NUZEE, INC. (exact name of registrant as specified in its charter) NEVADA 38-3849791 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) (Address of principal executive offices) ☒ ☒ that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☐ ☐ Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if smaller reporting company) Smaller reporting company ☒ TABLE OF CONTENTS During the 2013 fiscal year we began researching and investigating the viability of a new product platform for functional beverages and started producing our first family of functional beverages in early 2014. These products are considered healthy alternatives, with The Company made Coffee Blenders drip cups this was a natural line extension for Coffee Blenders. expand our affiliate network and online advertising as well as cross promoting via social media to drive our B2C sales through our www.coffeeblenders.com & domains. The green whole bean is then sent to our roaster at San Diego Coffee, Tea, & Spice, located in Oceanside, CA. activities focused on: As of the date of this report, the Company had registered trademarks Coffee. As a result, we continue to look for significant niche markets where our close attention to customer requirements and superior performance are valued. Employees Vista, CA. ITEM 1A. RISK FACTORS. periods, which raises substantial doubt about the Company's ability to continue as a going concern. There is no guarantee that sufficient sale levels will be achieved. Significant additional labeling or warning requirements or limitations on the availability of our product may inhibit sales of affected products. The technology around K-CUP®, K-Cup Brewers and related Keurig know-how and processes may impact our ability and/or our If we are forced to take any of the foregoing legal actions to defend our products, we could face substantial costs and shipment delays and our business could be seriously harmed. Although we carry general liability insurance, our insurance may not cover potential claims of this type or be adequate to indemnify us for all liability that may be imposed. Because the majority of our sales are denominated in United States dollars, changes in foreign currency exchange rates affect the market price for our products in countries in which they are sold. If the currency of a particular country weakens against the United States dollar, the cost of our products in that country may increase. Changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues. Trading on the OTC Markets and Bulletin Board exchanges may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares. PART II BID PRICE PER SHARE Quarters Ended HIGH LOW September 30, 2014 $ 1.00 $ 0.50 June 30, 2014 1.00 0.00 March 31, 2014 0.00 0.00 December 31, 2013 0.00 0.00 September 31, 2013 0.00 0.00 June 30, 2013 0.00 0.00 March 3, 2013 0.00 0.00 December 31, 2012 0.00 0.00 Shareholders 89135. Securities Information CONDITION AND RESULTS OF OPERATION. Plan of Operations social media pages. year ended September 30, 2017. Liquidity and Capital Resources sale. Inventories Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report on Form 10-K (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective, at the reasonable assurance level, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 2017: CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING NAME AGE Masa Higashida SUMMARY COMPENSATION TABLE Name and principal position (a) Year (b) Salary (US$) (c) Bonus (US$) (d) Stock Awards (US$) (e) Option Awards (US$) (f) Non-Equity Incentive Plan Compensation (US$) (g) Nonqualified Deferred Compensation Earnings (US$) (h) All Other Compensation (US$) (i) Total (US$) (j) Masateru Higashida President, CEO, CFO, COO, Secretary, Treasurer (1) 2014 0 0 0 0 0 0 0 0 2013 0 0 0 0 0 0 0 0 Craig Hagopian, President, CEO(2) 2014 $135,493 0 0(1) 0 0 0 0 $135,493 2013 66,346 0 0 0 0 0 0 66,346 Satoru Yukie CFO, COO, Secretary, Treasurer(3) 2014 $133,558 0 0(2) 0 0 0 0 $133,558 2013 66,346 0 0 0 0 0 0 66,346 Haisam Hammie (4) 2014 n/a n/a n/a n/a n/a n/a n/a n/a 2013 0 0 0 0 0 0 0 0 Narrative Disclosure to the Summary Compensation Table 2016. MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Title of Class Name and Address of Beneficial Owner Amount of Beneficial Ownership Percent of Class (1) Executive Officers and Directors Common Masa Higashida 1. 14,233,633 2. 51.865 Total of All Executive Officers and Directors 3. 14,233,633 4. 51.865 Shareholders Holding 5% or Greater Common Masa Higashida 14,233,633 51.865 Common Travis Gorney 1,520,000 5.539 Common Arata Matsushima 1,520,000 5.539 Total of All Shareholders With 5% or Greater 17,273,633 62.948 INDEPENDENCE. 2014 FEES 2013 FEES FEE CATEGORY Audit Fees (Malone & Bailey) $27,200 $ 16,500 Tax Fees 0 0 Audit-Related Fees 2,400 0 TOTAL FEES $29,600 $ 16,500 Audit Fees consist of fees billed for professional services rendered for the audit of our Consolidated Financial Statements For The Fiscal Year Ended September 30, EXHIBIT NO. DESCRIPTION 20, 2018. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM and Stockholders September 30, 2014 September 30, 2013 ASSETS Current Assets Cash $ 238,160 $ 1,110,661 Accounts receivable 5,205 13,195 Related party receivable - 139,661 Inventories 50,881 - Prepaid expenses and deposits 69,099 16,896 Total current assets 363,345 1,280,413 Equipment, net 33,368 8,663 Total Assets $ 396,713 $ 1,289,076 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 43,384 $ 55,822 Advances from Stockholders' - 50,000 Other current liabilities 8,180 9,563 Total Current Liabilities 51,564 115,385 Stockholders' Equity Preferred stock; 100,000,000 shares authorized, $0.00001 par value; 0 shares issued and outstanding - - Common stock; 100,000,000 shares authorized, $0.00001 par value; 30,599,719 and 37,957,790 shares issued and outstanding 306 380 Additional paid in capital 4,968,609 2,556,349 Accumulated deficit (4,518,766) (1,383,038) Less: treasury stock, at cost (2,736,000 shares repurchased, 0.03838 per share) (105,000) - Total Stockholders' Equity 345,149 1,173,691 Total Liabilities and Stockholders' Equity $ 396,713 $ 1,289,076 Year Ended September 30, 2014 Year Ended September 30, 2013 Revenues $ 71,762 $ 122,232 Cost of revenues 59,005 155,254 Gross profit (loss) 12,757 (33,022) Operating expenses 3,146,188 1,065,728 Loss from operations (3,133,431) (1,098,750) Other income 216 770 Other expenses 2,513 - Net loss $ (3,135,728) $ (1,097,980) Basic and diluted loss per common share $ (0.10) $ (0.03) Basic and diluted weighted average number of common shares outstanding 30,121,020 34,915,497 Common stock Additional Total Paid-In Treasury Accumulated Stockholders’ Shares Amount Capital Stock Deficit Equity Balance, September 30, 2012 30,400,000 $ 304 $ 347,103 $ - $ (285,058) $ 62,349 Common Stock issued for cash 7,150,207 72 2,102,358 - - 2,102,430 Common stock issued for debt 1,247,583 12 149,698 - - 149,710 Reverse merger adjustment 2,200,000 22 (22) - - - Common stock cancelled (3,040,000) (30) (42,788) - - (42,818) Net loss - - - - (1,097,980) (1,097,980) Balance, September 30, 2013 37,957,790 $ 380 $ 2,556,349 $ - $ (1,383,038) $ 1,173,691 Common Stock issued for cash 1,608,029 16 964,801 - - 964,817 Common Stock cancelled (8,966,100) (90) (89,571) - (89,661) Common Stock repurchased - - - (105,000) - (105,000) Fair Value of non-employee stock warrant - - 33,268 - - 33,268 Fair Value of employee stock options - - 1,503,762 - - 1,503,762 Net Loss - - - - (3,135,728) (3,135,728) Balance September 30, 2014 30,599,719 $ 306 $ 4,968,609 $ (105,000) $ (4,518,766) $ 345,149 For the Year Ended September 30, 2014 For the Year Ended September 30, 2013 Operating Activities: Net loss $ (3,135,728) $ (1,097,980) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 3,249 587 Option expense 1,503,762 - Warrant expense 33,268 - Provision for obsolete inventory - 61,481 Changes in operating assets and liabilities: Accounts Receivable 7,990 (13,195) Related Party Receivables - (139,661) Inventories (50,881) 11,761 Prepaid expenses and deposits (52,203) (1,959) Accounts payable (12,438) (24,064) Other Current Liabilities (1,383) 2,552 Net cash used by operating activities (1,704,364) (1,200,478) Investing Activities: Purchase of equipment (27,954) (6,775) Net cash used by investing activities (27,954) (6,775) Financing Activities: Advances from Stockholders - 50,000 Proceeds from issuance of common stock 964,817 2,102,430 Purchase of treasury stock (105,000) - Net cash provided by financing activities 859,817 2,152,430 Net change in cash (872,501) 945,177 Cash, beginning of period 1,110,661 165,484 Cash, end of period $ 238,160 $ 1,110,661 Supplemental disclosure of cash flow information: Cash paid for interest $ - $ - Cash paid for taxes $ - $ - Non Cash Investing and Financing Activities: Common Stock issued for conversions of advance from stockholder $ - $ 149,710 Forgiveness of related party receivable 139,661 - Forgiveness of debt (50,000) - Cancellation of common stocks $ (89,661) $ (42,818) 2017 The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon management's ability to develop profitable operations, continued contributions from the Company's executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company's products and business. estimates. Concentration of Credit Risk in the accompanying consolidated balance sheets in property and equipment of $11,465 as of September 30, 2017. The capital lease liability is included in other current liabilities on the consolidated balance sheets. net of sales allowances. overhead cost. 2017 and 2016, respectively. Company covers shipping fees for wholesalers and distributors and the shipping and handling expenses are recorded under operating expenses in the consolidated statements of operations. Expenditures associated with upgrades and enhancements that improve, add functionality, or otherwise extend the life of property and equipment that exceed $1,000 are capitalized. Property and equipment as of September 30, 2017 and 2016 consist of: shipped and recorded under operating expenses in the consolidated statements of operations. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. September 30, 2016, totaled $11,475 and $0, respectively. The following table represents the total estimated amortization of intangible assets for the next five years: 2016. The Company has adopted ASU No. 2016-09 with no impact on its consolidated financial statements. 4. INVESTMENT IN UNCONSOLIDATED AFFILIATE 2017: $801,001. $137,699. $860,045. $900,783. option agreements. 2017. 2033. The earliest tax year which remains subject to examination is 2013. 