10-K/A: CIMG Inc. Faces Delisting Amidst Rising Losses and Strategic Pivot to Maca Products

CIMG Inc. reports increased net losses and a significant accumulated deficit while undergoing a strategic shift to maca-infused products, simultaneously grappling with multiple Nasdaq non-compliance notices and a delisting determination.

Summary

• CIMG Inc. (formerly Nuzee, Inc.) rebranded and shifted its core business from specialty coffee to maca-enhanced food and beverages, primarily targeting Asian markets.
• The company secured exclusive distribution rights for all maca products from Jiangsu Kangduoyuan Beverage Co., Ltd., including Maca Peptide Coffee, Maca-Noni, Maca Purified Powder, and Maca Wine.
• Net loss for the fiscal year ended September 30, 2024, increased to $8,972,735, compared to $8,749,467 in the prior year.
• Accumulated deficit reached approximately $82,344,722 as of September 30, 2024.
• Revenue for the fiscal year ended September 30, 2024, was $1,930,291, a 9.80% decrease from $1,757,968 in 2023.
• Gross profit improved to $32,169 (1.69% margin) in FY2024 from a gross loss of $210,817 (-10.71% margin) in FY2023, driven by reduced material and labor costs.
• Operating expenses decreased by 21.39% to $6,425,571 in FY2024 from $8,174,200 in FY2023.
• Cash and cash equivalents declined to $464,222 as of September 30, 2024, from $982,869 in the previous year.
• Independent auditors issued a 'going concern' explanatory paragraph for the fiscal year ended September 30, 2024.
• CIMG Inc. received multiple Nasdaq non-compliance notices for minimum bid price and untimely filings, culminating in a delist determination letter on June 27, 2025.
• The company completed several capital raises totaling $9,586,272 in FY2024, which helped temporarily resolve a stockholders' equity deficiency.

Sentiment

Score: 2

Explanation: Despite a strategic pivot and some capital raises, the company faces severe financial distress with increasing net losses, a significant accumulated deficit, declining cash, and a 'going concern' warning from auditors. The multiple Nasdaq delisting notices, including a final determination, indicate critical operational and compliance failures that severely threaten its public trading status.

Positives

• Successfully pivoted business strategy to focus on maca-enhanced food and beverages in Asia, securing exclusive distribution rights for a full range of maca products from Jiangsu Kangduoyuan Beverage Co., Ltd.
• Introduced a new health-focused product line, the Maca Series, which includes Maca Peptide Coffee, Maca-Noni, Maca Purified Powder, and Maca Wine.
• Signed contracts with multiple PRC-based distribution companies (Guangdong Jixinsheng Trading Co., Ltd., Shanghai Qingshuteng Trading Co., Ltd., Sichuan Haohua Dinghui Trading Co., Ltd., and Shanghai Jinxianfang Trading Co., Ltd.) to expand distribution of Maca-Noni drinks.
• Targeting significant distribution expansion for Maca-Noni, aiming for 25,000 uSmile PetroChina convenience stores, 400 Guangdong Petroleum Co., Ltd. convenience stores, 129 Chengdu Energy Gas Stations, and no fewer than 300 self-service vending machines within the next 12 months.
• Gross profit improved from a loss of $210,817 in FY2023 to a profit of $32,169 in FY2024, with gross margin improving from (10.71)% to 1.69%.
• Operating expenses decreased by $1,748,629 (21.39%) in FY2024 compared to FY2023, primarily due to reduced labor and travel costs.
• Regained compliance with Nasdaq's Stockholders Equity Requirement by July 23, 2024, following successful capital raises.
• Auditor is headquartered in Singapore and subject to PCAOB inspections, which mitigates risks related to the Holding Foreign Companies Accountable Act.

