, and the Option shall terminate if not exercised at or prior to the effective time of the Change in Control:
(i) Subject to adjustment pursuant to subsection (iv), in the event of a Change in Control in which the net sale proceeds to the Company are equal to or exceed Five Million Dollars ($5,000,000.00) (excluding the conversion of any debt) (“ Trigger Amount A ”), fifty percent (50%) of the then unvested shares subject to the Option shall immediately vest contingent upon the Change in Control and effective as of the date immediately preceding the effective date of the Change in Control; or
(ii) Subject to adjustment pursuant to subsection (iv), in the event of a Change in Control in which the net sale proceeds to the Company are equal to or exceed Ten Million Dollars ($10,000,000.00) (excluding the conversion of any debt) (“ Trigger Amount B ”), seventy-five percent (75%) of the then unvested shares subject to the Option shall immediately vest contingent upon the Change in Control and effective as of the date immediately preceding the effective date of the Change in Control; or
(iii) Subject to adjustment pursuant to subsection (iv), in the event of a Change in Control in which the net sale proceeds to the Company are equal to or exceed Fifteen Million Dollars ($15,000,000.00) (excluding the conversion of any debt) or acceptance of Company on major exchange such as NASDAQ or other exchange (“ Trigger Amount C ”), one hundred percent (100%) of the then unvested shares subject to the Option shall immediately vest contingent upon the Change in Control and effective as of the date immediately preceding the effective date of the Change in Control.
3.4 Changes to Compensation. The Executive’s compensation may be changed from time to time in the Company’s discretion.
3.5 Employment Taxes . All of the Executive’s compensation shall be subject to withholding taxes and any other employment taxes required by applicable law.
3.6 Benefits. The Executive shall be eligible to participate in the Company’s standard employee benefit plans, subject to Company policy and the terms of the applicable plans or be reimbursed for benefits with proof of policy.
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3.7 Expense Reimbursements. The Executive shall be entitled to be reimbursed for all reasonable business expenses incurred in connection with carrying on the Executive's duties hereunder in accordance with the Company’s expense reimbursement policies.
4. Termination.
4.1 Termination for Cause or Resignation Without Good Reason. If the Executive’s employment is terminated by the Company for Cause (as defined below), or if the Executive voluntarily resigns his employment without Good Reason (as defined below), the Company shall pay the Executive all Base Salary and accrued but unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings. The Company shall thereafter have no further obligations to the Executive under this Agreement.
4.2 Termination Without Cause or Resignation for Good Reason. If the Company terminates the Executive’s employment without Cause or if the Executive resigns for Good Reason, whether before or following a Change in Control (as defined below), the Company shall pay the Executive all Base Salary and accrued but unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings. In addition, upon the Executive furnishing to the Company an effective waiver and release of claims (in the form attached hereto as Exhibit A , or in such other form as may be required by the Company), the Executive shall also receive:
(i) if the termination date is on or before the second anniversary of the Effective Date, continuation of his Base Salary then in effect, less standard deductions and withholdings, for a period of six (6) months following the termination date; or
(ii) if the termination date is after the second anniversary of the Effective Date, continuation of his Base Salary then in effect, less standard deductions and withholdings, for a period of six (6) months following the termination date, plus an additional one (1) month continuation of Base Salary payments for every four (4) months that the Executive has been employed following the second anniversary of the Effective Date, up to a maximum total of twelve (12) months continuation of Base Salary payments following the termination date. For example, if the Executive is terminated without Cause or resigns for Good Reason nine (9) months following the second anniversary of the Effective Date, the Executive will receive a total of eight (8) months continuation of Base Salary payments.
4.3 Application of Internal Revenue Code Section 409A . If the Company determines that any severance benefit payment described in Section 4.2 above fails to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code as a result of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, the payment of such benefit shall be accelerated to the minimum extent necessary so that the benefit is not subject to the provisions of Section 409A(a)(1) of the Internal Revenue Code. (It is the intention of the preceding sentence to apply the short-term deferral provisions of Section 409A of the Internal Revenue Code, and the regulations and other guidance thereunder, to the Severance Benefits payments, and the payment schedule as revised after the application of the preceding sentence shall be referred to as the " Revised Payment Schedule .") However, if there is no Revised Payment Schedule that would avoid the application of Section 409A(a)(1) of the Internal Revenue Code, the payment of such benefits shall not be paid pursuant to a Revised Payment Schedule and instead shall be delayed to the minimum extent necessary so that such benefits are not subject to the provisions of Section 409A(a)(1) of the Internal Revenue Code. The Board may attach conditions to or adjust the amounts paid pursuant to this Section 4.4 to preserve, as closely as possible, the economic consequences that would have applied in the absence of this Section 4.4; provided, however, that no such condition or adjustment shall result in the payments being subject to Section 409A(a)(1) of the Internal Revenue Code.