2014 2013 Net Operating Losses 1,581,568 484,063 Valuation Allowance (1,581,568) (484,063) $684,310. $254,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before January 31, 2019 at an interest rate of one percent (1%).x☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19342014 2017 ¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193410815 Rancho Bernardo Road250San Diego,1079212792081 (zip code)Registrant’sRegistrant's telephone number, including area code -- (858) 385-9090 (760) 295-2408or toll-free 855-936-8933 ¨☐ No xx☐ No ¨Yes xYes ☒ No ¨Yes xYes ☒ No ¨registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨“large"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act.¨¨¨xYes ¨Yes ☐ No x6, 2015 Nuzee,20, 2018, NuZee, Inc. had 27,443,718 shares36,062,321shares of common stock outstanding.2PART IITEM 1. BUSINESS.ITEM 1A. RISK FACTORS.ITEM 2. PROPERTIES.ITEM 3. LEGAL PROCEEDINGS.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS.PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.ITEM 6. SELECTED FINANCIAL DATA.ITEM 7. MANAGEMENT'S DISCUSSION OAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.ITEM 9. CHANGES IN AND DIAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.ITEM 9A(I). CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.ITEM 11. EXECUTIVE COMPENSATION.ITEM 12. SECURITY OWERSHIIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.SIGNATURES3Nuzee,NuZee, Inc. (formerly, Havana Furnishings, Inc.) (hereinafter "Nuzee""NuZee" or the "Company") 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, "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.4“we”"we", “us”"us", “our”"our", “Nuzee”"NuZee" and the “Company”"Company" mean Nuzee,NuZee, Inc.; (ii) “SEC”"SEC" refers to the Securities and Exchange Commission; (iii) “Securities Act”"Securities Act" refers to the United StatesSecurities Act of 1933 , as amended; (iv) “Exchange Act”"Exchange Act" refers to the United States Securities Exchange Act of 1934 , as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.
Nuzee Inc. is the operating company that manages a portfolio of branded consumer packaged goods. The Company was incorporated in July 2011 as Havana Furnishings, Inc. (“Havana”) under the laws of the State of Nevada. From the date of Incorporation through April 2013, the Company was a development stage company engaged in the business of selling public restaurant and bar furnishings and accessories from Asia to retailer customers at wholesale prices on the internet. In April 2013, the Company's sole officer decided that it was not economically feasible to continue with the Company’s business plan and began to seek other companies for potential merger.On April 19, 2013, the Company completed a merger with Nuzee Co., Ltd. a California corporation (“Nuzee-CA”) wherein Nuzee Co., Ltd. became a wholly owned subsidiary of Havana. Pursuant to the Share Exchange Agreement, each of the 33,733,333 outstanding shares of Nuzee-CA common stock was converted into one share of the Company’s common stock. In addition, upon the closing of the Merger, the Company amended its Articles of Incorporation to change its name from Havana Furnishings, Inc. to Nuzee, Inc. Nuzee-CAOur global corporate headquarters is located in San Diego, California. When we refer to our company and its business in this report, we are referring to the business and activities of our consolidated operations.5all naturalall-natural ingredients and provide an added wellness benefit when compared to the traditional non-fortified version of the same beverage. NuzeeNuZee's mission is to be a good-for-you company focused on building beverage brands that offer functional and nutritional benefits.website portal (in final development)www.coffeeblenders.com and www.twinpeaksroasters.com websites as well as through affiliate online stores and retailers.historical sales of more than $16 billion with anticipated growth of 3% per year through 2015 accordinghistorically growing sales. The functional beverage category is expected to researchreach $105 Billion Dollars by Datamonitor. Nuzee’s2021. NuZee's products fall within the nutraceutical drink portion of the functional beverage market which accounts for approximately 6% or $1 billion in the United States annually. 
companyCompany determined its first functional beverage will be a line of single-serve gourmet coffees. Our decision was based on numerous factors including the market for coffee and its continued growth, the ability to serve a cup of coffee quickly and conveniently as well as the ability for precise dosage of our active ingredients in pre-portioned packs. Our knowhow is tied to our formula, process and use of natural flavoring to mask the undesired off-notes produced by the added functional ingredient(s)ingredients such that the original beverage is preserved and there are no deficiencies in the taste and aroma profile.6Coffee Blenders TMProduct Branding and Packagingwww.coffeeblenders.comEscape for Stress ReductionLean for Weight LossFocus for Cognitive Performance
The company will make Coffee Blenders TM (®)available in the first quarter of 2014. We believe Coffee Blenders to be the first line of gourmet specialty grade coffee offered in convenient K-Cups®single serve cups using only natural ingredients with clinically supported branded nutraceuticals.
Each We initially launched three functional varieties of Coffee Blenders K-cup® will includecalled Lean Cup(®) (for weight loss), Think Cup(®) (for cognitive performance) and Relax Cup(®) (for stress reduction), and recently launched one more functional variety called Active Cup(®) (for a totalpre-workout boost of 11 grams of coffee plus natural ingredients and come in retail packaging of 15 K-Cup packs per box. We also sell energy).in stick packs and Lotus-cups for international markets where Keurig brewers are notsold as popular or available.The coffee packssingle serve cup that are compatible with popular Keurig K-Cup1 brewers and systems. Until late 2012, Keurig is owned by Green Mountain, Coffee Rosters (NASDAQ: GMCR). A key consideration in launching Coffee Blenders in K-Cup formats was due toInc. enjoyed patent protection of the K-Cup. Expiration of the patent protection surrounding the K-Cups expiring in late 2012. This enables 3rd September 2012 enabled 3rd party companies such as ours to produce K-Cup compatible packs for an existing installed base of brewers totaling more than 16 million units accordingunits.2 Each Coffee Blenders K-cup compatible pod includes a total of 11 grams of coffee plus natural ingredients and comes in retail packaging of 10 K-Cup compatible pods per box.GMCR company filingsDrip Cup in 2015, with our first cup being the Nude Cup(®) Gourmet Pour-Over. The Drip Cup quickly gained popularity within the coffee industry throughout 2015 and reports.7Additionally, the Company plans to explore other single-serve brewer platforms as well as distribution partnership opportunities as coffee consumption varies around the globe.We initially launched three functional varieties called Lean (for weight loss), Focus (for cognitive performance) and Escape (for stress reduction). The current family of products all utilize GRAS (Generally Recognized As Safe) ingredients that are also supported by clinical studies using the exact strengthen and dosage recommended byWhile our ingredient partner’s claims and research. Based on market feedback we anticipate introducing another set of functionsbrand Coffee Blenders has gained name recognition in the second halfcoffee beverages market, we also wanted to expand into tea. Our only tea product, which was launched in July of 2015.2016 is our Matcha Cup, which is available in single serve K-Cup compatible cups.CompanyTwin Peaks fine line of coffees is marketed towards an outdoor active lifestyle consumer.preliminary product development stagesbeverage industry, and in determiningNovember of 2017 we launched our line of ready-to-drink functional cold brew coffee's in 10oz glass bottles. With the expansionsuccess of new functionsour functional line of single serve cups and ingredients.Product Branding and Packaging for the Single Serve Line www.CoffeeBlenders.com 
for Stress Reduction
for Weight Loss
for Improved Cognitive Performance
Organic Coffee
for Improved Workout Performance
Green Tea
Product Branding and Packaging for the Drip Cup Line 
for Stress Reduction
for Weight Loss
for Improved Cognitive Performance
Product Branding and Packaging for Whole Bean Coffee Bag
Organic Dark Roast Coffee
LEAN, THINK, & RELAX 12 oz bagged ground coffee
Coffee Blenders Ready-To-Drink Cold Brew in NUDE, LEAN, THINK, & RELAX 
Twin Peaks Single Serve Pour Over Coffee 
Twin Peaks Bagged 12oz Coffee 
beverages.beverages and gourmet pour-over coffees. Elements of our business strategy for 20152018 include:● Secure additional working capital to support growth and development of NuZee, Inc. sales and support operations ● Build onto our existing product and brand awareness through marketing and communication programs ● Continue to build our enthusiast and loyal base of consumers for Coffee Blenders ● Expand our co-packing operation ● Expand distribution across retail, online and affiliate channels ● Contract with multiple manufacturing partners to scale production as required ● Work with brokers to help quicken the process our product gets to distributors and grocery chains ● Work alongside with other roasters, nationwide, and co-pack their roasts into our Drip Cups ● Build up our coffee extraction business are divided into two groups: direct consumers and distribution partners.Direct Consumers -- we believe that the existing K-cup single serve household will be our primary target audience. We planrange from B2B (Business-to-business means one business makes a commercial transaction with another) multi-store retail chains to reach them through direct response techniques using search marketing and direct advertising to drive purchases on our e-commerce shopping site. Orders will be processed after payment has been received via credit card or other electronic remittance.Distribution Partners -- we will target outlets andwholesale distributors that are engaged in selling beverages such asdeliver to both chain and independent stores regionally. We also sell to office and home delivery services that deliver coffee and water to homes and businesses locally. Another portion of our business is online sales through our own B2C (Business-to-consumer is an Internet and electronic commerce (e-commerce) model that denotes a financial transaction or teasonline sale between a business and consumer. It involves a service or product exchange from a business to a consumer) site through organic as well as those who focuspaid marketing campaigns through our affiliate network along with sales stemming from online retail accounts like