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) 107 (Address of principal executive offices) ☒ ☒ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of 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 ☒ forward-looking statements. We do not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements. 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 2016 is our Matcha Cup, which is available in single serve K-Cup compatible cups. Amazon.com. stages below: Expand our co-packing operations to accommodate national roasters consumer trial repeat sales through heavy in-store promotions Increase our velocity with our current customers domains. We also partner with three The green whole bean is then sent to our roaster at San Diego Coffee, Tea, & Spice, located in Oceanside, CA. product, the "Drip Cup". As of the date of this report, the Company had registered trademarks "Coffee Blenders", "Nude Cup", "Lean Cup", "Think Cup", "Relax Cup" and "Twin Peaks" in Japan and registered trademarks "Lean Cup" and "Think Cup" in Korea. Coffee. As a result, we continue to look for significant niche markets where our close attention to customer requirements and superior performance are valued. Vista, CA. Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the development, production, marketing, and sales of our product. As a result, we may not generate significant revenues in the future. Failure to generate significant revenues in near future may cause us to suspend or cease activities. Various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the availability of our product relating to the content or perceived adverse health consequences of our product. If these types of requirements become applicable to our product under current or future environmental or health laws or regulations, they may inhibit sales of our product. 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. The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them. PART II BID PRICE PER SHARE Quarters Ended HIGH LOW September 30, 2015 0.65 0.6 June 30 ,2015 0.6 0.2 March 31, 2015 0.6 0 December 31, 2014 0.8 0.6 September 30,2014 1 1 June 30 2014 1 0.05 March 31, 2014 0 0 December 31, 2013 0 0 September 30, 2013 0 0 June 30, 2013 0 0 March 31, 2013 0 0 December 31, 2012 0 0 Shareholders Sales of Unregistered Securities ITEM 7. MANAGEMENT'S DISCUSSION OF AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. social media pages. From October 1, ended September 30, 2017. As of September 30th, 2017, we have opened several accounts with large wholesalers and distributors, such as UNFI, C&S, KeHE Distributor, LLC, who are some of the largest distributors in the United States. this uncertainty. sale. We believe that our weaknesses in internal control over financial reporting and our disclosure controls relate in part to the fact that we are an emerging business with limited personnel. Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters. Throughout the year, the Company has been continuously improving its monitoring of current reporting systems and its personnel. The Company intends to continue to make improvements in its internal controls over financial reporting and disclosure controls until its material weaknesses are remediated. NAME AGE Masa Higashida Family Relationships 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 Masateru Higashida 14,233,633 50.297 Total of All Executive Officers and Directors 14,233,633 50.297 Shareholders Holding 5% or Greater Common Masateru Higashida 14,233,633 50.297 Common Travis Gorney 1,520,000 5.371 Common Arata Matsushima 1,520,000 5.371 Total of All Shareholders With 5% or Greater 17,273,633 61.039 2015 2014 FEE CATEGORY Audit Fees (Malone &Bailey) $36,500 $27,200 Tax Fee - - Audit-Related Fees - 2,400 TOTAL FEES $36,500 $29,600 Consolidated Financial Statements For The Fiscal Year Ended September 30, EXHIBIT NO. DESCRIPTION February 20, 2018. NuZee, Inc. STATEMENTS OF OPERATIONS Year Ended Year Ended Revenues $115,022 $71,762 Cost of sales 72,072 59,005 Gross Profit 42,950 12,757 Operating expenses 1,510,810 3,146,188 Loss from operations (1,467,860) (3,133,431) Other income 441 216 Other expense 1,934 2,513 Net loss $ (1,469,353) $(3,135,728) Basic and diluted loss per common share $ (0.05) $ (0.10) Basic and diluted weighted average number of common stock outstanding 30,004,340 30,121,020 NuZee, Inc. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) For the period from October 1, 2014 to September 30, 2015 Common Stock Addditional Paid-In Capital Treasury Stock Accumulated Deficit Total Stockholders' Equity (deficit) Shares Amount Shares Amount 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 - - - 2,736,000 (105,000) - (105,000) Fair value of non-employee stock warrant - - 33,268 - - - 33,268 Fair value of employee stocl 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 2,736,000 $(105,000) $(4,518,766) $345,149 Common stock issued for cash 1,055,232 10 737,851 - - - 737,861 Common stock issued for service 10,000 - 6,000 - - - 6,000 Common stock cancelled (1,540,000) (15) 15 - - - - Treasury stock sold for cash - - 188,366 (720,000) 27,634 - 216,000 Fair value of non-employee stock warrant - - 20,527 - - - 20,527 Fair value of employee stock options - - 18,969 - - - 18,969 Net loss - - - - - (1,469,353) (1,469,353) Balance September 30, 2015 30,124,951 $ 301 $ 5,940,337 2,016,000 $ (77,366) $(5,988,119) $ (124,847) Nuzee, Inc. STATEMENTS OF CASH FLOWS For the Year Ended For the Year Ended Operating activities: Net loss $ (1,469,353) $ (3,135,728) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 22,147 3,249 Loss on disposition of equipments 54,676 - Share issued for services 6,000 - Option expense 18,969 1,503,762 Warrant expense 20,527 33,268 Change in operating assets and liabilities: Accounts receivable (13,000) 7,990 Inventories (150,883) (50,881) Prepaid expenses and deposits 47,567 (52,203) Accounts payable 22,138 (12,438) Other current liabilities (7,573) (1,383) Net cash used by operating activities (1,448,785) (1,704,364) Investing activities: Purchase of equipment (235,558) (27,954) net cash used by investing activities (235,558) (27,954) Financing activities: Proceeds from issuance of convertible notes payable 600,000 - Proceeds from issuance of common stock 737,861 964,817 Proceeds from issuance of treasury stock 216,000 (105,000) Net cash provided by financing activities 1,553,861 859,817 Net change in cash (130,482) (872,501) Cash, beginning of period 238,160 1,110,661 Cash, end of period $ 107,678 $ 238,160 Supplemental disclosure of cash flow information: Cash paid for interest $ - $ - Cash paid for taxes $ 800 $ - Non-cash investing and financing activities: Forgiveness of related party receivable $ - $ 139,661 Forgivenes of debt $ - $ (50,000) Cancellation of common stocks $ 15 $ (89,661) 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. The carrying amount of long-term debt approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. operations as incurred. Foreign currency transaction losses included in the consolidated statements of operations totaled $3,235 and $2,968 for the years ended September 30, 2017 and 2016, respectively. overhead cost. The 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. 2016. apply. During the year ended $137,699. $860,045. option agreements. grant date, unless terminated earlier as provided by the option agreements. years. The 2033. The earliest tax year which remains subject to examination is 2013. 2015 2014 Net Operating Losses 2,095,842 1,581,568 Valuation Allowance (2,095,842) (1,581,568) x☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19342015 2017 ¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934101 (zip code)Registrant’sRegistrant's telephone number, including area code -- (858) 385-9090 (760) 295-2408or toll-free 855-936-8933 ¨☐ No xx☐ No ¨periodthatperiod that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 xJanuary 8th, 2015February 20, 2018, NuZee, Inc. had 30,404,962 shares36,062,321shares of common stock outstanding.2"believe, "believe," "expect," "anticipate," "target," "plan," "intend," "seek," "goal," "will," "should," "may," "targets" or other words and similar expressinsexpressions 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, 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. 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 2016 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. 