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4.4 Definitions . For purposes of this Agreement, the following terms shall have the following meanings:
4.4.1 Cause . “Cause” for the Company to terminate the Executive’s employment hereunder shall mean a reasonable and good faith determination by the Board or any committee thereof that any of the following events has occurred or exists:
(a) the Executive’s repeated failure satisfactorily to perform the Executive’s job duties as set forth by the Board, provided that the Company first provides the Executive with written notice of such failure and a reasonable opportunity to cure the failure if the failure is subject to cure;
(b) the Executive’s commission of an act that materially injures the business of the Company;
(c) the Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude that is likely to inflict, or has inflicted, material injury on the business of the Company; or
(d) the Executive’s material violation of any provision of Section 2 or Section 5 hereof and/or the Executive’s Proprietary Information and Inventions Agreement with the Company.
4.4.2 Good Reason. For purposes of this Agreement, the Executive shall be deemed to have resigned for “ Good Reason ” if he voluntarily resigns immediately following:
( a ) a material reduction in the Executive’s compensation without the Executive’s written consent, except in the case of a Board-approved reduction in salary applicable to the Company’s executive management team; or
(b) a material change in the Executive’s title and/or job duties without the Executive’s written consent.
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4.4.3 “Change in Control” shall mean a transaction (excluding in each case transactions in which securities are purchased from the Company for the principal purpose of raising capital for the Company) in which one of the following occurs:
(a) (A) a merger or consolidation occurs in which the Company is not the surviving entity, or (B) any reverse merger occurs in which the Company is the surviving entity, or (C) any merger involving a subsidiary of the Company occurs in which the Company is a surviving entity, but in each case in which holders of the Company’s outstanding voting securities immediately prior to such transaction, as such, do not hold, immediately following such transaction, securities possessing fifty percent (50%) or more of the total combined voting power of the surviving entity’s outstanding securities (in the case of clause (A)) or the Company’s outstanding voting securities (in the case of clauses (B) and (C)); or
(b) all or substantially all of the Company’s assets are sold of transferred other than in connection with an internal reorganization of the Company or the Company’s complete liquidation (other than a liquidation of the Company into a wholly-owned subsidiary).
4.5 Parachute Payment. If any payment or benefit Executive would receive pursuant to a Change of Control or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless the Executive elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the effective date of the event that triggers the Payment): reduction of cash payments; cancellation of accelerated vesting of stock awards. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Executive’s stock awards unless the Executive elects in writing a different order for cancellation.
The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, then the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.
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The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Executive and the Company within fifteen (15) calendar days after the date on which the Executive’s right to a Payment is triggered (if requested at that time by the Executive or the Company) or such other time as requested by the Executive or the Company. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Executive and the Company with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Executive and the Company.
4.6 Survival of Certain Provisions. Sections 2.2, 4, 5, 15, and 17 shall survive the termination of this Agreement.
5. Confidential And Proprietary Information; Nonsolicitation .
5.1 As a condition of employment, the Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as Exhibit B .
5.2 While employed by the Company and for one (1) year thereafter, the Executive agrees that in order to protect the Company’s trade secrets and confidential and proprietary information from unauthorized use, the Executive will not, either directly or through others, solicit or attempt to solicit any employee, consultant or independent contractor of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or business entity.
6. Assignment and Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive’s heirs, executors, personal representatives, assigns, administrators and legal representatives. Because of the unique and personal nature of the Executive’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by the Executive. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives.
7. Choice of Law.
This Agreement is made in San Diego, California. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of California.
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8. Integration.
This Agreement, including Exhibits A and B, contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions of the Executive’s employment and the termination of the Executive’s employment, and supersedes any prior or contemporaneous oral or written employment agreements or arrangements between the Parties, including the Consulting Agreement. To the extent this Agreement conflicts with the Proprietary Information and Inventions Agreement attached as Exhibit B hereto, the Proprietary Information and Inventions Agreement controls.
9. Amendment.
This Agreement cannot be amended or modified except by a written agreement signed by the Executive and a member of the Board other than the Executive.
10. Waiver.
No term, covenant, or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.
11. Severability.
The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision that most accurately represents the Parties’ intentions with respect to the invalid or unenforceable term or provision.
12. Interpretation; Construction.
The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with the Executive’s own independent counsel with respect to the terms of this Agreement. The Parties acknowledge that each Party and its counsel have reviewed and revised, or have had an opportunity to review and revise, this Agreement, and the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.
13. Representations and Warranties.
The Executive represents and warrants that the Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that Executive’s execution and performance of this Agreement will not violate or breach any other agreements between the Executive and any other person or entity. The Executive represents and warrants that he is eligible to work in the U.S., and has provided documentation of such to the Company as required by law.
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14. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument.
15. Arbitration.
To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to Executive’s employment, or the termination of that employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Diego, California conducted by the Judicial Arbitration and Mediation Services ( “JAMS” ), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. Both the Executive and the Company shall be entitled to all rights and remedies that either the Executive or the Company would be entitled to pursue in a court of law. The Company shall pay all fees in excess of those that would be required if the dispute were decided in a court of law, including the arbitrator’s fee. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute involving confidential, proprietary or trade secret information, or intellectual property rights, by court action instead of arbitration.