Amazon.com.healthover a dozen new retail chains. In addition to expanding our shelf space in Safeway Eastern, our product is now in Albertsons, Meijer's, Spartan Nash, HEB, Lowes, Rouses, Jewel-Osco, Whole Foods, Piggly Wiggly's, King's, Tony's Finer Foods and wellness products. All products will be soldother smaller independent grocery chains. Many of these accounts were gained through KeHE & UNFI, our main distributors as of 2017.a purchase order basis using standard terms and conditions associated with wholesale procurement with minimum order quantities. We supply products to these customers on a purchase order basis.Sales and MarketingAs an emerging product brandthe market for over three years, we still believe that a significant amount of capital iswill be required to generate additional sales and help support the current accounts that we currently have. Our sales approach will be maintained by following the 4 stages below:2015.store demo's the sales are driven higher and there are more repeat customers. Our main focus for 2018 will be to continue our effective approach of attending trade shows to acquire new B2B commercial business. We have added on to our inside sales force to incubate and curate new accounts. We plan to implement a four stage approach:1. www.twinpeaksroasters.com Build Awareness and Consideration2. Generate Trial3. Drive Initial Sales4. Drive Repeat SalesWe anticipate the need to spend more than one million in target marketing, sampling and test advertising (stages #1 and #2) in 2015. We will use the learning from our advertising campaigns to determine the optimal cost of acquisition in order to scale the business appropriately. We also plan to implement a loyalty club program to encourage repeat orders. Once the Company has metrics on the successfully conversion rate (i.e. from initial sale to repeat order) management will then be in a position to determine our cash requirements to sustain and grow the business.ourthe products sold will be sold around the world under the “COFFEE BLENDERS” brand name. However,"Coffee Blenders," "Twin Peaks" and "NuZee" trademarks. We have expanded our production capabilities at our headquarters facility in Vista, CA to attract other companies that are interested in producing single serve pour over coffee to produce them at our facility, as well as meet consumer demands. Our co-packing service is intended to increase market awareness and to help position our company as the Company will consider private label arrangements ifleader in the margin structure and distribution potential are economically viable.8plan to use third party contracthave a primary manufacturing facility in Vista, California located at 2865 Scott St Suite 107 which is used for the production of our Single Serve Pour-Over Drip Cup line. We also partner with three third-party manufacturers to providemanufacture finished products and goods.products. We have agreements in place with suppliers and partners for all components required to deliver a finished Coffee Blenders product. Currently, the Company has not made any long-term commitments to any suppliers or production partners that will burden or impair the Company’sCompany's ability to operate.We currently purchase our nutraceuticals, Svetol (green coffee bean extract) and Cereboost (American Ginseng extract), from Naturex, Inc. (“Naturexâ€) Pursuant to license agreements with Naturex, in order to maintain our license, we are required to purchase an annual minimum amount of product. coffeeGreen Whole Bean Coffee from IntazzaSerengeti Trading Company located in Murietta, CaliforniaDripping Springs, TX on a purchase ordercontractual basis. of the raw products (ground(roasted ground coffee and nutraceuticals) are sent to Core Supplement Technology, Inc. (“Coreâ€Global Health Trax ("GHT") for mixing into our proprietary blends. We do not have a written agreement with Core.GHT. Rather, all services performed by CoreGHT are on a purchase order basis. After CoreGHT mixes our coffees, the final product is shipped to our co-packer Cafejo,Intelligent Blends, or our other packagerco-packer Cafejo, for packaging into single-serving containers commonly known as “K cupsâ€"K cups" as well as our coffee blenders single serve drip cups and Twin Peaks pour-over and boxed for retail sales.healthy wellnesshealth-wellness benefit.NuzeeNuZee has maintained a modest R&D budget. With the advent of the functional beverage focusand new product ideas, the Company plans to invest more to secure unique flavor and formula profiles but anticipates the out of pocket expense will not be significant as the Company has agreements with flavor and formula design partners to waive development fees in exchange for purchasing the flavorings and ingredients. The Company has contracted product from Blue CaliforniaNaturex (Paris Stock Exchange: NRX) both global natural specialty ingredient suppliers who are providing assistance in ingredient identification, testing, marketing support, and clinical studies to accelerate our development efforts.In 2013, our product development initiatives included:● Drip Cup Kona Blend Coffee Blenders line extension ● Coffee Blenders ready-to-drink line of functional cold brew ● Twin Peaks single serve pour-over and whole bean coffee lines $15,000 developing a raw ingredient selection, blending and flavoring for Coffee Blenders;132014,2018, our research and development initiatives were concentrated oninclude:● Expanding our contract co-packing operation in Vista, CA to accommodate national coffee roasters and grocery chain ● Continuing the exploration of our coffee extraction technologies projects:·Continued development of our Coffee Blenders series with new functions and ingredients;·Research of instant coffee with micro-grounds for stick packs.·Development of functional beverages beyond coffee such as teas or hot chocolateFor 2015, our research and development initiatives will be concentrated on the following:·Active Cup (Sports endurance)·Ready to Drink Functional Coffee9Intellectual PropertyIn 2013 and 2014, Nuzee filed for trademark registrations in the United States on several marks it intends to use in the beverage industrytrademarks: "Coffee Blenders," "It's Coffee Reimagined," "Nude Cup," "Lean Cup," "Think Cup," "Relax Cup," "Active Cup," "Twin Peaks" (pending), "NuZee," and is in the process of submitting additional related trademark applications. To date, the trademark, “Coffee Blenders,” has been registered in our name. The other trademark applications are in the process of being reviewed by the U.S. Patent Office."Torque.". The Company intends to continue growing its trademark portfolio in the United States with other related slogans and brands as those products come closer to launch. Nu"Coffee Blenders", "Nude Cup", "Lean Cup", "Think Cup", "Relax Cup" and "Twin Peaks" in Japan zeeand registered trademarks "Lean Cup" and "Think Cup" in Korea.Nuzee’sNuZee's rights may result in a substantial cost to the Company, Nuzee’sNuZee's management strongly believes that the protection of our intellectual property rights is a key component of our operating strategy. As a result of our company’scompany's continuing R&D efforts, the Company may decide to seek additional protection, if applicable, relating to its formulas, process know-how and proprietary flavors.Nuzee plans to ceaseNuZee ceased using and may abandon its registered TORQ and TORQ WRENCH trademarks acquired from the HydroPouch Corporation. The Company also plans to not pursue or contest the use of NuzeeNuZee as a product brand in association with water and skincare product as we exit those businesses.coffees in K-Cups®.single pour over coffees. While there are more than 200 varieties of K-Cupsingle pour over coffees to choose from there are few, if any functional coffees dedicated to weight-loss, stress reduction, or cognitive performance and enhanced workout performance. Green Mountain brands have enjoyed broad, well-established national distribution through well-funded advertising, and product awareness. In addition, companies and brands manufacturing these products generally have far greater financial, marketing, and distribution resources than we do.Blender productBlenders products will compete generally with all hot liquid refreshments, including specialty coffees and teas as well as nutraceutical beverages such as BulletProof Coffee, Green Mountain Wellness Coffee, Organo Gold Herbal Coffee, Nuvia Trim Coffee, South Beach Java, Javita, and NatureGift Instant Coffee as well as the natural ingredients found in pills and powders.102014,2017, we had a total of five6 full-time employees and 4 part-time employees. All employees are located in San Diego.At September 30, 2014, we had a total of two consultants, one performing management support and financial/accounting support.management’smanagement's relationships will provide the foundation through which we expect to grow our business in the future. We believe that the skill-set of our core management team will be a primary asset in the development of our brands and trademarks.purposes, similar to coffee.purposes. Such products are regulated by the U.S. Food and Drug Administration (“FDA”("FDA"). Ingredients in such products must be approved food additives or “Generally"Generally Regarded as Safe” (“GRAS”Safe" ("GRAS"); we. We have been careful to utilize ingredients that are approved food additives or GRAS. We also intend to work with ingredient suppliers, manufacturers, and other trade partners that are compliant with the laws and regulation enforced by the FDA. We have not received, nor are we aware of, any inquiries or other regulatory action from the FDA or any other governmental agency regarding our products. Weproducts and we believe we are in full compliance with all FDA regulations. Act;Act, the Federal Trade Commission Act;Act, the Lanham Act;Act, state consumer protection laws;laws, competition laws;laws, federal, state and local workplace health and safety laws;laws, various federal, state and local environmental protection laws;laws, and various other federal, state and local statutes and regulations. It will be our policy to comply with any and all legal requirements.directors’directors' committee charters are also posted within thisunder Corporate Governance section of the website. The information on our website is not part of this or any other report we file with, or furnish to, the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site iswww.sec.gov.11$3,166,561$1,767,139 for the year ended September 30, 20142017 and therefore we cannot guarantee that we will be successful in building a functional beverage business in future periods.Nuzee Co, Ltd. was incorporated in California in 2011 prior to the merger with Havana Furnishings as a result we12Company;Company, PepsiCo, Inc.; Nestlé;, Nestlé, Kraft Foods Group, Inc.;, and Starbucks. These companies have established market presence in the United States and offer a variety of beverages that are substitutes to our product. We face potential direct competition from such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the health food and beverage market.13dependsdepend on the performance of third-parties and our relationship with them.third parties.third-parties. Any non-performance or deficient performance by such parties may undermine our operations, profitability, and result in total loss to your investment. To distribute our product, we will use a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who will in turn sell our product to consumers. The success of this network will depend on the performance of the brokers, distributors and retailers of this network. There is a risk that a broker, distributor, or retailer may refuse to or cease to market or carry our product. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our product in localities that may not be receptive to our product.third-parties’third-parties' financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sale activities. We also need to maintain good commercial relationships with third-party brokers, distributors and retails so that they will promote and carry our product. Any adverse consequences resulting from the performance of third-parties or our relationship with them could undermine our operations, profitability and may result in total loss of your investment.·Unexpected increases in production costs;·Unexpected scheduling delays;·Unexpected shortage of ingredients;·Loss of priority assignment of any and all supplies and materials;·The failure from any of our partners to deliver components or finished goods. ● Unexpected increases in production costs; ● Unexpected scheduling delays; ● Unexpected shortage of ingredients; ● Loss of priority assignment of any and all supplies and materials; ● The failure from any of our partners to deliver components or finished goods. 14● develop better and more variety of products ● develop less expensive products ● develop broader channels ● as well as the ability to respond more rapidly to changing market conditions develop better and more variety of productsdevelop less expensive productsdevelop broader channelsas well as the ability to respond more rapidly to changing market conditions15partner’spartner's ability to deliver finished goods.16company’scompany's product will be subject to: the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act;Act, the Lanham Act;Act, state consumer protection laws;laws, competition laws;laws, federal, state, and local workplace health and safety laws, such as the Occupational Safety and Health Act;Act, various federal, state and local environmental protection laws;laws, and various other federal, state, and local statutes and regulations. Legal requirements also apply in many jurisdictions in the United States requiring that deposits or certain eco taxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other types of statutes and regulations relating to beverage container deposits, recycling, eco taxes and/or product stewardship also apply in various jurisdictions in the United States. We anticipate that additional, similar legal requirements may be proposed or enacted in the future at the local, state and federal levels in the United States. Changes to such laws and regulations could increase our costs or reduce or net operating revenues.Nuzee ownership is concentrated with the Chairman controllingour sole director controls a large percentage of our common stock, he has the ability to influence matters affecting our stockholders.30,599,719 36,062,321 shares of common stock and no share of preferred stock are issued and outstanding as of the date hereof. Our board of directors has the authority to cause us to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.Markets.Markets under the symbol "NUZE." Stocks quoted on the OTC Markets generally have limited trading volume and exhibit a wider spread between the bidbids and ask quotations as compared to stocks traded on national exchanges. Accordingly, you may not be able to sell your shares quickly or at the market price if trading in our stock is not active.17Markets and Bulletin Board.Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ a stock exchange like the NYSE. Accordingly, stockholders may have difficulty reselling any of the shares.SEC’sSEC's penny stock regulations which may limit a stockholder’sstockholder's ability to buy and sell our stock.(“SEC”("SEC") has adopted Rule 15g-9 which generally defines “penny stock”"penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”."accredited investors." The term “accredited investor”"accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared bytheby the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’scustomer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’scustomer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these 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’spurchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.18stockholder’sstockholder's ability to buy and sell our stock.“penny stock”"penny stock" rules promulgated by the SEC, the Financial Industry Regulatory Authority (“FINRA”("FINRA") has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low pricedlow-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’scustomer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low pricedlow-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.10815 Rancho Bernardo Road,2865 Scott Street, Suite 250, San Diego, California 92127.105, 106, & 107 Vista, CA 92081. We lease these facilities on an annual basis at a cost of $5,140$4,685 per month. We also lease warehouse space located at 2245 Enterprise Street, Escondido, California 92029 on an annual basis at a cost of $775 per month. Our warehouse lease expires on January 31, 2015. We believe these facilities are suitable for our current needs.
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.Information.Since October 2012, our shares of common stock have been listed for quotationInformationOTC Markets, under the stockOCTQB market with symbol "HVFI.” Our symbol changed to “NUZE” during May 2013 in connection with our reverse merger."NUZE." The following table shows the reported high and low closing bid prices per share for our common stock based on information provided by OTC Markets. 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 SHARE Quarters Ended HIGH LOW September 30, 2017 0.51 0.51 June 30, 2017 0.51 0.51 March 31, 2017 0.51 0.51 December 31, 2016 0.78 0.78 September 30, 2016 0.225 0.225 June 30, 2016 0.40 0.15 March 31, 2016 0.6 0.2 December 31, 2015 0.6 0.2 Shareholders.20142017, the stockholders list for our common stock showed 148273 registered stockholders and 30,599,79034,720,538 shares of common stock issued and outstanding. The transfer agent of our common stock is QuickSilver Stock Transfer, 6623 Las Vegas Blvd South #255,One Summerlin, 1980 Festival Plaza Drive, Suite 530, Las Vegas, Nevada, 89119.Dividends.Securities.March 2014,July to August 2017, the Company sold 653,6671,147,971 shares of our commontreasury stock par value $0.00001, at $0.60$0.51 per share, for an aggregate purchase price of $$585,465 paid to the Company in cash.AprilAugust 2017, the Company issued 34,602 shares of treasury stock at $0.43 per share, for compensation and an aggregate price of $14,879.June 2014,September 2017, the Company sold 400,000352,029 shares of our common stock par value $0.00001, at $0.60$0.51 per share, for an aggregate purchase price of $240,020.During July through September,$179,535 paid to the Company sold 544,362 sharesin cash.par value $0.00001, at $0.60 per share,will be used by the Company for an aggregate purchase price of $332,597.20TheOther than the noted exceptions, the above-mentioned sales of our securities were made to non-U.S. persons (as the term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the registration exemption provide for in Regulation S and/or Section 4(2)4(a)(2) of the Securities Act of 1933, as amended.Repurchases of Equity Securities. On September 4, 2014, the Company entered into a Separation and Stock Repurchase Agreement (“Agreementâ€) with Craig Hagopian (“Hagopianâ€) and Satoru Yukie (“Yukieâ€). The Agreement, which was made in connection with the August 19, 2014 resignations of Hagopian and Yukie, provided that the Company repurchase 1,216,000 shares of the Company’s common stock owned by Hagopian and 1,520,000 shares owned by Yukie for a purchase price of $52,500 to each of Hagopian and Yukie.Information.On August 1, 2013 the company granted 3,471,665 options to employees and board members and 1,000,000 warrants to consultants. The right to exercise these Options shall vest and become exercisable as to 25% of the Shares on the first anniversary of the Vesting Commencement Date, and commencing with the calendar month immediately thereafter, this Option shall vest and become exercisable as to one thirty-sixth (1/36th) of the Shares on the last day of each successive calendar month for each full month of Continuous Service provided by the Optionee. The exercise price per share is at the Fair Market Value per share on the Grant Date. The Option will expire ten (10) years from the Grant Date, unless terminated earlier as provided in the Option Agreement.On September 4, 2014, the Company entered into a Separation and Stock Repurchase Agreement with Craig Hagopian (“Hagopianâ€) and Satoru Yukie (“Yukieâ€). The Agreement, which was made in connection with the August 19, 2014, provided for automatic cancellation of all stock options or other rights to acquire equity securities of the Company held by them. Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 3,064,500 0.58 6,935,500 Equity compensation plans not approved by security holders n/a n/a n/a Total 3,064,500 0.58 6,935,500 OPERATION21126 months, the Company’sCompany's growth plans include continuing efforts to:·1. BuildLeverage our network of potential (and current) customers that we have been introduced to during our extensive trade show campaigns.targetedhuge success for the Company so far. At each tradeshow there are between 2,000 and 10,000 attendees and exhibitors depending on its size – which gives the company ample opportunity to meet, talk and most importantly educate the consumer on the benefits of our product as well as the proper usage and applications. Another benefit of attending trade shows is that there are a lot of the same companies/buyers at each coffee event. The more these buyers see our face and the product, the more likely they are to trust and do business with us. We are able to create relationships through the shows and networking events, many of these relationships have turned into business opportunities.networkpoints.Coffee Blenders functional beverages by signingbrand. In addition, the retailers that servebroker will be able to guide us in which strategies and tactics will work at each specific retailer, this is vital to the K-cupgrowth of a brand. Additionally, a retailer's strategy and Coffee replenishment channels;tactics can change over time and knowing this in real time is critical to success.