themarketthe 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. WeOur family of products all utilize GRAS (Generally Recognized As Safe) ingredients that are also startedsupported by clinical studies using the exact strength and dosage recommended by our Lotus Cup line, which is a gourmet pour-over coffee. The name changed from Lotus Cup to Drip Cup in 2015, with our first cup being the Nude Cup Gourmet pour-Over. We have now extended the Drip Cup line to also include the functional varietals: Lean, Thinkingredient partner's claims and Relax Cup.6Coffee Blenders Coffee Blenders TMProduct Branding and Packaging for the Single Serve Linewww.coffeeblenders.comRelax Cup for Stress Reduction
Lean Cup for Weight Loss
Think Cup for Cognitive Performance 
7Coffee Blenders TMProduct Branding and Packaging for the Drip Cup Linewww.coffeeblenders.comThe Gourmet Pour-OverNude Drip CupRelax Drip Cup for Stress ReductionLean Drip Cup for Weight LossThink Drip Cup for Cognitive Performance 
8 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-Cupssingle serve cups using only natural ingredients with clinically supported branded nutraceuticals. In 2015, the Drip Cup emerged and quickly gained popularity within the coffee industry. EachWe initially launched three functional varieties of Coffee Blenders K-cupcalled Lean Cup(®) (for weight loss), Think Cup(®) (for cognitive performance) and DripRelax Cup will include(®) (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 10 K-Cup packs and/or Drip Cup pouches per box.Theenergy).cupscup 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 enablesSeptember 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.We initially launched three functional varieties called Lean (for weight loss), Think (for cognitive performance) and Relax (for stress reduction).2016. We have now launched four more products, growing our Coffee Blenders product familyextended the Drip Cup line to also include the functional varietals: Lean Cup, Think Cup and Relax Cup. Each Drip Cup includes a total of seven products. The current family11 grams of products all utilize GRAS (Generally Recognized As Safe)coffee plus natural ingredients that are also supported by clinical studies using the exact strengthen and dosage recommended bycomes in retail packaging of 10 Drip Cup pouches per box.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 2016.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 
20162018 include:Secure additional working capital to support growth and development of NuZee, Inc. sales and support operationsBuild onto our existing product and brand awareness through marketing and communication programsBuild an enthusiast and loyal base of consumers for Coffee BlendersExpand family of functional coffees to include new functions and flavorsExpand distribution across retail, online and affiliate channelsContract with multiple manufacturing partners to scale production as requiredWork alongside with other roasters, nation wide, and co-pack their roasts into our Drip CupsBuild portfolio of formulas for functional beveragesExplore new beverage platforms beyond coffee, we are looking at a tea line specifically9● 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 Amazon.com20152017 Coffee Blenders securedmaintained a vendor numberhealthy relationship with Safeway Easternour top retailers, distributors, & partners and also signedadded on over a contract with Club Marketing, which deals with some of the nations largestdozen new retail chains. In addition to expanding our shelf space in Safeway Eastern, our product SKU’sis now in Albertsons, Meijer's, Spartan Nash, HEB, Lowes, Rouses, Jewel-Osco, Whole Foods, Piggly Wiggly's, King's, Tony's Finer Foods and other smaller independent grocery chains. Many of these accounts were approved and setup bygained through KeHE and we have also emerged into the Korean market for& UNFI, our Drip Cup line.As an emerging consumer brand thatmain distributors as of 2017.a yearthree years, we still believe that a significant amount of capital will be required to generate additional sales and help support the current accounts that we currently have. Our sales approach will be implemented inmaintained by following the 4 stages:Build Awareness and ConsiderationTrialInitial SalesDrive Repeat Salesanticipatehave learned that by working with the need to spendretailers on providing proper employee training on the product, using heavy couponing and doing in store demo's the sales are driven higher and there are more than one million in brand marketing, sampling and test advertising (stages #1 and #2) in 2016. We will use what we learn from our advertising campaigns to determine the optimal cost of acquisition in order to scale the business appropriately.repeat customers. Our main focus for 20162018 will be reaching out to key accounts through national and regionalcontinue our effective approach of attending trade shows to acquire new B2B commercial business. We also planhave added on to implement anour inside sales force to incubate and curate new accounts. We plan to expand our affiliate network and online advertising as well as cross promoting via social media to drive our B2C sales through ourwww.coffeeblenders.com & www.twinpeaksroasters.comdomain.“Coffee Blenders”"Coffee Blenders," "Twin Peaks" and “NuZee”"NuZee" trademarks. We are currently working to expandhave expanded our production capabilities at our headquarters facility in Vista, CA toattractto attract other companies that are interested in producing similar productssingle serve pour over coffee to produce them at our facility.facility, as well as meet consumer demands. Our co-packing service is intended to increase market awareness and to help positonposition our company as the leader in the U.S. for the pour over drip pouch coffee market.10101107 which is used for the production of our Single Serve Pour-Over Drip Cup line.third partythird-party manufacturers to manufacture finished 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. (“Naturex”) 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 Global Health Trax (“GHT”("GHT") for mixing into our proprietary blends. We do not have a written agreement with GHT. Rather, all services performed by GHT are on a purchase order basis. After GHT mixes our coffees, the final product is shipped to our co-packer Intelligent Blends, or our other co-packer Cafejo, for packaging into single-serving containers commonly known as “K cups��"K cups" as well as our coffee blenders single serve drip cups and Twin Peaks pour-over and boxed for retail sales.product: Drip Cup.three separatetwo suppliers: Fleetwood Fibre Landsberg and Peak Packaging.