16. Trade Secrets Of Others.
It is the understanding of both the Company and the Executive that the Executive shall not divulge to the Company and/or its Affiliates any confidential information or trade secrets belonging to others, including the Executive’s former employers, nor shall the Company and/or its Affiliates seek to elicit from the Executive any such information. Consistent with the foregoing, the Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its Affiliates shall not request, any documents or copies of documents containing such information.
17. Advertising Waiver .
Subject to the Executive’s prior approval, which approval shall not be unreasonably conditioned, delayed, or withheld, the Executive agrees to permit the Company and/or its Affiliates, and persons or other organizations authorized by the Company and/or its Affiliates, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company and/or its Affiliates, in which the Executive’s name and/or pictures of the Executive taken in the course of the Executive’s provision of services to the Company and/or its Affiliates, appear. The Executive hereby waives and releases any claim or right the Executive may otherwise have arising out of such use, publication or distribution.
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In Witness Whereof , the Parties have executed this Agreement as of the date first above written.
EXECUTIVE |
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HAVANA FURNISHINGS, INC. |
/s/ Satoru Yukie |
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/s/ Craig Hagopian |
Satoru Yukie |
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By: Craig Hagopian, Pesident |
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EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In consideration of the payments and other benefits set forth in the Employment Agreement dated April 23, 2013, to which this form is attached, I, Satoru Yukie , hereby furnish Havana Furnishings, Inc. (the “Company” ), with the following release and waiver ( “Release and Waiver” ).
In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) ( “ADEA” ), and the California Fair Employment and Housing Act (as amended). The foregoing shall not affect in any way my right to receive any severance or other benefits pursuant to and in accordance with the terms of Section 4 of the Employment Agreement in exchange for this effective Release and Waiver.
I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “ A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. ” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.
I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I have the right to consult with an attorney prior to executing this Release and Waiver (although I may
choose voluntarily not to do so); and (c) I have twenty-one (21) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired.
If I am less than 40 years of age upon execution of this Release and Waiver, I acknowledge that I have the right to consult with an attorney prior to executing this Release and Waiver (although I may choose voluntarily not to do so); and (c) I have five (5) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier).
I acknowledge my continuing obligations under my Proprietary Information and Inventions Agreement , a copy of which is attached hereto as Exhibit A . Pursuant to the Proprietary Information and Inventions Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control. I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions Agreement .
This Release and Waiver, including Exhibit A hereto, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.
Date: April 23, 2013 By: /s/ Satoru Yukie
Satoru Yukie
EXHIBIT B
EMPLOYEE CONFIDENTIALITY AND INVENTIONS ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Havana Furnishings, Inc. (the “Company” ), and the compensation now and hereafter paid to me, I hereby agree as follows:
1. Confidentiality .
1.1 Nondisclosure; Recognition of Company’s Rights. At all times during my employment and thereafter, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as such use is required in connection with my work for Company, or unless the Chief Executive Officer (the “ CEO ”) of Company expressly authorizes in writing such disclosure or publication. I will obtain the CEO’s written approval before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at Company and/or incorporates any Confidential Information. I hereby assign to Company any rights I have or acquire in any and all Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns. 1.2 Confidential Information. The term “ Confidential Information ” shall mean any and all confidential knowledge, data or information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation (a) trade secrets, inventions, ideas, processes, computer source and object code, data, formulae, programs, other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques; (b) information regarding products, plans for research and development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (c) information regarding the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (d) the existence of any business discussions, negotiations, or agreements between Company and any third party. 1.3 Third Party Information. I understand, in addition, that Company has received and in the future will receive from third parties confidential or proprietary information ( “Third Party Information” ) subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, except in connection with my work for Company, Third Party Information, unless expressly authorized by an officer of Company in writing. |
1.4 No Improper Use of Information of Prior
Employers and Others. I represent that my employment by Company does not and will not breach any agreement with any former employer, including any noncompete agreement or any agreement to keep in confidence information acquired by me in confidence or trust prior to my employment by Company. I further represent that I have not entered into, and will not enter into, any agreement, either written or oral, in conflict herewith. During my employment by Company, I will not improperly use or disclose any confidential information or trade secrets of any former employer or other third party to whom I have an obligation of confidentiality, and I will not bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or other third party to whom I have an obligation of confidentiality, unless consented to in writing by that former employer or person. I will use in the performance of my duties only information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by Company. 2. Inventions . 2.1 Inventions and Intellectual Property Rights. As used in this Agreement, the term “Invention” means any ideas, concepts, information, materials, processes, data, programs, know-how, improvements, discoveries, developments, designs, artwork, formulae, other copyrightable works, and techniques and all Intellectual Property Rights therein. The term “Intellectual Property Rights” means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country. 2.2 Prior Inventions. I agree that I will not incorporate, or permit to be incorporated, Prior Inventions (defined below) in any Company Inventions (defined below) without Company’s prior written consent. In addition, I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU GPL or LGPL or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company. I have disclosed on Exhibit A a complete list of all Inventions that I have, or I have caused to be, alone or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my |