·IncreaseContinue to increase the awareness for Coffee Blenders through communicationsBlenders/NuZee brand and sampling programs;products by submitting articles to Coffee Roasters magazines as well as continually submit blogs/content to several social media platforms·EstablishNuzee brands top 3tradeshows in 2017, we were able to create relationships with journalists and magazine owners like Bevnet & Vending Times who will often post articles and product reviews in their product categories consistent withpublication for free. With the coffee industry being as large as it is, there are numerous coffee magazines and websites out there and even more eyes reading the content produced by trusted sources. In addition, we are actively creating new content for our mission of providing natural products that work.plan to expendexpanded our sales and marketing team who can immediately contributehave continuously contributed to our network of US and international channels as such seeding our product becomesand maintaining relationships is a near termtop priority. We have already started developingdeveloped working relationships with key online and national distributors who serve the coffee and single-serve pod consumers. We have also expanded our SKU count with the addition of our cold brew, whole bean, ground coffee & tea products to meet the wants and needs of all consumers. We plan to accelerate our traction by usingcontinuing to work with manufacturer representatives with food and beverage experience.In orderbuild distributionexpand into the Company is first determining the total distribution launch cost among the potential channels as each has their own upfronthospitality channel in 2018. Our current and recurring cost structure. Under investigation are the followingforecasted company directed channels:direct – coffeeblenders.com shopping via search and digital marketinge-commerce affiliates (such as Amazon)select health and wellness retailerskey mass/grocery retailersClub/OtherEach of the above is compared using a host of costing parameters not limited to the following: product slotting fees, overall margin requirements, market development fees, return allowances, broadcast advertising and promotional marketing plans, in-store and channel detailing, product sampling and customer demoing as well as transportation and logistics cost, cross dock fees, shelf-life expiration swaps, and initial and recurring inventory loading levels. In conjunction with the above channel assessment, the Company is also exploring custom and private labeling whereby the company licenses the product formulation, trademarks, and other assets in two ways:1. Multi-Level Marketing (MLM) Firms – for example manufacturer on behalf of “Amway” for product extensions of their Great Value and Equate private brands. 2. Product Brands – for example license to “Maxwell House” the Coffee Blender product as a new product line extension to expand their single-serve business.22The Company plans going forward include the following milestones:MilestoneTimingEst. Cost/Funding SourceFinalize Products & Pricing- New Product FunctionsDirect – coffeeblenders.com shopping via search and VersionsDecember – February (Phase I)March-May (Phase II)$25,000 (Phase I)$20,000 (Phase II)Previous Sale of EquitiesStaff (retain and expand)February - June$20,000-30,000/Mo. RecurringPrevious Sale of EquitiesLaunch Market and Promotion Plan- PR - Sampling - Advertising January – Ongoing$500,000-$750,000 AnnualPrevious and Future Sale of Equities + Product ContributionExplore OEM/Private Label OpportunitiesMarch – Ongoingn/a● E-commerce affiliates (Amazon Exclusives, Groupon, Jet.com, Bulu box) ● Select health and wellness retailers ● Key mass/grocery retailers – Kroger, HEB, Safeway, Whole Foods, Lowes, Jewel-Osco, Rouses ● Co-Packing with other coffee roasters on our pour-over drip cup 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.From inception on November 9, 2011 through2014,2017, we have accumulatedgenerated net losses attributable to NuZee, Inc. of $4,518,766.$1,767,139. This loss was attributed to $4,233,708$2,076,654 of operating expenses.We are presently in the development phase of our new product platform for functional beverages and we can provide no assurance that we will be able to attain profitability.From inception through Compared with fiscal year end September 30, 2014,2016, the net loss increased by $491,846 and operating expense increased by $751,191. Operating expenses on income statement included all costs associated with company's day-to-day operations, but not directly associated with production.$193,994$1,628,410 from sales of our products to retailers, wholesalers and incurred operating expenses indistributors, such as Safeway, HEB and Japan Post Co., Ltd. The revenues earned during 2016 fiscal year was $455,491. This increase was primary from the amountacquisition of $4,233,708. These operating expenses includedNuZee JAPAN Co., Ltd ("NuZee JP"). The revenues earned by NuZee, Inc was $465,244 for 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.20152017-2018 fiscal year from our new products through a combination of direct to consumer through our website portal, product awareness as well as through affiliate online stores and retailers.23During March 2014, thesold 653,667 shareshad a cash balance of our common stock, par value $0.00001, at $0.60 per share, for an aggregate purchase price of $392,200. During April to June 2014, the Company sold 400,000 shares of our common stock, par value $0.00001, at $0.60 per share, for an aggregate purchase price of $240,020.During the period from July through September 2014, the Company sold 554,362 shares of our common stock, par value $0.00001, at $0.60 per share, for an aggregate purchase price of $332,597.The above-mentioned sales of our securities were made to non-U.S. persons (as the term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the registration exemption provide for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.As of September 30, 2014 we had cash (operating capital) of $238,160$347,327 and we have no long-term debt. We have not attained profitable operations since inception. We expect to spend between $2 million - $4 million in expenses over the next 12 months. Our current cash balance$40,613 as of September 30, 2014 is not sufficient to fund our operations for2017 and 2016, respectively. This increase was primarily from the next twelve months. Therefore,acquisition of NuZee Japan and the Company will engage in additional financing through the sale of equity securities.(“SAB”("SAB") No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon shipping products out to customers or ultimate delivery to customers' delivery sites depends on the terms of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods.external shippingthe cost of the materials used in creating the good as well as direct labor cost used to produce the good. The Company also includes write-offs for all past due and handling expensesunsellable inventories as well as loss on inventory due to obsolescence in cost of sales.24market.net realizable value. Cost is being measured using the weighted average.average cost method. We regularly review whether the realizable value of our inventory is lower than its book value. If our valuation shows that the realizable value is lower than book value, we take a charge to expense and directly reduce the value of the inventory.There have been no recently issued Accounting Pronouncements that impact us.(a) Evaluation on Disclosure Controls and Procedures 25 Specifically, management's evaluation was(b) Management's report on internal control over financial reporting 2014:·Financial Reporting Systems: We did not maintain a fully integrated financial d reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes.·Segregation of Duties: We do not currently have a sufficient complement of technical accounting and external reporting personal commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff, and maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company's personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff.● Financial Reporting Systems: We did not maintain a fully integrated financial reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes. ● Segregation of Duties: We do not currently have a sufficient complement of technical accounting and external reporting personal commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff, and inability to maintain a sufficient number of adequately trained personnel who have the knowledge and experience with GAAP and SEC reporting necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company's personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff. DISCLOSURE CONTROLS AND PROCEDURESOur management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected, at this time.262014,2017, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. The Company is not an "accelerated filer" for the fiscal year ended September 30, 20142017 because it is qualified as a "small business issuer".issuer." Hence, under current law, the internal controls certification and attestation requirements of Section 404 of the Sarbanes-Oxley act will not apply to the Company. This Annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K.2014.2017. Except as noted below each director will hold office until the next annual meeting of our stockholders or until his or her successor has been elected and qualified. Our executive officers are appointed by, and serve at the discretion of, the Board of Directors.AGEPOSITION(S) AND OFFICE(S) HELD 43President, 46Chief Executive Officer, Secretary, Treasurer, Chief Operations Officer, Chief Financial Officer, Director (Chairman)Travis Gorney 37 President, & Chief Operations Officer Masateru (“Masa”)Masa Higashida, President, CEO,Chief Executive Officer, Secretary, Treasurer, COO, CFOChief Financial Officer, Director and DirectorChairman of the BoardNuzeeNuZee to market and distribute quality products in the United States. 