Negatives

• Incurred a net loss of $8,972,735 for the fiscal year ended September 30, 2024, an increase from $8,749,467 in the prior year.
• Accumulated deficit reached approximately $82,344,722 as of September 30, 2024.
• Cash and cash equivalents decreased significantly to $464,222 as of September 30, 2024, from $982,869 in the previous year.
• Independent auditors' report for FY2024 includes an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern.
• Received a Nasdaq notification on January 14, 2025, for non-compliance with the minimum bid price requirement ($1.00 per share).
• Received multiple Nasdaq notifications for not timely filing its Annual Report on Form 10-K for FY2024 and Quarterly Reports on Form 10-Q for Q1 and Q2 2025.
• Received a Nasdaq delist determination letter on June 27, 2025, for failing to file its Form 10-K for FY2024 by the extended deadline.
• Disclosure controls and procedures were deemed 'not effective' as of September 30, 2024.
• Internal control over financial reporting was deemed 'not effective' as of September 30, 2024.
• Facing ongoing legal proceedings, including the Kim Litigation (alleging breach of contract and seeking over $1 million in damages) and the Ex-Directors Lawsuit (seeking over $200,000 for unpaid fees).

Risks

• History of net losses and expectation to continue incurring losses, potentially never achieving or sustaining profitability.
• Need to obtain additional capital to fund operations; inability to do so may prevent continuation as a going concern.
• Limited operating history in the new business focus, making future performance difficult to evaluate.
• Ability to use net operating loss carryforwards may be subject to limitations (Section 382 of the Code).
• Future financial results are difficult to predict, and failure to meet market expectations could cause stock price decline.
• Business, growth, and profitability depend on the performance and relationship with third-party suppliers and manufacturing partners, including potential termination of arrangements or non-performance.
• Interruption or increased costs in the supply chain and sales network could adversely affect business and sales.
• Loss of senior management or inability to attract/retain skilled personnel could materially adversely affect the business.
• Decentralized management structure may lead to additional expenses and communication delays.
• Inability to manage future growth effectively could hinder business strategy execution.
• Failure to accurately forecast customer demand or adjust to changes could adversely affect business and financial results.
• Inability to adequately protect intellectual property rights, or being subject to infringement claims, could harm competitive position and disrupt operations.
• Failure to comply with transfer pricing and similar regulations could harm business and financial results.
• Changes in PRC government policies could significantly impact business and profitability in China.
• Approval and/or other requirements from CSRC or other mainland China governmental authorities may be required for overseas securities issuance, with uncertain timelines or outcomes.
• A slowdown or adverse developments in the PRC economy may harm customers and demand for products.
• Worsening relations between the United States and China could reduce stock price.
• Future inflation in China may inhibit profitability.
• Fluctuation of the Renminbi may adversely affect investment value.
• Restrictions on currency exchange may limit ability to receive and use revenue effectively.
• PRC subsidiary is subject to restrictions on making dividends and other payments to the parent company.
• Uncertainties with respect to the PRC legal system may not adequately protect business and foreign investors' rights.
• PRC regulations (M&A Rules, national security) may complicate growth through acquisitions in China.
• PRC regulation of loans and direct investment by offshore holding companies may delay or prevent funding of PRC entities.
• Need to remit offering proceeds to China for business use, which may be time-consuming.
• Failure by PRC resident beneficial owners to comply with foreign exchange regulations could restrict profit distribution and investment activities.
• Potential fines due to insufficient payment of social insurance and housing fund for employees in China.
• Difficulties in protecting interests and exercising rights as a stockholder due to operations and officers/directors residing in China.
• Difficulties in protecting rights through the United States courts.
• Increases in labor costs in the PRC may adversely affect business and profitability.
• Risk of delisting from U.S. stock exchange if PCAOB cannot inspect or fully investigate auditors for two consecutive years (under HFCAA).
• Subject to various PRC laws and obligations regarding cybersecurity and data protection, with potential material adverse effects for non-compliance.
• Failure to comply with the Foreign Corrupt Practices Act could adversely affect business.
• Market price of stock may be volatile, with risk of losing all or part of investment.
• No assurance of sustained active trading market for Common Stock.
• Nasdaq Capital Market may subsequently delist securities if ongoing listing standards are not met.
• Broad discretion in use of net proceeds from recent offering, may not be used effectively.
• Significant costs and management time incurred as a public company for compliance initiatives.
• Inability to prevent or detect all errors or fraud, or to accurately and timely report financial results due to ineffective disclosure controls and internal control over financial reporting.
• Anti-takeover provisions in bylaws and Nevada law might discourage or delay change of control.
• No dividends paid historically, and none anticipated in foreseeable future.
• Claims for indemnification by directors and officers may reduce available funds.
• Product safety and quality concerns could negatively affect business.
• Inability to protect information systems against service interruption, data misappropriation, or security breaches could disrupt operations and damage reputation.
• Changes in regulatory standards could adversely affect business.
• Employment litigation and unfavorable publicity could negatively affect future business.
• Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations.
• Currently pending, threatened, or future litigation or governmental proceedings could result in material adverse consequences.
• Future acquisitions and investments could impact business and financial condition.
• Ongoing geopolitical tensions around the world may have a material adverse effect on business, financial condition, and results of operations.