& Landsberg. We conduct business with these vendors on a purchase order basis.happensis produced on the leading Japanese manufacturer of package in packagepackaging machines from NASA Corporation. Nitrogen and air compression machinery is capable of handling expansion as the company expands as well to minimize any ongoing capital expenditures for machinery.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 products 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:$15,000 developing a raw ingredient selection, blending and flavoring for Coffee Blenders; 11● 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 2014,2018, 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 include:Functional coffee beveragesDrip Cup coffeesFor 2016, our research and development initiatives will be concentrated on the following: 1.Drip Cup coffee on sales and marketing extension2.Other functional beverages within the K-Cup industryIntellectual 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."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. 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.plans to ceaseceased 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 NuZee 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.12Blender 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.2015,2017, we had a total of 36 full-time employees and 4 part-time employees. All employees are located in San Diego.At September 30, 2015, 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.13directors’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 is www.sec.gov.$1,469,353$1,767,139 for the year ended September 30, 20152017 and therefore we cannot guarantee that we will be successful in building a functional beverage business in future periods, which raiseraises substantial doubtsdoubt about the Company’sCompany's ability to continue as a going concern.NuZee Co, Ltd. was incorporated in California in 2011 prior to the merger with Havana Furnishings as a result we14Company;Company, PepsiCo, Inc.;, 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 suchcompanies,such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the health food and beverage market.15dependsdepend 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. 16develop better and more variety of productsdevelop less expensive productsdevelop broader channelsas well as the ability to respond more rapidly to changing market conditions● 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 17partner’spartner's ability to deliver finished goods.18company’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.30,124,951 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. toresellto resell their shares.Markets 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 sporadicthansporadic 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.1920SEC’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 by 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.stockholder’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 atleastat 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.21101&102,105, 106, & 107 Vista, CA 92081. We lease these facilities on an annual basis at a cost of $3,793$4,685 per month. 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.20152017, the stockholders list for our common stock showed 165273 registered stockholders and 30,124,951shares34,720,538 shares of common stock issued and outstanding. The transfer agent of our common stock is QuickSilver Stock Transfer, One Summerlin, 1980 Festival Plaza Drive, Suite 530, Las Vegas, Nevada, 89135.Dividends.23Securities.November through December 2014,July to August 2017, the Company resold 580,000sold 1,147,971 shares of our treasury stock par value $0.00001, at $0.3$0.51 per share, for an aggregate purchase price of $174,000.$585,465 paid to the Company in cash.December 2014,August 2017, the Company issued 34,602 shares of treasury stock at $0.43 per share, for compensation and an aggregate price of $14,879.20,000352,029 shares of our common stock par value $0.00001, at $0.66$0.51 per share, for an aggregate purchase price of $13,200.During January 2015,$179,535 paid to the Company resold 140,000 sharesin cash.our treasury stock , par value $0.00001,at $0.30 per share, for an aggregate purchase price of $42,000.During January 2015, the Company cancelled 1,160,000 shares of common stock.During March 2015,proceeds received from the Company sold 20,000 sharessales of our common stock par value $0.00001, at $0.70 per share, for an aggregate purchase price of $14,000During April through June 2015,will be used by the Company sold 575,232 shares of our common stock, par value $0.00001, at an average cost of $0.7 per share, for an aggregate purchase price of $402,661.During June 2015, the Company cancelled 380,000 shares of common stock.During July through September 2015,Company's business operations.Company sold 440,000 shares of our common stock, par value $0.00001, at $0.70 per share, for an aggregate purchase price of $308,000.During July through September 2015,noted exceptions, the Company issued 10,000 shares of our common stock to employee as compensation, par value $0.00001, at $0.60 per share, for an aggregate purchase price of $6,000The 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.During February 2015, the Company committed to issue 45,000 options to employee and 100,000 options to consultants for services the next time the board approves for issuance. During September 2015, the Company committed to issue 22,500 options to an employee as compensation for services the next time the board approves for issuance. The board has not yet approved the issuances.