employment by Company, in which I have an ownership interest or which I have a license to use, and that I wish to have excluded from the scope of this Agreement (collectively referred to as “ Prior Inventions ”). If no Prior Inventions are listed in Exhibit A , I warrant that there are no Prior Inventions. If, in the course of my employment with Company, I incorporate a Prior Invention into a Company process, machine or other work, I hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Prior Invention. 2.3 Assignment of Company Inventions. Subject to the section titled “Government or Third Party” and except for Inventions that I can prove qualify fully under the provisions of California Labor Code section 2870 and I have set forth in Exhibit A , I hereby assign and agree to assign in the future (when any such Inventions or Intellectual Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company. Inventions assigned to Company or to a third party as directed by Company pursuant to the section titled “Government or Third Party” are referred to in this Agreement as “Company Inventions.” 2.4 Obligation to Keep Company Informed. During the period of my employment and for one (1) year thereafter, I will promptly and fully disclose to Company in writing (a) all Inventions authored, conceived, or reduced to practice by me, either alone or with others, including any that might be covered under California Labor Code section 2870, and (b) all patent applications filed by me or in which I am named as an inventor or co-inventor. 2.5 Government or Third Party. I also agree to assign all my right, title, and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by Company. 2.6 Enforcement of Intellectual Property Rights and Assistance. During the period of my employment and thereafter, I will assist Company in every proper way to obtain and enforce United States and foreign Intellectual Property Rights relating to Company Inventions in all countries. In the event Company is unable to secure my signature on any document needed in connection with such purposes, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal force and effect as if executed by me. |
3. Records. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by Company) of all Inventions made by me during the period of my employment by Company, which records shall be available to, and remain the sole property of, Company at all times. 4. Additional Activities . I agree that (a) during the term of my employment by Company, I will not, without Company’s express written consent, engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company, and (b) for the period of my employment by Company and for one (l) year thereafter, I will not, either directly or indirectly, solicit or attempt to solicit any employee, independent contractor, or consultant of Company to terminate his, her or its relationship with Company in order to become an employee, consultant, or independent contractor to or for any other person or entity. 5. Return Of Company Property. Upon termination of my employment or upon Company’s request at any other time, I will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Inventions, Third Party Information or Confidential Information of Company and certify in writing that I have fully complied with the foregoing obligation. I agree that I will not copy, delete, or alter any information contained upon my Company computer before I return it to Company. I further agree that any property situated on Company’s premises and owned by Company is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with Company in attending an exit interview and completing and signing Company’s termination statement. 6. Notification Of New Employer . In the event that I leave the employ of Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement, by Company’s providing a copy of this Agreement or otherwise.
7. General Provisions .
7.1 Governing Law and Venue. This Agreement and any action related thereto will be governed, controlled, interpreted, and defined by and under the laws of the State of California, without giving effect to any conflicts of laws principles that require the application of the law of a different state. I hereby expressly consent to the personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place |
of business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.
7.2 Severability. If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will be unimpaired and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.
7.3 Survival. This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company to any successor-in-interest or other assignee and be binding upon my heirs and legal representatives.
7.4 Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by Company, nor shall it interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause and with or without advance notice.
7.5 Notices . Each party must deliver all notices or other communications required or permitted under this Agreement in writing to the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt requested), or by a nationally-recognized express mail service. Notice will be effective upon receipt or refusal of delivery. If delivered by certified or registered mail, any such notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, any such notice shall be considered to have been given on the delivery date reflected by the courier or express mail service receipt. Each party may change its address for receipt of notice by giving notice of such change to the other party. |
7.6 Injunctive Relief . I acknowledge that, because my services are personal and unique and because I will have access to the Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance). The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.
7.7 Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of any other provision or of such provision on any other occasion.
7.8 Export . I agree not to export, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, to countries outside the United States, because such export could be in violation of the United States export laws or regulations.
7.9 Entire Agreement. The obligations pursuant to sections of this Agreement titled “Confidentiality” and “Inventions” shall apply to any time during which I was previously employed, or am in the future employed, by Company as an independent contractor if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matters hereof and supersedes and merges all prior communications between us with respect to such matters. No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and the CEO of Company. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. |
SATORU YUKIE : |
|
HAVANA FURNISHINGS, INC. : |
|
|
|
I acknowledge that I have read and understand this agreement and have been given the opportunity to discuss it with independent legal counsel. |
|
Accepted and agreed:
|
|
|
|
/s/ Satoru Yukie |
|
/s/ Craig Hagopian |
Satoru Yukie |
|
By: Craig Hagopian, President |
|
|
|
Exhibit A
INVENTIONS
1. Prior Inventions Disclosure. The following is a complete list of all Prior Inventions:
¨ None
¨ See immediately below:
2. Limited Exclusion Notification.
This is to notify you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a. Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or
b. Result from any work performed by you for Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.
