CIMG (IMG) Risk Factors

Our primary focus is the development of single serve coffee products in the North American market targeting the individual consumer for use at home and office or other settings. Under our private label coffee development program, we intend to continue working with current and new customers in developing private labels of signature coffees and, in this regard, use our expertise to source, roast (utilizing our third-party roasting or manufacturing partners), blend, and package coffee to their exact specifications. We have also developed and sell NuZee and DRIPKIT branded products. Our growth strategy includes, among other things, further developing our NuZee and DRIPKIT branded product lines and growing our private label coffee development program to reach new co-packing customers, as well as increasing sales of our coffee brew bag and bagged coffee products. In the future, as part of our growth strategy, we may also consider co-packaging other products that are complementary to our current single serve coffee product offerings and provide us with a deeper access to our customers. Our future success depends, largely, on our ability to implement these and our other growth strategies effectively. However, achievement of our growth strategy is dependent, among other things, on our ability to extend the product offerings of our existing brands and introduce innovative new products and co-packing services. Although we devote significant focus to the development of new products, including NuZee and DRIPKIT branded products, we may not be successful in developing innovative new products or our new products may not be commercially successful. We also may be unsuccessful in expanding our co-packaging services to other products that are complementary to our current single serve coffee product offerings. Additionally, our new product introductions are often time sensitive, and thus failure to deliver innovations on schedule could be detrimental to our ability to successfully launch such new products and retain partners, in addition to potentially harming our reputation and customer loyalty. If we fail to implement our growth strategies or if we invest resources in growth strategies that ultimately prove unsuccessful, our sales and profitability may be negatively affected, which would materially and adversely affect our business, financial condition and results of operations. Our financial results and our ability to maintain or improve our competitive position will depend on our ability to effectively gauge the direction of our key marketplaces and successfully identify, develop, manufacture, market and sell new or improved products and co-packing services in these changing marketplaces.

Our businesses involve the collection, storage and transmission of personal, financial or other information that is entrusted to us by our customers and employees. Our information systems also contain the Company's proprietary and other confidential information related to our businesses. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; telecommunications or system failures; server or cloud provider breaches; computer viruses; physical or electronic break-ins; cyber-attacks; catastrophic events; or breaches due to employee error or malfeasance or other attempts to harm our systems. Cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology networks and systems to more sophisticated and targeted measures, known as advanced persistent threats, directed at the Company, its products, its customers and/or its third-party service providers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures in time. We could also experience a loss of critical data and delays or interruptions in our ability to manage inventories or process transactions. Some of our commercial partners, such as those that help us deliver our website, may receive or store information provided by us or our users through our websites. If these third parties fail to adopt or adhere to adequate information security practices, or fail to comply with our online policies, or in the event of a breach of their networks, our users' data may be improperly accessed, used or disclosed. If our systems are harmed or fail to function properly, we may need to expend significant financial resources to repair or replace systems or to otherwise protect against security breaches or to address problems caused by breaches. If we experience a significant security breach or fail to detect and appropriately respond to a significant security breach, we could be exposed to costly legal or regulatory actions against us in connection with such incidents, which could result in orders or consent decrees forcing us to modify our business practices. Any incidents involving unauthorized access to or improper use of user information, or incidents that are a violation of our online privacy policy, could harm our brand reputation and diminish our competitive position. Any of these events could have a material and adverse effect on our business, reputation or financial results. Our insurance policies carry coverage limits, which may not be adequate to reimburse us for losses caused by security breaches.

The success of our business depends in part on our marketing efforts in the United States and various countries in East Asia and Latin America, each of which is conducted in the local language. Additionally, our operations often require that complex contracts, communications and technical information be accurately translated into foreign languages. Miscommunications or inaccurate foreign language translations could have a material adverse effect on our business operations and financial condition.

Our success depends in part on our ability to maintain consumer confidence in the safety and quality of all of our products. While we are committed to the safety and quality of our products, we may not achieve our product safety and quality standards. Product safety or quality issues, or mislabeling, actual or perceived, or allegations of product contamination or quality or safety issues, even when false or unfounded, could subject us to product liability and consumer claims, negative publicity, a loss of consumer confidence and trust, may require us from time to time to conduct costly recalls from some or all of the channels in which the affected product was distributed, could damage the goodwill associated with our brands, and may cause consumers to choose other products. Such issues could result in the destruction of product inventory and lost sales due to the unavailability of product for a period of time, which could cause our business to suffer and affect our results of operations.

Our success depends on the skills, experience and performance of key members of our senior management team. The individual and collective efforts of our senior management team will be important as we continue to expand our commercial activities and develop additional products. The loss or incapacity of existing members of our senior management team could have a material adverse effect on our business and financial condition if we experience difficulties in hiring qualified successors. Our employment agreements with our executive officers are "at will", and the retention of our executive officers for any period of time cannot be guaranteed. We do not maintain "key person" insurance on any of our employees. Due to the specialized nature of the business and our small size, we are highly dependent upon our ability to attract and retain qualified sales and marketing, technical and managerial personnel. The loss of the services of existing personnel, as well as the failure to recruit key sales, marketing, technical and managerial personnel in a timely manner would be detrimental to our development and could have a material adverse effect on our business and financial condition. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as sales and marketing, may require the addition of new management personnel, both domestic and international. All of our employees may terminate their employment at any time with short or no advance notice. We may have difficulties locating, recruiting or retaining qualified sales people. Recruiting and retention difficulties will limit our ability to support our development and sales programs and to build a commercially viable business. The competition for talent is currently extremely high. In this competitive environment, our business could be adversely impacted by increases in labor costs, including wages and benefits, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers' compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets, and increased wages, and benefits and other costs. In addition, our wages and benefits programs, combined with the periodic challenges in the labor market, may be insufficient to attract and retain talent.