27Inin Certain Legal Proceedings1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or4. being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or 4. being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. 28Officer’sOfficer's liability under federal or applicable state securities laws. We have agreed to indemnify our directors and officers against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director or officer if he or she acted in good faith and in a manner he believed to be in our best interests.threetwo 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.SUMMARY COMPENSATION TABLE 2017 83,450 0 0 15,134 0 0 0 98,584 (1) Masateru Higashida was appointed as the Company's President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and Chief Operations Officer ("COO") on August 19, 2014. Mr. Higashida resigned as the Company's President and COO on August 28, 2017. (2) Travis Gorney was appointed as the Company's President & Chief Operations Officer on August 28, 2017. (1)34 Masateru Higashida was appointed as the Company’s President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and COO on August 19, 2014. (2)Craig Hagopian served as our President and Chief Executive Officer from April 19, 2013 through August 19, 2014. On September 14, 2014, the Company entered into a Separation and Stock Repurchase agreement which provided for cancellation(3)Satoru Yukie served as our Chief Financial Officer, Treasurer, Secretary, Chief Operations Officer from April 19, 2013 through August 19, 2014. On September 14, 2014, the Company entered into a Separation and Stock Repurchase agreement which provided for cancellation of all stock options granted to Mr. Yukie in October 2013.(4)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.unexercisableexercisable options, as of the years ended September 30, 20142017 and 2013.COMPENSATION OF DIRECTORSNo 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.January 23, 2015 ,February 16, 2018, 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 on27,443,719 36,062,321 shares of common stock issued and outstanding on January 23, 2015.30Title of Class Name and Address of Beneficial Owner Amount of Beneficial Ownership Executive Officers and Directors Common Masateru Higashida 14,233,633 39.47% Common Travis Gorney 1,642,000 4.55% Total of All Executive Officers and Directors 15,875,633 44.02% Shareholders Holding 5% or Greater Common Masateru Higashida 14,233,633 39.47% Total of All Shareholders With 5% or Greater 14,233,633 39.47% During October 2013, the Company entered into a Compromise Agreement with the Company’s majority shareholder to settle the related party receivable. In consideration of the compromises contained in the agreement the Company’s majority shareholder agreed to forgive a note in the amount of $50,000, cancel 8,966,100 shares, and the Company forgave the related party receivable of $139,661.“listed company”"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 do not consider our sole director as “independent”"independent" as the term “independent”"independent" is defined by the rules of the NASDAQ Stock Market.20142017 and 2013:31 2017 2016 FEE CATEGORY Audit Fees (Malone &Bailey) $ 52,036 $ 43,922 Tax Fee - - Audit-Related Fees - - TOTAL FEES $ 52,036 $ 43,922 company’scompany's financial statements and review of our interim financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.Page Page2014F-1F-2F-3F-4F-5F-631.1*32.1*101** Interactive Data Files 101.INS XBRLInstance Document 101.SCH XBRLTaxonomy Extension Schema Document 101.CAL XBRLTaxonomyExtension CalculationLinkbase Document101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRLTaxonomy Extension Presentation Linkbase Document * Filed herewith **Furnished herewith. Pursuant to Rule 406Tof Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections. 32SIGNATURES12, 2015.Nuzee, Inc.By: /s/ Masateru HigashidaName: Masateru HigashidaTitle: President, Chief Executive Officer(Principal Executive Officer), ChiefFinancial Officer (Principal FinancialOfficer), Secretary, Treasurer, COO andDirectorNuZee, Inc. By: /s/ Masateru Higashida Name: Masateru Higashida Title: Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer), Secretary, Treasurer, and Director 12, 2015.Nuzee, Inc.By: /s/ Masateru HigashidaName: Masateru HigashidaTitle: President, Chief Executive Officer(Principal Executive Officer), ChiefFinancial Officer (Principal FinancialOfficer), Secretary, Treasurer, COO andDirector33of:San Diego, CA 92127(the “Company”and its subsidiary (collectively, the "Company") as of September 30, 20142017 and 2013,2016, and the related consolidated statements of income, stockholders’operations, comprehensive loss, changes in stockholders' equity (deficit), and cash flows for eachthe years then ended. These consolidated financial statements are the responsibility of the years in the period ended September 30, 2014 and 2013. The Company’s management is responsible for these financial statements.entity's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.thean audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The companyCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditaudits included 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’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.20142017 and 2013,2016, and the consolidated results of itstheir operations and itstheir cash flows for each of the years then ended, September 30, 2014 and 2013, in conformity with accounting principles generally accepted in the United States of America.which raisesand negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’sManagement's plans regarding thosein regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty./s/MALONEBAILEY, LLPwww.malone-bailey.comHouston, TexasFebruary 11, 2015Nuzee, Inc.F - 1BALANCE SHEETSNuZee, Inc. September 30, 2017 September 30, 2016 ASSETS Current assets: Cash $ 347,327 $ 40,613 Accounts receivable, net 143,893 57,711 Accounts receivable - Related party 12,380 - Inventories, net 266,620 206,356 Other current assets 102,926 65,726 Other current assets - Related party 29,378 - Total current assets 902,524 370,406 Property and equipment, net 277,987 151,946 Other assets: Goodwill 17,112 - Customer List, net 45,899 - Investment in unconsolidated affiliate 10,733 - 73,744 - Total assets $ 1,254,255 $ 522,352 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 104,973 $ 189,317 Loan payable - short term - Related party 200 145,377 Current portion of long-term loan payable 44,681 - Convertible Notes payable - Related party - 603,008 Other current liabilities 126,687 717 Other current liabilities - Related party 1,089 - Deferred revenue 72,750 6,620 Total current liabilities 350,380 945,039 Non-current liabilities: Loan payable - long term, net of current portion $ 133,644 $ - Other noncurrent liabilities 9,610 - 143,254 - Total liabilities 493,634 945,039 Stockholders' equity (deficit): Common stock; 100,000,000 shares authorized, $0.00001 par value; 34,720,538 and 31,154,951 shares issued $ 347 $ 311 Additional paid in capital 9,718,648 6,909,523 Accumulated deficit (9,030,551 ) (7,263,412 ) Less: treasury stock, at cost (0 and 1,800,844 shares held in treasury) - (69,109 ) Accumulated other comprehensive loss (20,680 ) - Total NuZee, Inc. shareholders' equity (deficit) 667,764 (422,687 ) Noncontrolling interest 92,857 - Total stockholders' equity (deficit) 760,621 (422,687 ) Total liabilities and stockholders' equity (deficit) $ 1,254,255 $ 522,352 auditedconsolidated financial statements.statementsNuZee, Inc. Revenues, net $ 1,628,410 $ 455,491 Cost of sales 1,319,232 408,150 Gross Profit 309,178 47,341 Operating expenses 2,076,654 1,325,463 Loss from operations (1,767,476 ) (1,278,122 ) Other income 40,764 11,897 Equity in loss of unconsolidated affiliate (39,267 ) - Other expense (3,235 ) (5,683 ) Interest expense (6,976 ) (3,385 ) Net loss (1,776,190 ) (1,275,293 ) Net loss attributable to noncontrolling interest (9,051 ) - Net loss attributable to NuZee, Inc. $ (1,767,139 ) $ (1,275,293 ) Basic and diluted loss per common share $ (0.05 ) $ (0.04 ) Basic and diluted weighted average number of common stock outstanding 32,135,363 30,752,267 Nuzee, Inc.STATEMENTS OF OPERATIONSauditedconsolidated financial statements.statementsNuzee, Inc.STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYFor the period from September 30, 2013 to September 30, 2014NuZee, Inc. Noncontrolling NuZee, Inc. Total 2017 2016 2017 2016 2017 2016 Net loss $ (1,767,139 ) $ (1,275,293 ) $ (9,051 ) $ - $ (1,776,190 ) $ (1,275,293 ) Foreign currency translation (20,680 ) - (8,863 ) - (29,543 ) - Total other comprehensive loss, net of tax (20,680 ) - (8,863 ) - (29,543 ) - Comprehensive loss $ (1,787,819 ) $ (1,275,293 ) $ (17,914 ) $ - $ (1,805,733 ) $ (1,275,293 ) auditedconsolidated financial statementsNuzee, Inc.STATEMENTS OF CASH FLOWSNuZee, Inc. For the period from October 1, 2015 to September 30, 2017 Additional Total Common Stock Paid-in Treasury Stock Accumulated Noncontrolling Stockholders' Shares Amount Capital Shares Amount Deficit Interest OCI Equity Balance September 30, 2015 30,124,951 $ 301 $ 5,940,337 2,016,000 $ (77,366 ) $ (5,988,119 ) $ (124,847 ) Common stock issued for cash 1,025,000 801,001 Treasury stock issued for cash 137,699 Stock option expense 37,253 Stock options-exercised 1,500 Net loss (1,275,293 ) Balance September 30, 2016 Common stock issued for cash Treasury stock issued for cash Treasury stock issued for service Common stock issued for conversion of note payable Stock option expense Stock issued for NuZee JP acquisition NuZee Japan foreign currency gain(loss) Net loss Balance September 30, 2017 34,720,538 $ 347 $ 9,718,648 $ (9,030,551 ) $ 92,857 $ (20,680 ) $ 760,621 auditedconsolidated financial statementsNuZee, Inc. Operating activities: Net loss $ (1,776,190 ) $ (1,275,293 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and Amortization 87,392 41,921 Loss on disposition of equipments - 2,715 Share issued for services 14,879 - Option expense 138,098 37,253 Interest expense 2,615 3,385 Inventory impairment 9,086 49,223 Provision for sales returns and chargebacks 86,487 - Equity in loss of unconsolidated affiliate 39,267 - Change in operating assets and liabilities: Accounts receivable (165,614 ) (39,506 ) Accounts receivable - Related party 35,174 - Inventories 140,784 (53,816 ) Other current assets 31,564 (44,194 ) Other current assets - Related party (29,378 ) - Accounts payable (159,859 ) 123,796 Other current liabilities 80,648 6,730 Other current liabilities - Related party 1,089 - Deferred revenue 66,130 - Net cash used by operating activities (1,397,828 ) (1,147,786 ) Investing activities: Purchase of equipment (186,973 ) (4,479 ) Acquisition of investment in unconsolidated affiliate (50,000 ) - Net cash acquired from business acquisition 201,676 - Net cash used by investing activities (35,297 ) (4,479 ) Financing activities: Proceeds from issuance of Loan - short term - Related party 572,306 - Repayment of loans - short term - Related party (617,106 ) - Proceeds from issuance of Loan - short term 87,268 200,000 Repayment of loans - short term (37,600 ) (55,000 ) Payments on capital lease (7,866 ) - Proceeds from issuance of common stock 860,045 801,001 Proceeds from issuance of exercise of options - 1,500 Proceeds from issuance of treasury stock 900,783 137,699 Net cash provided by financing activities 1,757,830 1,085,200 Effect of foreign exchange on cash (17,991 ) - Net change in cash 306,714 (67,065 ) Cash, beginning of period 40,613 107,678 Cash, end of period $ 347,327 $ 40,613 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,649 $ - Cash paid for taxes $ 800 $ 800 Noncash investing and financing activities: Acquisition of NuZee JAPAN Co., Ltd through issuance of common shares $ 258,465 $ - Conversion of note payable to common stock $ 606,000 $ - Conversion of note payable to common stock - Related party $ 100,000 $ - NUZEE, INC.2014ORGANIZATIONNuzee,Organization“Company”"Company", "we", "our") was incorporated on November 9, 2011 in Nevada. The Company is a start-up organization which markets and distributes consumer products primarily in the beverage segment. 