Exhibit 16.1
April 25, 2013
Office of the Chief Accountant
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
We have read Item 4.01 included in the Form 8-K to be filed this week of Havana Furnishings, Inc. with the Securities and Exchange Commission and are in agreement with the statements related to our firm .
Sincerely,
/s/MaloneBailey, LLP
MaloneBailey, LLP
Houston, Texas
www.malone-bailey.com
Exhibit 99.01
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
NUZEE Co., Ltd.:
We have audited the accompanying balance sheet of Nuzee Co., Ltd. (the “Company”) as of September 30, 2012, and the related statements of operations, changes in stockholders’ equity, and cash flows for the period from inception, November 9, 2011 to September 30, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to the above present fairly, in all material respects, the financial position of Nuzee Co., Ltd. as of September 30, 2012, and the results of its operations and cash flows from inception November 9, 2011 to September 30, 2012 in conformity with accounting principles generally accepted in the United States of America.
/s/ Anton & Chia, LLP
San Diego, California
April 10 , 2013
NUZEE Co., Ltd.
(A Development Stage Company)
BALANCE SHEET
September 30, 2012 |
||||
ASSETS |
||||
Current Assets |
||||
Cash |
$ |
165,484 |
||
Inventories, net |
73,241 |
|||
Prepaid expenses and deposits |
14,938 |
|||
Total current assets |
253,663 |
|||
Equipment, net |
2,475 |
|||
Intellectual property |
42,818 |
|||
Total Assets |
$ |
298,956 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
Current Liabilities |
||||
Accounts payable |
$ |
79,886 |
||
Other Liabilities, including advanced from shareholder |
156,721 |
|||
Total Current Liabilities |
236,607 |
|||
Stockholders' Equity Common Stock; no par value 50,000,000 shares authorized, 30,400,000 shares issued and outstanding |
||||
Additional paid in capital |
347,407 |
|||
Accumulated deficit |
(285,058) |
|||
Total Stockholders' Equity |
62,349 |
|||
Total Liabilities and Stockholders' Equity |
$ |
298,956 |
||
The accompanying notes are an integral part of these financial statements. |
NUZEE Co., Ltd.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the period from November 9, 2011 (Inception) to September 30, 2012 |
||
Revenues |
$ |
- |
Cost of revenues |
89,552 |
|
Gross loss |
(89,552) |
|
Operating expenses |
195,506 |
|
Loss from operations |
(285,058) |
|
Other Income |
- |
|
Net loss |
$ |
(285,058) |
The accompanying notes are an integral part of these financial statements. |
NUZEE Co., Ltd.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the period from November 7, 2011 (Inception) to September 30, 2012
Common Stock |
Additional Paid-In |
Accumulated |
Total Stockholders' |
||
Shares |
Amount |
Capital |
Deficit |
Equity |
|
Balance, November 9, 2011 |
- |
- |
$ - |
$ - |
$ - |
Common Stock issued |
30,400,000 |
- |
347,407 |
- |
347,407 |
Net Loss |
- | - | - |
(285,058) |
(285,058) |
Balance, September 30, 2012 |
30,400,000 |
- |
$ 347,407 |
$ (285,058) |
$ 62,349 |
The accompanying notes are an integral part of these financial statements. |
NUZEE Co., Ltd.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the period from November 9, 2011 (Inception) to September 30, 2012 |
||
Operating Activities: |
||
Net loss |
$ |
(285,058) |
Adjustments to reconcile net loss to net cash used in operating activities: |
||
Depreciation |
124 |
|
Provision for obsolete inventory |
80,422 |
|
Changes in operating assets and liabilities: |
||
Inventories |
(153,664) |
|
Prepaid expenses and deposits |
(14,937) |
|
Accounts payable & other |
86,897 |
|
Net cash used in operating activities |
(286,216) |
|
Investing Activities: |
||
Purchase of equipment |
(2,599) |
|
Net cash used by investing activities |
(2,599) |
|
Financing Activities: |
||
Advances from Stockholder, net |
149,710 |
|
Proceeds from issuance of common stock |
304,589 |
|
Net cash provided by financing activities |
454,299 |
|
Net change in cash |
165,484 |
|
Cash, beginning of period |
- |
|
Cash, end of period |
$ |
165,484 |
Supplemental disclosure of cash flow information: |
||
Cash paid for interest |
- |
|
Cash Paid for taxes |
- |
|
Non-Cash Investing and Financing Activities: |
||
The Company issued $42,818 in common stock in exchange for acquisition of intellectual property rights. |
||
|
||
The accompanying notes are an integral part of these financial statements. |
NUZEE Co., Ltd.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2012
1. ORGANIZATION
Nuzee Co., Ltd.(“Company”) was incorporated on November 9, 2011 in California, and is registered to do business in California. The Company is affiliated with international businesses that distribute the same products in Asia. The Company is a start-up organization which intends to market and distribute primarily energy products. Additionally, while the Company primarily intends to purchase its proprietary products and resell, the Company may also engage in contract manufacturing, where the Company purchases raw materials, and retains a contract converter to process the raw materials into finished products for resale.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the financial statements have been included.