Future Outlook

The company expects to incur significant sales and marketing expenses and additional losses from operating as an exchange-listed public company. It anticipates needing additional capital to fund planned operations beyond the next three months. Future success is dependent on the ability to effectively implement growth strategies, extend product offerings, and introduce innovative new products. Plans include global expansion, particularly in Asia, North America, and Europe, enhancing brand awareness through digital marketing and influencer partnerships, and strengthening distribution channels via e-commerce and retail partnerships.

Management Comments

• Optimistic in the ability to achieve sales growth and enhance enterprise value through a comprehensive digital marketing strategy.

Industry Context

The company's strategic pivot to maca-enhanced products aligns with the significant growth in the global market for natural and plant-based dietary supplements. This growth is driven by increasing consumer awareness of health and wellness. The global maca market is projected to exceed $106 million by 2037, with a compound annual growth rate (CAGR) exceeding 4.2% from 2025 to 2037. Maca is recognized as a natural superfood known for its nutritional value and adaptogenic properties, supporting stamina, vitality, and overall wellness, positioning the company to capitalize on this rising demand.

Comparison to Industry Standards

• The filing does not provide specific comparable company financial data or industry benchmarks to assess the company's performance against global standards.
• Competitors in the maca product market in Asia include The Maca Team, Maca-Root, Navitas Organics, Sunfood Superfoods, Sambazon, and FGO, but no specific financial or operational comparisons are provided.

Management Changes

Corporate Governance

Legal Proceedings

• **Steeped Litigation**: A complaint filed on January 27, 2023, alleging breach of a 2021 settlement agreement related to trademark infringement. The company settled on January 16, 2024, paying $500,000, and the case was dismissed on April 18, 2024.
• **Curtin Litigation**: A complaint filed on January 6, 2023, by a former employee alleging harassment, gender discrimination, retaliation, and wrongful termination. The case was compelled to arbitration on December 22, 2023. The company settled on November 8, 2024, paying $125,000, and the case was dismissed on December 6, 2024.
• **Kim Litigation**: A complaint filed on October 3, 2024, alleging breach of a Convertible Note and Warrant Purchase Agreement, including failure to deliver registration rights, exclusion from S1 registration, delayed note conversion, dilution, and failure to honor participation rights and director appointment. Mr. Kim seeks $1,041,216 in monetary damages and specific performance. A motion for preliminary injunction was denied on February 13, 2025. Discovery is ongoing, and the company believes it has a basis to defend the claims.
• **Ex-Directors Lawsuit**: A complaint filed on March 10, 2025, by former directors seeking over $200,000 for unpaid directors' fees and expenses from Q4 2023 through Q2 2024, alleging breach of contract and other claims. Negotiations are ongoing.