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 24OPERATION126 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:251. 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.The Company plans going forward include the following milestones:MilestoneTimingEst. Cost/Funding SourceFinalize Products & Pricing- New ProductOctober (Phase 3) - Ongoing$25,000 (Phase 3)Staff (retainDirect – coffeeblenders.com shopping via search and expand)January-June$10,000-20,000/Mo. RecurringPrevious Sale of EquitiesLaunch Market and Promotion Plan- PR - Sampling - Advertising Ongoing$500,000-$750,000 AnnualPrevious and Future Sale of Equities + Product ContributionExplore OEM/Private Label OpportunitiesOngoingn/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.2015,2017, we generated net losses attributable to NuZee, Inc. of $1,469,353.$1,767,139. This loss was attributed to $1,510,810$2,076,654 of operating expenses. Compared with fiscal year end September 30, 2014,2016, the net loss decreasedincreased by $1,666,375$491,846 and operating expense reducedincreased by $1,665,378 These operating$751,191. Operating expenses on income statement included all costs associated with production, storage and delivery of our products as well as research and development of new products.26We 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.20142016 to September 30, 2015,2017, we earned revenues of $115,022$1,628,410 from sales of our products.products to retailers, wholesalers and distributors, such as Safeway, HEB and Japan Post Co., Ltd. The revenues earned during 20142016 fiscal year was $71,762. There has been more than a 60%$455,491. This increase inwas primary from the acquisition of NuZee JAPAN Co., Ltd ("NuZee JP"). The revenues earned revenue after oneby NuZee, Inc was $465,244 for the year operation.20162017-2018 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.through December 2014,2017, the Company resold 580,000 shares of our treasury stock, par value $0.00001, at $0.3per share,signed contract for an aggregate purchase price of $174,000.During December 2014, the Company sold 20,000 shares of our common stock, par value $0.00001, at $0.66 per share, for an aggregate purchase price of $13,200.During January 2015, the Company resold 140,000 shares of our treasury stock, par value $0.00001,at $0.30 per share, for an aggregate purchase price of $42,000.During January 2015, the Company cancelled 1,160,000 shares of common stock.During March 2015, the Company sold 20,000 shares of our common stock, par value $0.00001, at $0.70 per share, for an aggregate purchase price of $14,000During April through June 2015, the Company sold 575,232 shares of our common stock, par value $0.00001, at an average cost of $0.7 per share, for an aggregate purchase price of $402,661.During June 2015, the Company cancelled 380,000 shares of common stock.During July through September 2015, the Company sold 440,000 shares of our common stock, par value $0.00001, at $0.70 per share, for an aggregate purchase price of $308,000.During July through September 2015, the Company issued 10,000 shares of our common stock to employee as compensation, par value $0.00001, at $0.60 per share, for an aggregate purchase price of $6,000During period from October 1, 2014 to September 30, 2015, the company spent $222,956 to purchase inventory for future production and sales.During September 30, 2015, the company purchasedpurchasing a new equipment with amount of $106,860$205,280 for future production.The above-mentioned sales of our securities were made to non-U.S. persons (asterm 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.27As of September 30, 2015 we hadCompany has suffered recurring losses from operations and negative cash (operating capital) of $107,678 and we have a short term debt in the sum of $600,000flows from Masateru Higashida, the Company’s major shareholder. 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 as of September 30, 2015 is not sufficient to fund our operations for the next twelve months and maythat raise substantial doubtsdoubt about the Company’sits ability to continue as a going concern. The Company will engage in additional financing throughOur financial statements do not include any adjustments that might result from the saleoutcome 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.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.market.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 issuedthat impact us.28(a) Evaluation on Disclosure Controls and Procedures (b) Management's report on internal control over financial reporting Company’sCompany's internal control over financial reporting as of the end of theperiod covered by this annual report on Form 10-K based on the criteria for effective internal control described Internal Control-Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on this assessment, Mr. Higashida has concluded the Company’sCompany's internal controls over the financial reporting is not effective based ondue to the following material weaknesses, which existed as of September 30, 2015:29● 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. ·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 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.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.2015,2017, 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, 20152017 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.302015.2017. 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 31Inin 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. Officer’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.32threetwo 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) SUMMARY COMPENSATION TABLEName andprincipal position(a)Year(b)Salary(US$)(c)Bonus(US$)(d)Stock Awards(US$)(e)OptionAwards(US$)(f)Non-EquityIncentive PlanCompensation(US$)(g)NonqualifiedDeferredCompensationEarnings(US$)(h)All OtherCompensation(US$)(i)Total(US$)(j)Masateru HigashidaPresident, CEO, CFO, COO, Secretary, Treasurer (1)201520140000000000000000Craig Hagopian,President, CEO(2)20152014n/a$135,493n/a0n/a 0(1)n/a0n/a0n/a0n/a0n/a$135,493Satoru YukieCFO, COO, Secretary, Treasurer(3)20152014n/a$133,558n/a0n/a0(2)n/a0n/a0n/a0n/a0n/a$133,558(1)Masateru Higashida was appointed as the Company’sCompany's President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and COOChief Operations Officer ("COO") on August 19, 2014. (2)Craig Hagopian servedMr. Higashida resigned as ourthe Company's President and Chief Executive Officer from April 19, 2013 throughCOO on August 19, 2014. On September 14, 2014,28, 2017.