NuZee (NUZE) is a specialty coffee company with a primary focus on single serve coffee co-packing. It’s primary competitive advantage— as stated in last year’s annual report— is its exclusive access to pour-over coffee production equipment made by the world’s premier supplier.

“We own sophisticated packing equipment developed by East Asian companies for pour over coffee production. We believe these manufacturers are the world leaders for supplying pour over coffee production. We have entered into a written exclusivity agreement with the premier supplier of the type of high-quality packing equipment we use for our products..”


In its 2019 10-K, NUZE suggests competitors are disadvantaged by the exclusivity agreement:

“...we believe significantly restricts our North American competitors’ access to this equipment.”

“...availability is in general extremely limited for equipment of the top quality offered by this manufacturer…”

In its 2020 10-K, the above langage has been deleted. In its place is new language, revealing its exclusivity agreement with FUSO Industries Co. Ltd has expired:

“We own sophisticated packing equipment developed by East Asian companies for pour over coffee production. We believe these manufacturers are the world leaders for supplying such machines. We obtained certain of these machines from a premier supplier of the type of high-quality packing equipment we use for our products, FUSO Industries Co. Ltd. (“FUSO”). Our exclusivity agreement with FUSO expired pursuant to its terms on June 30, 2020.”

This is the only mention of the exclusivity agreement in NuZee’s most recent annual report. Last year, NuZee mentioned the report a half dozen times. Last year, it also detailed the importance of extending the exclusivity agreement and modifying it so that it could not be terminated by the equipment manufacturer:

“...we are currently in active negotiations with FUSO as we aim to extend the period of exclusivity and amend our agreement to modify or eliminate the rights to termination.”

What once differentiate NuZee may soon be commoditized. Online searches reveal FUSO is actively marketing its equipment across multiple channels. Investors should also note NuZee’s latest 10-K removes language included on 2019’s 10-K that illustrates strong demand for FUSO’s equipment from NuZee’s competitors:

“While lower-grade equipment alternatives do exist, availability is extremely limited for the top-grade equipment that generates co-packing products to the exacting specifications we believe large, established companies will demand. For example, the current wait time for the production and delivery of co-packing machinery of the type we use in our Vista, California plant is approximately two years.”

Thought it has been deleted from its latest 10-K, Nuzee warned investors last year of the consequences of losing its exclusivity agreement:

“If we are not able to maintain our exclusivity arrangement, or if our manufacturer elects to violate our exclusivity arrangement, our competitive position may suffer and our revenues could decline significantly, which would have a material adverse effect on our business, financial condition, and results of operations.”