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements. The Company is classified as a development stage enterprise under GAAP and has not generated any revenues from its principal operations as of September 30, 2012.
Development Stage and Capital Resources
Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Accordingly, the Company is considered to be in the development stage as defined in GAAP . The Company has not generated revenues from its principal operations, and there is no assurance of future revenues. As of September 30, 2012, the Company had an accumulated deficit from inception of $285,058.
The Company’s activities will necessitate significant uses of working capital beyond 2012. Additionally, the Company’s capital requirements will depend on many factors, including the success of the Company’s continued marketing efforts and the status of competitive products. The Company plans to continue financing its operations with cash received from financing activities, more specifically from equity contributions.
While the Company strongly believes that its capital resources will be sufficient in the near term, there is no assurance that the Company’s activities will generate sufficient revenues to sustain its operations without additional capital or if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company.
Use of Estimates
In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, accounts payable, and accrued liabilities. The estimated fair value of these instruments approximates its carrying amount due to the short maturity of these instruments.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September 30, 2012.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. From time to time, the Company may maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.
Revenue Recognition
The Company is in the development stage and has yet to realize revenues from planned operations. The Company will recognize revenue only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the products are delivered and collectability of the resulting receivable is reasonably assured. The Company has not recorded any sales transactions since inception.
Inventory
Inventory, consisting principally of products held for resale, is stated at the lower of cost, using the weighted average cost method or net realizable value. The Company review inventory levels at least annual and records a valuation allowance when appropriate. At September 30, 2012 the Company concluded there was an impairment to the carrying value of the inventory of $80,422, the amount reflected on the balance sheet is net of this adjustment.
Equipment, net
Equipment is stated at cost. The Company depreciates equipment on a straight line basis. Office Equipment is depreciated over a 3 year life, vehicles over a 5 year life, and other assets over a 10 year life. Depreciation expense for the year ended September 30, 2012 was $124. Repair and Maintenance costs are expensed as incurred.
Samples
The Company distributes samples of its products as a component of its marketing program. Costs for samples are expensed at the time the samples are shipped.
Long-Lived Assets
In accordance with ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ), the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their then carrying values may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets. The Company acquired intellectual property during September 2012, the first test of impairment will be made prior to September 30, 2013.
Income Taxes
As a result of the implementation of certain provisions of ASC 740, Income Taxes , (formerly FIN 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109), (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.
In 2012, the Company adopted Accounting for Uncertain Income Taxes under the provisions of ASC 740. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not recognize any additional liability for unrecognized tax benefits as a result of the adoption of ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.
We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.
Our tax provision determined using an estimate of our annual effective tax rate using enacted tax rates expected to apply to taxable income in the years in which they are earned, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment .
Recent Accounting Pronouncements
Effective January 2012, the Company adopted ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU 2011-04 was effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not have a material impact on the financial statements.
Effective January 2012, the Company adopted ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 is intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all nonowner changes in shareholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 defers the provisions of ASU 2011-05 that require the presentation of reclassification adjustments on the face of both the statement of income and statement of other comprehensive income. Amendments under ASU 2011-05 that were not deferred under ASU 2011-12 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this update did not have a material impact on the financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The Company is evaluating the effect, if any, adoption of ASU 2011-11 will have on its financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU
2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be crossreferenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The Company is evaluating the effect, if any, the adoption of ASU 2013-02 will have on its consolidated financial statements.
3. EQUIPMENT – NET
Equipment consists of the following as of September 30, 2012:
September 30, |
|||
2012 |
|||
Office equipment |
$ |
2,599 |
|
Less accumulated depreciation |
124 |
||
Equipment – net |
$ |
2,475 |
Office Equipment is stated at cost and depreciated on a straight-line basis over an estimated useful life of 3 years.
4. COMMON STOCK
On September 7, 2012, the Company issued 1,520,000 shares of common stock to each of three subscribers for cash pursuant to a stock purchase agreement. The shares were issued at the value of $.0001 per share for total proceeds of $456
Also, on September 7, 2012 the Company issued 1,216,000 shares of common stock to a subscriber for cash pursuant to a stock purchase agreement. The shares were issued at the value of $.0001 per share for total proceeds of $122.
On September 17, 2012 the Company entered into a stock purchase agreement to issue 3,040,000 shares of common stock at the estimated fair market value of $.014085 per share in exchange for an assignment of certain intellectual property rights to one of the Company’s principal product offerings. These shares were valued at $42,818.
Also, on September 17, 2012 the Company issued 21,584,000 shares of common stock to a subscriber for cash pursuant to a stock purchase agreement. The shares were issued at the value of $.014085 per share for total proceeds of $304,011.
5. RELATED PARTY TRANSACTIONS
The Company purchased $10,454 of skin care products, for resale, from an entity controlled by the Company’s majority shareholder. Those items are included in inventory at September 30, 2012. The Company has received advances, from its majority shareholder totaling, $150,014, due on demand, which are included with other liabilities on the Balance Sheet.