Under our co-packing arrangements, our co-packing customers typically supply us with roasted, whole bean coffee that we then produce and package into single serve pour over, DRIPKIT pour over and coffee brew bag coffee products according to their formulations and specifications. We also purchase green whole bean coffee from multiple green coffee suppliers to support the manufacture of our NuZee and DRIPKIT branded coffee products and the development of private labels under our private label development program, in which we work with co-packing customers in developing private labels of signature coffees by sourcing, blending, and packaging coffee to their exact specifications. After being sourced by us, the green whole bean coffee is then shipped to our roasting partners where the coffee is roasted and then shipped to us for grinding, blending and packaging. The price of coffee is subject to significant volatility, and may increase due to the factors described below. The high-quality coffee beans we and our co-packing customers seek tend to trade on a negotiated basis at a premium above the commodity trading price of coffee as quoted on the Intercontinental Exchange, also known as the "C" price of coffee. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the "C" coffee commodity price do increase the price of high-quality coffee and also impact our ability to enter into fixed-price purchase commitments. The supply and price of coffee we and our co-packing customers purchase can also be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease (such as coffee rust) and pests, general increase in farm inputs and costs of production, armed conflict, labor actions, government actions and trade barriers or tariffs, inventory levels and political and economic conditions, as well as real or perceived supply shortages, an increase in green coffee purchased and sold on a negotiated basis rather than directly on commodity markets in response to higher production costs relative to "C" market prices, pandemics or other disease outbreaks, and the actions of certain organizations and associations that have historically attempted to influence prices of coffee through agreements establishing export quotas or by restricting coffee supplies. Recently, there has been increased volatility in the "C" market price, with prices at times increasing to five-year highs. The uncertainty over several factors, including the impact of weather patterns in coffee producing regions, and global supply chain constraints and shipping shortages, caused greater uncertainty in the markets. In addition, the political situation in many of the coffee growing regions, including Africa, Indonesia, and Central and South America, can be unstable, and such instability could also reduce supply and increase cost. Speculative trading in coffee commodities can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality coffee beans could have an adverse impact on our profitability, financial condition or results of operations. Maintaining a steady supply of roasted coffee beans from our co-packing customers is essential to our co-packing arrangements, and securing an adequate supply of green whole bean coffee is essential to our ability to manufacture NuZee and DRIPKIT branded products and to support the development of private labels for our co-packing customers. We and certain of our co-packing customers rely upon relationships with key suppliers to source coffee. If any of these supply relationships deteriorate or we or our co-packing customers are unable to renegotiate contracts with suppliers (with similar or more favorable terms) or find alternative sources for supply, we or our co-packing customers may be unable to procure a sufficient quantity of high-quality coffee beans at acceptable prices or at all. If we or our co-packing customers are not able to purchase sufficient quantities of coffee due to any of the above factors or a worldwide or regional shortage, we may not be able to fulfill the demand for our products or may suffer reduced demand for our co-packing services, which could have an adverse impact on our business and financial results.

The beverage industry is intensely competitive and we compete with respect to product, quality, convenience, technology, innovation, and price. We face significant competition in each of our channels and marketplaces. We compete with major international beverage companies that operate in multiple geographic areas, many of which have greater financial and other resources than we do, as well as numerous companies that are primarily local in operation. Our NuZee and DRIPKIT branded products also compete against local or regional brands as well as against private label brands developed by retailers. Our ability to gain or maintain share of sales in the global marketplace or in various local marketplaces or maintain or enhance our relationships with our partners and customers may be limited as a result of actions by competitors, including as a result of increased consolidation in the food and beverage industry.

Generally, under our co-packing arrangements as well as our fulfillment of purchase orders for the distribution of NuZee branded products through nationally recognized retailers, customers must issue purchase orders for our products and co-packing services. Although these purchase orders stipulate key terms including order quantity, product specifications, price, payment terms, packaging method and delivery instructions, our co-packing arrangements and our arrangements with nationally recognized retailers are typically not governed by any written agreement and have no ongoing minimum purchase requirements. Accordingly, we cannot predict or make any guarantee of the amount of any future orders from co-packing customers or national retailers. In addition, although orders covered by firm purchase orders are generally not cancelable, customers may decide to delay or cancel orders, and we may have difficulty enforcing the provisions of the purchase order. In the event that customers with whom we have co-packing or retail fulfillment arrangements issue fewer or smaller purchase orders than we expect, or we experience any delays or cancellations in orders (due to continued distress in the global economy for any reason, including supply chain disruptions, inflation, commodity price fluctuations, etc.), our revenues could decline substantially. Any such decline could result in us incurring additional net losses, increasing our accumulated deficit and needing to raise additional capital to fund our operations.

We have a manufacturing and sales office in Seoul, Korea. We operate globally and are attempting to develop products and provide co-packing services in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which may expose us to certain financial and other risks. International operations are subject to a variety of risks, including: - foreign currency exchange rate fluctuations;   - greater difficulty in overseeing foreign operations;   - logistical and communications challenges;   - potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;   - burdens and costs of compliance with a variety of foreign laws;   - political and economic instability;   - foreign tax laws and potential increased costs associated with overlapping tax structures;   - greater difficulty in protecting intellectual property;   - the risk of third-party disputes over ownership of intellectual property and infringement of third-party intellectual property by our products; and   - general social, economic and political conditions in these foreign markets.