(2) Travis Gorney was appointed as the Company entered into a Separation and Stock Repurchase agreement which provided for cancellation of all stock options granted to Mr. Hagopian in October 2013.(3)Satoru Yukie served as our Chief Financial Officer, Treasurer, Secretary,Company's President & Chief Operations Officer from April 19, 2013 throughon 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.The compensation discussed herein addresses all compensation awarded to, earned by, or paid to our named executive officers.33unexercisableexercisable options, as of the years ended September 30, 20152017 and 2014COMPENSATION 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.December 15th, 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 on 30,124,95136,062,321 shares of common stock issued and outstanding on January 8, 2015.34Title 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% “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.3520152017 and 2014:2016: 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-63632.1January 13, 2016.NuZee, Inc.By: /s/ Masateru HigashidaName: Masateru HigashidaTitle: President, Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer), Secretary, Treasurer, COO and DirectorNuZee, 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 January 13, 2016.NuZee, Inc.By: /s/ Masateru HigashidaName: Masateru HigashidaTitle: President, Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer), Secretary, Treasurer, COO and Director37Report of Independent Registered Public Accounting FirmNuZee, and StockholdersSan Diego, CA 92127NuZee,Nuzee Inc. (the “Company”and its subsidiary (collectively, the "Company") as of September 30, 20152017 and 20142016, and the related consolidated statements of operations, stockholders’comprehensive loss, changes in stockholders' equity (deficit), and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company'sentity'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 Company is not required to have, nor were we engaged to perform, an audit of theirits internal control over financial reporting. Our audits 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'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. An audit also includesstatements, 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.based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the CompanyNuzee, Inc. and its subsidiary as of September 30, 20152017 and 2014,2016, and the consolidated results of their operations and their cash flows for each of the years then ended, 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.www.malone-bailey.comJanuary 13, 2016F-138NuZee, 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
September 30, 2015
September 30, 2014 auditedconsolidated financial statements.statementsNuZee, 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 statementsF-4
September 30, 2015
September 30, 2014 NuZee, 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,2015“Company”"Company", “we”"we", “our”"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.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.20152017, the Company had cash (operating capital) of $107,678$347,327 and had $600,000 short term convertible notes.$200 short-term loan payable. The Company has not attained profitable operations since inception. However, the Company started to make a deal with big wholesaler starting next year. The Company expects to spend between $1 million-$2 million in expenses over the next 12 months. Current cash balance as of September 30, 2015 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.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’s financial instruments includeCompany does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.debt. The estimateddebt approximate fair value because of these instruments approximates its carrying amount due to the short maturityshort-term nature of these instruments.20152017 and 2014, respectively.2016.F-643ThereThe 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.Major CustomersInin 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.2017 $ 4,271 2018 $ 4,271 2019 $ 4,271 2020 $ 1,068 Total Minimum Lease Payments $ 13,881 2015, revenue2017 and 2016 was $88,903 and $49,592 respectively.2017 $ 56,784 2018 $ 58,488 2019 $ 39,760 Total Minimum Lease Payments $ 155,032 two major customers. Sales Amounts Percentageexchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of Total RevenueCustomer A $42,900 37 %Customer B $50,466 44%Persuasive evidence of an arrangement exists;Delivery has occurred or services have been rendered;The fee for the arrangement is fixed or determinable; andCollectability is reasonably assured.● 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. Thethe Company documents all terms of an arrangement in a written contract signed by thepartial 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.all services or deliversdelivery of all products prior to recognizing revenue. Monthly services are considered to be performed ratably over the term of the arrangement. Professional consulting services are considered to be performed when the services are complete. Equipment is considered deliveredcustomers and recognize revenue upon shipment or ultimate delivery to a customer’s designated location.The Fee for the Arrangement Is Fixed or Determinable—Prior to recognizing revenue, a customer’s fee is either fixed or determinable undercustomers' delivery sites depending on the terms of the written contract. The customer’s fee is negotiated at the outset of the arrangement and is not subject to refund or adjustment during the initial term of the arrangement.