6. SUBSEQUENT EVENTS
During December 2012, the Company issued 3,333,333 shares of common stock to its majority shareholder pursuant to a stock purchase agreement for cash and in exchange for the amount due to the shareholder. The shares were issued at the estimated fair market value of $.12 per share for a total valuation of $400,000.
In April 2013, the Company entered into an agreement in principal to be acquired in a stock exchange transaction that is expected to be accounted for as a reverse merger or recapitalization transaction.
Exhibit 99.02
NUZEE, Co. Ltd. Balance Sheets |
|||||
ASSETS |
December 31, 2012 (Unaudited) |
September 30, 2012 (Audited) |
|||
Current Assets |
|||||
Cash |
$ |
13,508 |
$ |
165,484 |
|
Inventories, net |
31,690 |
73,241 |
|||
Prepaid expenses and deposits |
226,278 |
14,938 |
|||
Total current assets |
271,476 |
253,663 |
|||
Equipment, net |
2,382 |
2,475 |
|||
Intellectual property |
42,818 |
42,818 |
|||
Total Assets |
$ |
316,676 |
$ |
298,956 |
|
Current Liabilities |
|||||
Accounts payable |
$ |
34,181 |
$ |
79,886 |
|
Other Liabilities, including advanced from shareholder |
139,661 |
156,721 |
|||
Total Current Liabilities |
173,842 |
236,607 |
|||
Stockholders' Equity |
|||||
Common Stock; no par value 50,000,000 shares authorized, 33,733,333 and 30,400,000 shares issued and outstanding as of December 31, 2012 and September 30, 2012 |
- | - | |||
Additional Paid in Capital |
747,407 |
347,407 |
|||
Accumulated deficit |
(604,573) |
(285,058) |
|||
Total Stockholders' Equity |
142,834 |
62,349 |
|||
Total Liabilities and Stockholders' Equity |
$ |
316,676 |
$ |
298,956 |
|
The accompanying notes are an integral part of these condensed financial statements. |
|||||
NUZEE Co., Ltd.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
Nuzee Co., Ltd. (“Company”) was incorporated on November 9, 2011 in California, and is registered to do business in California. The Company is affiliated with international businesses that distribute the same products in Asia. The Company is a start-up organization which intends to market and distribute primarily energy products. Additionally, while the Company primarily intends to purchase its proprietary products and resell, the Company may also engage in contract manufacturing, where the Company purchases raw materials, and retains a contract converter to process the raw materials into finished products for resale.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the financial statements have been included.
The results of operations reported for interim periods are not necessarily indicative of the results for the entire year or any subsequent interim period.
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.
Capital Resources
The Company has not generated revenues from its principal operations, and there is no assurance of future revenues. As of September 30, 2012, the Company had an accumulated deficit from inception of $604,573.
The Company’s activities will necessitate significant uses of working capital beyond 2012. Additionally, the Company’s capital requirements will depend on many factors, including the success of the Company’s continued marketing efforts and the status of competitive products. The Company plans to continue financing its operations with cash received from financing activities, more specifically from equity contributions.
While the Company strongly believes that its capital resources will be sufficient in the near term, there is no assurance that the Company’s activities will generate sufficient revenues to sustain its operations without additional capital or if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company.
Use of Estimates
In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments include cash and accounts payable. The estimated fair value of these instruments approximates its carrying amount due to the short maturity of these instruments.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of December 31, 2012 and September 30, 2012.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2012 and September 30, 2012.
Revenue Recognition
The Company recognizes revenue only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the products are delivered and collectability of the resulting receivable is reasonably assured.
Inventories
Inventory, consisting principally of products held for resale, is stated at the lower of cost or market, using the weighted average cost method. The Company reviews inventory levels at least annually and records a valuation allowance when appropriate. During the three months ending December 31, 2012 the Company concluded there was an additional impairment to the carrying value of the inventory of $8,274, and increased the inventory allowance account accordingly with a corresponding charge to Cost of Goods Sold. The inventory amount reflected on the balance sheet is net of the total allowance of $88,696 at December 31, 2012.
Equipment, net
Equipment is stated at cost. The Company depreciates equipment on a straight line basis. Office Equipment is depreciated over a 3 year life, vehicles over a 5 year life, and other assets over a 10 year life. Depreciation expense for the year ended September 30, 2012 was $124. Repair and Maintenance costs are expensed as incurred.
Samples
The Company distributes samples of its products as a component of its marketing program. Costs for samples are expensed at the time the samples are shipped and are recorded in cost of sales.
Long-Lived Assets
In accordance with ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ), the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their then carrying values may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.
Income Taxes
As a result of the implementation of certain provisions of ASC 740, Income Taxes , (formerly FIN 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109), (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.
In 2012, the Company adopted Accounting for Uncertain Income Taxes under the provisions of ASC 740. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not recognize any additional liability for unrecognized tax benefits as a result of the adoption of ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.
We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.
Our tax provision determined using an estimate of our annual effective tax rate using enacted tax rates expected to apply to taxable income in the years in which they are earned, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment .