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.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.Company’sCompany's financial statements. Such financial statements and accompanying notes are the representations of the Company’sCompany'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”("GAAP") in all material respects and have been consistently applied in preparing the accompanying financial statements.generated limited revenuessuffered recurring losses from its principal operations, and there is no assurancenegative cash flows from operations.20142017, the Company had cash (operating capital) of $311,781$347,327 and had no long-term debt.$200 short-term loan payable. The Company has not attained profitable operations since inception. The Company expects to spend between $1 million-$2 million in expenses over the next 12 months. Current cash balance as of September 30, 2014 is not sufficient to fund operations for the next twelve months. Therefore, the Company intends to engage in additional financing through the sale of equity securities.largean accumulated deficits,deficit and is dependent on the shareholder to provide additional funding for operating expenses and has no recurring revenues.expenses. These items raise substantial doubts aboutdoubt as to the Company’sCompany's ability to continue as a going concern.Company’sCompany does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.include cash, accounts payable,when available. These estimates are subjective in nature and accrued liabilities. The estimated fair valueinvolve uncertainties and matters of these instruments approximates its carrying amount due tosignificant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the short maturity of these instruments.2014.F-6ThereThe Company recognized a reserve of $86,487 and $0 as of September 30, 2017 and 2016, respectively, for estimated chargebacks from retailers.For the year ended September 30, 2017: Customer Name Sales Amount % of Total Revenue Customer PO $ 536,511 33 % Customer N $ 489,058 30 % For the year ended September 30, 2016: Customer Name Sales Amount % of Total Revenue Customer S $ 259,104 57 % Customer H $ 91,712 21 % Customer C $ 70,462 15 % no write-offstransferred to the Company as lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the various periods beinglease term, the Company recognizes the lease expense on a straight-line basis over the lease term.on.Revenue Recognition2017 $ 4,271 2018 $ 4,271 2019 $ 4,271 2020 $ 1,068 Total Minimum Lease Payments $ 13,881 2017 $ 56,784 2018 $ 58,488 2019 $ 39,760 Total Minimum Lease Payments $ 155,032 recognizenot record its share of such income until it equals the amount of its share of losses not previously recognized.price is fixed and determinable, persuasivefollowing criteria have been met:● Persuasive evidence of an arrangement exists; ● Delivery has occurred or services have been rendered; ● The fee for the arrangement is fixed or determinable; and ● Collectability is reasonably assured. exists,in a written contract signed by partial customer prior to recognizing revenue. For those customers do not have signed contracts with us, we did business with them based on purchase orders received, which include online orders.deliveredthoroughly inspected and collectabilitysecurely packaged before they are shipped to ensure buyers receive the best possible product. If for any reason buyers are unsatisfied with the products, they can return them and the Company will exchange or refund the purchase minus any shipping charges. For the wholesale customers, return policies varies based on their specific agreements with customers. Under chargebacks agreements with the customers, the Company agrees to reimburse the seller for a portion of the resulting receivablecosts incurred by the seller to advertise and promote certain of the Company's products. The Company estimates, accrues and recognized such chargebacks. These amounts are included in the determination of net sales.reasonably assured.the cost to distribute products to customers, inbound freight costsdirectly related labors' salaries and other shipping and handling activity.Due to researching and investigating the viability of a new product platform for functional beverages, the Company incurred large marketing expenses, research and development costs and related legal and professional expenses in the 2014 fiscal year. Personnel expenses, occupying a majority portion of SG&A, were 2,933,476$741,550 and $308,631 for the yearyears ended September 30, 2014.Cash Flow PresentationStatementCompany expenses advertising costs when incurred. Advertising expense for the years ended September 30, 2017 and 2016 is as follows: September 30, 2017 September 30, 2016 Advertising $ 61,202 $ 33,030 Cash Flows iscash flows are prepared using the indirect method, which reconciles net loss to cash flow from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net loss. The adjustments also remove cash flows arising from investing and financing activities, which are presented separately from operating activities.productsraw materials, work in process and finished goods held for resale,production and sale, is stated at the lower of cost or market,net realizable value, cost being determined using the weighted average cost method or net realizable value.method. The Company reviewreviews inventory levels at least annualquarterly and records a valuation allowance when appropriate. At September 30, 20142017 and 2013 the Company concluded there was impairment of $0 and $61,481 to2016, the carrying value of the inventory of $266,620 and $206,35650, 881and $0 respectively, the amount reflected on the consolidated balance sheetsheets is net of this adjustment. September 30, 2017 September 30, 2016 Raw materials $ 111,043 $ 124,035 Work in process 5,535 14,366 Finished goods 159,128 67,955 Less - Inventory reserve 9,086 0 Total $ 266,620 $ 206,356 Plant andEquipmentEquipmentcost.cost, net of accumulated depreciation. The Company depreciates equipment on a straight line basis.straight-line basis over the estimated useful lives of the assets after the assets are placed in service. Office equipment is depreciated over a 3 year3-year life,furniture over a 7 year7-year life, and other assetsequipment over a 7 year7-year life. Depreciation expense for the years ended September 30, 20142017 and 20132016 was $3,249$75,917 and $587,$41,921 respectively. Repair and maintenance costs are expensed as incurred. September 30, 2017 September 30, 2016 Furniture & Fixture $ 31,514 $ 31,514 Machinery & Equipment $ 323,706 $ 169,864 Vehicles $ 44,657 $ 9,657 Software $ 14,807 $ 0 Accumulated Depreciation $ (136,697 ) $ (59,089 ) Net PP & E $ 277,987 $ 151,946 shipped.In accordance with Financial Accounting Standards Board ( “ FASB ” ) Accounting Standards Codification ( “ ASC ” ) 360, Property, Plant and Equipment, theF-7 An impairment losswhenas a result of the carrying amountacquisition of NuZee JAPAN Co., Ltd, which has an estimated useful life of 5 years. September 30, 2017 Gross Carrying Accumulated Net Carrying Amount Amortization Amount Amortized intangible assets: Customer List $ 57,374 $ (11,475 ) $ 45,899 Total $ 57,374 $ (11,475 ) $ 45,899 not recoverable and exceeds fair value. No impairment losses were recognizedestimated for the intangible asset. Aggregate amortization expense for the years ended September 30, 20142017, and 2013.2018 $11,475 2019 $11,475 2020 $11,475 2021 $11,474 20142017 and 2013.Recent Accounting PronouncementsThe Company has limited operations and is considered to be in the development stage. In the year ended September 30, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements.The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.The Company accountsequity instrumentsshare-based awards issued to employees in accordance with ASCAccounting Standards Codification (ASC) 718, “Stock Compensation”"Compensation-Stock Compensation". Under this guidance, stockAccordingly, employee share-based payment compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimatedrequisite service period, (generallywhich is normally the vesting period)period. Share-based compensation to directors is treated in the same manner as share-based compensation to employees, regardless of whether the directors are also employees. We account for share-based compensation to persons other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the straight-line attributefair value of the equity instruments and is recognized as expense over the service period. We estimate the fair value of share-based payments using the Black Scholes option-pricing model for common stock options and warrants and the closing price of our common stock for common share issuances. We recognized forfeitures as they occurred.RELATED PARTY TRANSACTIONSDuring October 2013,ACQUISITIONCompromiseShare Exchange Agreement with NuZee JAPAN Co., Ltd ("NuZee JP") and its shareholders whereby the Company’s majority shareholder to settle the related party receivable. In considerationCompany will exchange 1,148,734 shares of its common stock, par value $0.00001 per share, for seventy percent (70%) of the compromises containedissued and outstanding common stock of NuZee JP. The Company's issued shares had an acquisition date fair value of $258,465. The remaining thirty percent (30%) of NuZee JP's issued and outstanding common stock is, and will be at the closing, owned by NuZee JP's current President and Chairman of its Board of Directors. The reason for this acquisition is to extend our market shares as well as obtain more business opportunities in both USA and Japan market. This transaction closed on October 3, 2016.Acquisition of NuZee Japan Co., Ltd. Assets acquired: Cash $ 201,676 Accounts receivable 60,770 Inventories 233,845 Other current assets 76,524 Customer list 57,374 Property and equipment 16,677 Goodwill 17,112 Total assets acquired 663,978 Less liabilities assumed Accounts payable and accrued liabilities (153,820 ) Loan payable (140,922 ) Total liabilities assumed (294,742 ) Less noncontrolling interest (110,771 ) Net assets acquired from NuZee JP acquisition 258,465 agreementCompany's consolidated net loss for the Company’s majority shareholder agreedyear ended September 30, 2017.forgivepresent a notesummary of the combined results of the Company's consolidated operations as if the acquisitions had been completed as of October 1, 2015. Adjustments were made to eliminate any inter-company transactions in the amountperiods presented. There is no pro forma information for 2017 as NuZee JP was acquired at the beginning of $50,000, cancel 8,966,100the period.NuZee, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Year Ended (Pro Forma) Revenues $ 1,526,057 Cost of sales 1,141,403 Gross Profit 384,654 Operating expenses 1,656,796 Loss from operations (1,272,142 ) Other income 39,686 Other expense (22,704 ) Net loss (1,255,160 ) Net loss attributable to noncontrolling interest - Net loss attributable to NuZee, Inc. $ (1,255,160 ) Net loss per share, basic and fully diluted $ (0.04 ) Weighted average of shares outstanding 31,901,001 INTELLECTUAL PROPERTYbeen granted licenses to use the trademarks CEREBOOST and SVETOLan investment in Company materials and on product packaging. Pursuantan equity method affiliate which has main businesses related to the Trademark License Agreements dated October 11, 2013,production, sale, import and export of coffee & beans, tea & tea leaf, healthy foods and drinks.agreement may be terminated by either party, without cause, upon 30 days written notice. Additionally, ifCompany's investment in equity affiliate as presented on the Company fails to purchase the annual minimum amount (500 kg) of product from the licensor for any 12 month period, the licensor may terminate the Company’s license upon 15 days written notice. The Company was not in compliance with the Trademark License Agreementsconsolidated balance sheet as of September 30, 2014. 2017 Beginning of period $ - Additional investments in unconsolidated affiliate $ 50,000 Distributions received $ - Sale of investment in unconsolidated affiliate $ - Equity in net income (loss) of unconsolidated affiliate $ (39,267 ) End of period $ 10,733 Tono Shinyo Kinko Bank Nihon Seisaku Kouko 2017 $ 26,660 $ 18,022 2018 $ 26,660 $ 18,022 2019 $ 26,660 $ 18,022 2020 $ 19,993 $ 18,022 2012 $ - $ 6,264 Total Loan Payment $ 99,973 $ 78,352 Net Revenue: 2017 2016 North America $ 458,042 $ 194,150 Japan 1,170,368 2,237 South Korea 0 259,104 $ 1,628,410 $ 455,491 Property and equipment, net: North America $ 266,522 $ 151,946 Japan 11,465 0 $ 277,987 $ 151,946 October 2013,the year ended September 30, 2016, the Company cancelled 8,966,100sold 1,025,000 shares of common stock.During March 2014, the Company sold 653,667 sharesstock at $0.60prices ranging from $0.70 to $0.80 per share for an aggregate purchase price of $392,200.April to June 2014,the year ended September 30, 2016, the Company sold 400,000215,156 shares of our treasury stock, with cost of $0.03838, at $0.60$0.64 per share, for an aggregate purchase price of $240,020.July throughthe year ended September 2014,30, 2017, the Company sold 554,3621,032,539 shares of common stock at $0.60prices ranging from $0.51 to $1.00 per share for an aggregate purchase price of $332,597.2014,30, 2017, the Company repurchased 2,736,000sold 1,766,242 shares of treasury stock at $0.51 per share, for an average costaggregate purchase price of $0.03838 per share.6. STOCK OPTIONSOctober 2013May 2017, the Company granted 3,471,665agreed to amend Nagashima Takayuki's $100,000 short-term loan to a convertible loan with a conversion price of $0.51 per share. Nagashima Takayuki then converted this loan to 196,078 shares of the Company's common stock.employee.directors, employees and consultants. Among those shares, 125,500 shares were issued to employees and 150,000 shares were issued to non-employees, which are consultants. The right to exercise these options shall vest and become 25% exercisable on the first anniversary of when granted, with the exception that 100% offrom February 23, 2016 to February 1, 2017. The vesting date varies for each option agreements. The options issued to one employee vested immediately. The remaining options shall vest and become exercisable ratably over the next 36 months, with the exception that options issued to 2 employees shall vest and become exercisable over 18 months and option issued to one employee shall vest and become exercisable as of the effective date of the Option Agreement. Thehave exercise price is $0.48prices ranging from $0.30-$0.80 per share and will expire ten years from the grant date, unless terminated earlier as provided by the Option Agreements.historical tradinga representative peer group of small public companies in their industry segment as the company's stock.Company has a limited stock history. The expected term of options granted was determined using the simplified method under SAB 107 and represents one-half the exercise period.mid-point between the vesting term and the contractual term. The risk-free rate is calculated using the U.S. Treasury yield curve, and is based on the expected term of the option. The Company has estimated there will be no forfeitures.2014:Risk-free interest rate 1% - 2%Expected2017 and 2016, respectively:For employees September 30, 2017 September 30, 2016 Risk-free interest rate 1.64% - 1.75 % 1.11% - 1.43 % Expected option life 5.5 - 6.5 years 4.5 years Expected volatility 97.6% - 99.1 % 80.2% - 83.6 %% Expected dividend yield 0.00 % 0.00 % Exercise price $ 0.40 - $0.56 $ 0.30 - $0.88 For non-employees September 30, 2017 September 30, 2016 Risk-free interest rate 2.27 % 1.74 % Expected option life 10 years 10 years Expected volatility 115.70 % 104.70 % Expected dividend yield 0.00 % 0.00 % Exercise price $ 0.51 - $0.56 $ 0.30 - $0.60 life 5 – 6 yearsExpected volatility 300%Expected dividend yield 0.0%Asawards on a straight-line basis over the requisite service period. The Company recognized stock option expense of September 30, 2014,2,929,652options are exercisable and the Company recognized$1,503,762 of stock options expenses during$138,098 for the year ended September 30, 2014. $56,3682017. Unamortized option expense as of stockSeptember 30, 2017, for all options expenses willoutstanding amounted to approximately $993,358. These costs are expected to be recognized ratably over a weighted-average period of 3 years. The Company recognized stock option expenses of $37,253 for the next 33 months.F-9On August 19, 2014, Craig Hagopian tendered his resignation as the Company’s Director, President and CEO and Satoru Yukie tendered his resignation as the Company’s Director, CFO, COO, Treasurer and Secretary. Upon their resignation, 2,715,277 stock options granted to them fully vested and 118,056 options will continue to vest in future periods until October 23, 2014; no options were forfeited..7. STOCK WARRANTSDuring April 2014, the Company granted 100,000 warrants to advisors for services. The right to exercise these warrants shall vest in equal eight quarterly installments over the twenty-four (24) months following the date their vesting begins, subject to their continued engagement as a service provider though each such date. The exercise price equal to the current fair market value per share on the date of grant and will expire ten years from the grant date, unless terminated earlier as provided by the Warrant Agreements.The Black-Scholes warrant pricing model was used with the following weighted average assumptions for options granted during the twelve monthsyear ended September 30, 2014:Risk-free interest rate 2.53%Expected life 10 yearsExpected volatility 300%Expected dividend yield 0.0%At September 30, 2014, 25,000 warrants are exercisable and2016, which relates to vesting of options that were granted in 2015.Company recognized $33,268 of warrant expenses during the twelve monthsyear ended September 30, 2014. Weighted Weighted Average Average Remaining Aggregate Contractual Life (years) Outstanding at September 30, 2016 573,000 $ 0.54 Granted 2,684,000 0.48 Exercised - - Expired (192,500 ) 0.48 Forfeited - - Outstanding at September 30, 2017 3,064,500 $ 0.58 9.6 17,425 Exercisable at September 30, 2017 180,500 $ 0.48 8.4 17,425 Weighted Weighted Average Average Remaining Aggregate Contractual Life (years) Outstanding at September 30, 2015 2,833,333 $ 0.48 Granted 618,000 0.67 Exercised (5,000 ) 0.30 Expired (40,000 ) 0.30 Forfeited (2,833,333 ) 0.48 Outstanding at September 30, 2016 573,000 $ 0.70 9.6 $ - Exercisable at September 30, 2016 195,000 $ 0.42 9.6 $ - Nonvested options Number of Nonvested Shares Nonvested shares at September 30, 2015 - Granted 618,000 Exercised (5,000 ) Forfeited (40,000 ) Vested (195,000 ) Nonvested shares at September 30, 2016 378,000 Granted 2,684,000 Exercised - Forfeited (120,000 ) Vested (58,000 ) Nonvested shares at September 30, 2017 2,884,000 20142017, and, September 30, 2013,2016, there were no differences between financial reporting and tax bases of assets and liabilities. The Company will have tax losses available to be applied against future years' income as result of the losses incurred. However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carry forward will not be realized through the reduction of future income tax payments. Accordingly, a 100% valuation allowance has been recorded for deferred income tax assets. NetCumulative net operating loss carry forward is$4,518,766 $8,710,253 and$1,383,038 $7,185,378 as of September 30, 20142017 and 20132016, respectively, and will begin expiring in 2032.20142017 and 2013:2016F-10 2017 2016 Net Operating Losses 3,048,589 2,514,882 Valuation Allowance (3,048,589 ) (2,514,882 ) 9.November 2014October to January 2015,December 2017, the Company sold 740,0001,341,783 shares of common stock at an average cost of $0.30973$0.51 per share, for an aggregate purchase price of $229,200.January 2015,October to December 2017, the Company cancelled 1,160,000 sharesborrowed the sum of common stock.