sale.customer’scustomer's financial position and ultimately its ability to pay. The Company does not enter into arrangements unless collectability is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured, revenue is recognized on a cash basis.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 $363,788$741,550 and $2,933,476$308,631 for the years ended September 30, 20152017 and 2014,2016, respectively.F-744Cash 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 production and sale, is stated at the lower of cost or market or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at least quarterly and records a valuation allowance when appropriate.At September 30, 20152017 and 2014 the Company concluded2016, the carrying value of the inventory of $266,620 and $206,356201,764 and $50,881 respectively, the amount reflected on the consolidated balance sheetsheets is net of this adjustment.September 30, 2015 September 30, 2014F - 13 Raw Material $ 69,836 $26,909 Finished goods 131,928 23,972 Total $201,764 $50,981Related Party TransactionsDuring February 2015, the Company issued a secured convertible promissory note in the sum 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 all accruedEquipmentunpaid interest on the debt hereof (the “Debt”) is not repaid by the Company in full by the Repayment Date, the Debt or any portion thereof may be converted at the option of the Holder, upon written notice to the Company at any time after the Repayment Date, into that number of shares of the Company’s Common Stock equal to the Debt or that portion thereof that the Holder elects to convert, divided by price per share of $0.51. This note shall be cancelled on the date of conversion of the entirety of the Debt.Property, Plant andEquipment Equipmentequipment is stated at 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, 20152017 and 20142016 was $22,147$75,917 and $3,249$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, theassetcustomer list which, recognized as a result of the acquisition 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 recognized whenestimated for the carrying amount is not recoverable and exceeds fair value. A loss of disposition of assets were recognizedintangible asset. Aggregate amortization expense for the years ended September 30, 20152017, and 2014 of $54,676September 30, 2016, totaled $11,475 and $0, respectively.F-8452018 $11,475 2019 $11,475 2020 $11,475 2021 $11,474 20152017 and 2014.reportingearly adoption is permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method, amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively, and amendments related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. The Company has adopted ASU No. 2016-09 with no impact on its consolidated financial statements.issuer (thatquantitative and qualitative impacts that certain recently issued accounting standards will have on the consolidated financial statements of a registrant when such standards are adopted in a future period. Specifically, these disclosure requirements apply to the adoption of ASU No. 2014- 09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Company is currently evaluating the purchaserimpact of these amendments on its consolidated financial statements.grantor) and recipient (that is, the goods or service provider or grantee) forconditions of a subset of share-based payment transactions.award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718 also addresses a subset718. The amendments are effective for fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of these transactions.amendments on its consolidated financial statements.applicableASU was issued to address the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and reporting requirementsequity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and otherspecificderivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.substantially dependclosed on whetherOctober 3, 2016.grantee meetsacquisition method to the definitionbusiness combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The following table shows the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition: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 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 employee (seeinvestment in an equity method affiliate which has main businesses related to the definition for determining which guidanceproduction, sale, import and export of coffee & beans, tea & tea leaf, healthy foods and drinks. 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 apply to a particular transaction)be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The accountingloan is unsecured and reportingguaranteed by a director. The Company had $99,973 loan payable at September 30, 2017. On January 27, 2017, NuZee JAPAN Co., Ltd entered into a loan agreement with Nihon Seisaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The Company had $78,352 loan payable at September 30, 2017. may differ significantly depending on whether that definition of employee is met for the grantee. With certain exceptions, this Subtopic provides guidance whennext five years are as follows: 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 granteeacquisition of NuZee JP.