Related Party Transactions

• Mr. Sooncha Kim purchased 24,286 shares of Common Stock for approximately $697,000 in an underwritten public offering on August 10, 2022, on the same terms as other investors, pre-approved by the Board.
• Mr. Sooncha Kim purchased 46,800 shares of Common Stock and warrants for 5,200 additional shares for approximately $130,000 in a private placement transaction in November 2023, pre-approved by the Board.
• The owner of METAVERSE INTELLIGENCE TECH LTD, a major investor, is a director of Wewin Technology LLC (a subsidiary), and paid an administrative fee of $7,500 on behalf of CIMG Inc. as of September 30, 2024.
• Trading volume generated by CIMG Inc. with the related party (METAVERSE INTELLIGENCE TECH LTD) was $326,720 during the fiscal year ended September 30, 2024.
• NuZee KOREA Ltd. sold single-serve pour-over and coffee brew bag products worth $648 to Mystery Golf Ltd., a company owned by the chief executive officer of NuZee KOREA Ltd., during the fiscal year ended September 30, 2023.

Stakeholder Impact

• **Shareholders**: Face significant risk of investment loss due to potential Nasdaq delisting, which would severely limit liquidity and market quotations for common stock. Dilution from multiple capital raises has occurred and may continue. No dividends are anticipated in the foreseeable future, meaning returns depend solely on stock price appreciation.
• **Employees**: Subject to management changes and potential impacts from the company's financial instability. Increased labor costs in China could affect profitability, potentially impacting employee benefits or job security. Employees are also subject to strict insider trading policies and disciplinary action for violations.
• **Customers**: May experience impacts from supply chain disruptions, product safety or quality concerns, and changes in product availability or offerings as the company pivots its business focus.
• **Suppliers/Partners**: The company's reliance on third-party suppliers and manufacturing partners means their performance directly affects the company's operations and profitability. Any non-performance or termination of agreements could negatively impact the company's ability to deliver products.
• **Creditors**: The company's recurring net losses, accumulated deficit, and 'going concern' warning indicate heightened risk for creditors regarding the company's ability to service its debt obligations.

Next Steps

• Appeal Nasdaq's delist determination by July 7, 2025, and request a hearing before a Nasdaq Hearings Panel.
• File Form 10-K for the fiscal year ended September 30, 2024, as soon as possible, and in any event before July 7, 2025.
• File Form 10-Q for the period ended December 31, 2024, on or before July 14, 2025.
• Continue to implement the Nasdaq compliance plan to regain compliance with applicable Nasdaq Listing Rules.
• Continue to seek additional capital to fund planned operations beyond the next 12 months.
• Expand product offerings, particularly the Maca Series, to various consumer segments.
• Increase global presence, focusing on Asia, North America, and Europe.
• Enhance brand awareness through digital marketing initiatives, social media influencer partnerships, and content marketing.
• Strengthen and diversify distribution channels, including e-commerce platforms and retail partnerships.
• Continue negotiations in the Ex-Directors Lawsuit.
• Expected issuance of subscription shares on September 1, 2025.

Key Dates

Recommendation

The company faces severe financial challenges, including increasing net losses, a substantial accumulated deficit, and a 'going concern' warning from its auditors. Its Nasdaq listing is in imminent jeopardy due to multiple non-compliance issues and a delist determination. While a strategic pivot to maca products and recent capital raises provide some liquidity, the fundamental financial health and operational stability remain highly questionable. The ongoing legal proceedings add further uncertainty. The risk of delisting and subsequent loss of liquidity for shareholders is very high, making the stock a strong sell for investors.

Keywords

Maca, functional beverages, health supplements, China market, Nasdaq delisting, SEC filing, corporate governance, financial reporting, supply chain, e-commerce, distribution, risk management, capital raise, litigation, cybersecurity, intellectual property, going concern