Recent Accounting Pronouncements
Effective January 2012, the Company adopted ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU 2011-04 was effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not have a material impact on the financial statements.
Effective January 2012, the Company adopted ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 is intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all nonowner changes in shareholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 defers the provisions of ASU 2011-05 that require the presentation of reclassification adjustments on the face of both the statement of income and statement of other comprehensive income. Amendments under ASU 2011-05 that were not deferred under ASU 2011-12 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this update did not have a material impact on the financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The Company is evaluating the effect, if any, adoption of ASU 2011-11 will have on its financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be crossreferenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The Company is evaluating the effect, if any, the adoption of ASU 2013-02 will have on its financial statements.
3. EQUIPMENT – NET
Equipment consists of the following as of December 31, 2012 and September 30, 2012:
December 31 |
|
September 31 |
|||
2012 |
|
2012 |
|||
Office equipment |
$ |
2,599 |
$ |
2,599 |
|
Less accumulated depreciation |
$ |
217 |
|
$ |
124 |
Equipment – net |
$ |
2,382 |
$ |
2,475 |
4. COMMON STOCK
During December 2012, the Company issued 3,333,333 shares of common stock to its majority shareholder pursuant to a stock purchase agreement for $249,390 in cash and in exchange for the amount due to the shareholder of 150,610. The shares were issued at the estimated fair market value of $.12 per share for a total of $400,000.
5. RELATED PARTY TRANSACTIONS
During the three months ending December 31, 2012 the Company made a deposit of $139,661 towards the purchase of skin care products, for resale, from an entity controlled by the Company’s majority shareholder. Subsequent to this commitment, the Company decided to focus its sales and marketing efforts on the energy drink market, and has provided a loss contingency against this deposit of $139,661 which is included in the cost of goods sold for the three months ending December 31, 2012.
6. INCOME TAXES
The Company’s effective income tax rate for the three months ended December 31, 2012 and 2011 was 40.6%. In accounting for income taxes, the Company recognizes deferred tax assets if realization of such assets is more likely than not. The Company believes, based on factors including, but not limited to, the ability to generate future taxable income and the Company’s status as a development stage Company that the deferred tax assets will not be realized and we have recorded a valuation allowance against these deferred tax assets to zero.
Additionally, the Company’s utilization of net operating loss carryforwards may be subject to annual limitations due to the potential ownership change contemplated by the reverse merger pursuant to the ownership change provisions of the Internal Revenue Code Section 382.
As of December 31, 2012, there have been no material changes to the Company’s uncertain tax position disclosure as provided at September 30, 2012. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as Interest expense. As of December 31, 2012 the Company has not incurred any penalties or interest on uncertain tax positions.
7. SUBSEQUENT EVENTS
On April 19, 2013, the Company entered into an agreement in principal to be acquired in a stock exchange transaction that is expected to be accounted for as a reverse merger or recapitalization transaction.
Exhibit 99.03
Proforma Balance Sheet As of January 31, 2013 | |||||||||
Havana Furnishings, Inc. January 31, 2013 |
Nuzee Co., Ltd. January 31, 2013 |
Adjustments |
Proforma |
||||||
Assets |
|||||||||
Current assets |
|||||||||
Cash |
2,757 |
1,427 |
4,184 |
||||||
Accounts receivable, net |
- |
178 |
178 |
||||||
Subscription receivable |
- |
122 |
- |
122 |
|||||
Inventory, net |
30,502 |
30,502 |
|||||||
Prepaid expenses and deposits |
- |
219,991 |
|
219,991 |
|||||
Total current assets |
2,757 |
252,220 |
254,977 |
||||||
Equipment, net |
- |
2,351 |
2,351 |
||||||
Intellectual property |
42,818 |
42,818 |
|||||||
Total assets |
2,757 |
297,389 |
|
300,146 |
|||||
Liabilities and Stockholders' Deficit |
|||||||||
|
|||||||||
Current liabilities |
|||||||||
Accounts payable |
2,700 |
26,004 |
28,704 |
||||||
Other liabilities, including advances from affiliates |
22,015 |
189,661 |
- |
211,676 |
|||||
Other current liabilities |
- |
- |
|
- |
|||||
Total current liabilities |
24,715 |
215,665 |
240,380 |
||||||
Note payable - related party |
- |
- |
|
- |
|||||
Total liabilities |
24,715 |
215,665 |
|
240,380 |
|||||
Commitments |
|||||||||
Stockholders' deficit |
|||||||||
Common stock |
62 |
- |
62 |
||||||
Additional paid-in capital |
47,938 |
747,407 |
(665,683) |
129,662 |
|||||
Retained earnings (Accumulated deficit) |
(69,958) |
(665,683) |
665,683 |
(69,958) |
|||||
Total stockholders' equity (deficit) |
(21,958) |
81,724 |
59,766 |
||||||
Total liabilities and stockholders' deficit |
2,757 |
297,389 |
|
300,146 |
|||||