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 meetarise because the conversion price of the note is above the per share fair value of the Company's stock. The conversion feature was evaluated as a derivative and the Company determined that definition of an employee. The company doesderivative accounting did not specific police for stock-based compensation.3. COMMON STOCK2014,September 30, 2016, the Company cancelled 8,966,100accrued interest of $3,008 relating to this related party note.2014,September 30, 2017, NuZee JP billed $24,973 for this arrangement and $15,358 remains outstanding as of September 30, 2017. Contlus is the Company's related party as the Company holds 50% of their issued shares.1,608,0291,025,000 shares of common stock at $0.60prices ranging from $0.70 to $0.80 per share for an aggregate purchase price of $964,8$801,001.2014,September 30, 2016, the Company repurchased 2,736,000sold 215,156 shares at an averageof our treasury stock, with cost of $0.03838, per share.During the year ended 2015, the Company resold 720,000 shares of treasury stock at $0.30$0.64 per share, for an aggregate purchase price of $216,000. 2015, the Company cancelled 1,540,000 shares of common stock.F-946During the year ended 2015,September 30, 2017, the Company sold 1,035,2321,032,539 shares of common stock at $0.70prices ranging from $0.51 to $1.00 per share for an aggregate purchase price of $737,8612015,September 30, 2017, the company issued 10,000Company sold 1,766,242 shares of commontreasury stock at $0.60$0.51 per share, for compensation and an aggregate purchase price of $6,000.4.$900,783.October 2013February 2016, the Company granted 3,471,665issued 275,500 options to directors, employeesand directors.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.February 2015,April 2016, the Company committedagreed to issue 45,000extend an employee's previously issued stock options toof 22,500 until April 29, 2016. In April 2016, this employee and 100,000exercised 5,000 shares of their stock options to consultants for servicesat $0.30 per share. The remaining shares of their stock options expired by the next time the board approves for issuance. end of April 2016.September 2015,July 2016, the Company committed to issue 22,500issued 320,000 options to an employeeemployee. The right to exercise these options shall vest and become exercisable on December 31, 2021. The exercise price is $0.88 per share and will expire ten years from the grant date, unless terminated earlier as compensation for servicesprovided by the next timeoption agreements.board approves for issuance.Company issued 84,000 options to employees. The board has not yet approvedright to exercise these options shall vest and become exercisable on January 2018. The exercise price is $0.40-$0.51 per share and will expire ten years from the issuances.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 the 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.SeptemberSeptember 30, 20152017 and $1,503,7622016, 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 2014.Risk-free interest rate 1% - 2%Expected2017. Unamortized option life 2 –expense as of September 30, 2017, for all options outstanding amounted to approximately $993,358. These costs are expected to be recognized over a weighted-average period of 3 yearsExpected volatility 300%Expected dividend yield 0.0%companyCompany recognized stock option expenses of $18,969$37,253 for the year ended September 30, 2015 and $1,503,7622016, which relates to vesting of options that were granted in 2015.2014.F-1047 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 common stock options issued and outstanding: Stock Options Exercise price Intrinsic ValueOutstanding at September 30, 2013 - $ -Granted 3,471,665Exercised -Forfeited -Expired - Outstanding at September 30, 2014 3,471,665 $0.60 $ -Granted - Exercised -Forfeited (638,332)Expired - Outstanding at September 30, 2015 2,833,333 $0.60 $ -Exercisable at September 30, 2015 2,833,333 $0.60 $ -5. 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 duringthe twelve month ended September 30, 2014Risk-free interest rate 2.53%Expected life 0 yearsExpected volatility 0%Expected dividend yield 0.0%The company recognized warrant expenses of $20,527option activity for the year ended of September 30, 2015 and2016. 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 $ - year ended September 30, 2015,status of the Company cancelled all warrants. Thus, there are no excisable warrants outstanding at year ended September 30, 2015. Unamortized warrant expenseCompany's unvested shares as of September 30, 2015 for all warrants outstanding is $0.F-1148Nonvested 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 The following table summarizes common stock warrants issued and outstanding: Stock Warrants Exercise price Outstanding at September 30, 2013 Granted 100,000 $0.60Exercised -Forfeited -Expired - Outstanding at September 30, 2014 100,000 $0.60Granted - Exercised -Forfeited 100,000 $0.60Expired Outstanding at September 30, 2015 6.20152017, and, 2014,2016, 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 $5,982,119$8,710,253 and $4,518,766$7,185,378 as of September 30, 20152017 and 20142016, respectively, and will begin expiring in 2032.20152017 and 2014:2016 2017 2016 Net Operating Losses 3,048,589 2,514,882 Valuation Allowance (3,048,589 ) (2,514,882 ) 2015 to December 2015,2017, the Company sold 280,0111,341,783 shares of common stock at an average cost of $0.732$0.51 per share, for an aggregate purchase price of $204,990.F-12
