UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~March 31, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to________

Commission File No. 001-39338

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)

~~1401 Capital Avenue~~1350 East Arapaho Road, Suite B#230, ~~Plano~~Richardson, TXTexas, ~~75074~~75081

(Address of principal executive offices) (zip code)

(760) 295-2408

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, $0.00001 par value		NUZE		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated Filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 11, 2022,~~May 7, 2023, the registrant had ~~23,668,017~~769,239 shares of common stock outstanding.

Table of Contents

	Page

PART I

Item 1. Financial Statements	5
Consolidated Balance Sheets (unaudited)	5
Consolidated Statements of Operations (unaudited)	6
Consolidated Statements of Comprehensive Income (Loss) (unaudited)	7
Consolidated Statements of Stockholders’ Equity (unaudited)	8
Consolidated Statements of Cash Flows (unaudited)	109
Notes to Consolidated Financial Statements (unaudited)	1110
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2220
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2925
Item 4. Controls and Procedures	2925

PART II	3026

Item 1. Legal Proceedings	3026
Item 1A. Risk Factors	3027
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3027
Item 3. Defaults Upon Senior Securities	27
Item 4. Mine Safety Disclosures	27
Item 5. Other Information	27
Item 6. Exhibits	3128
SIGNATURES	3229

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Such forward-looking statements reflect the views of NuZee, Inc. (“NuZee” or the “Company”) with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about the Company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, or any other matters, are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “expects”, “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Forward-looking statements in this report may include, without limitation, statements regarding:

	●	our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our products, ~~and~~ provide our co-packing ~~services;~~services, and to continue as a going concern;

	●	~~the impact to our business from the COVID-19 global crisis, including any supply chain interruptions;~~

	●	~~the evolving coffee preferences of coffee consumers in North America and Korea;~~

	●	~~the size and growth of the markets for our products and co-packing services;~~

	●	~~our ability to compete with companies producing similar products or providing similar co-packing services;~~

	●	our expectation that our existing capital resources will be sufficient to fund our operations for ~~at least~~ the next ~~12 months;~~six months and our expectation to need additional capital to fund our planned operations beyond that;

	●	the accuracy of our ~~ability to successfully achieve the anticipated results of strategic transactions, including our acquisition of substantially all of the assets of Dripkit (as defined below);~~estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

	●	our expectations regarding our ability to maintain compliance with the listing requirements of the Nasdaq Capital Market;

	●	the impact to our business, including any supply chain interruptions, resulting from changes in general economic, business and political conditions, including changes in the financial markets and macroeconomic conditions resulting from a pandemic such as COVID-19 or otherwise;

	●	the evolving coffee preferences of coffee consumers in North America and East Asia;

	●	the size and growth of the markets for our products and co-packing services;

	●	our ability to compete with companies producing similar products or providing similar co-packing services;

	●	our ability to successfully achieve the anticipated results of strategic transactions;

	●	our expectation regarding our future co-packing revenues;

	●
	●	our ability to develop or offer innovative new products and services, and expand our co-packing services to other products that are complementary to our current single serve coffee product offerings;

	●	our expectations regarding additional manufacturing, coffee roasting and co-packing capabilities to be provided through our manufacturing partner, as well as our manufacturing partner’s ability to successfully facilitate distribution efforts to the Eastern United States;

	●	our reliance on third-party roasters or manufacturing partners to roast coffee beans necessary to manufacture our products and to fulfill every aspect of our co-packing services;

	●	~~our reliance on third-party roasters to roast coffee beans necessary to manufacture our products~~regulatory developments in the U.S. and ~~fulfill every aspect of our co-packing services;~~in non-U.S. countries;

	●	~~regulatory developments in the U.S. and in non-U.S. countries;~~

	●	our ability to retain key management, sales and marketing personnel;

	●
	●	the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology;

	●	~~the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;~~

	●	our ability to develop and maintain our corporate infrastructure, including our internal control over financial reporting;

	●	the outcome of pending, threatened or future litigation; and

	●	our financial performance.

The forward-looking statements are not meant to predict or guarantee actual results, performance, events, or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in the section of our Annual Report on Form 10-K filed with the SEC on December ~~22, 2021,~~23, 2022, titled “Risk Factors” and sections of this report that describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.

Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

Item 1. Financial Statements

NuZee, Inc.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2022			September 30, 2021			March 31, 2023			September 30, 2022
ASSETS
Current assets:
Cash	$	7,523,099		$	10,815,954		$	4,699,227		$	8,315,053
Accounts receivable, net		573,990			555,238			421,568			345,258
Inventories, net		682,580			573,464			1,229,903			947,995
Prepaid expenses and other current assets		1,174,297			482,288			301,380			547,773
Total current assets		9,953,966			12,426,944			6,652,078			10,156,079

Property and equipment, net		612,296			674,024			402,844			525,075

Other assets:
Right-of-use asset - operating lease		731,419			386,587			519,119			642,624
Investment		171,210			175,425
Goodwill		531,412			-
Investment in unconsolidated affiliate								166,137			169,634
Intangible assets, net		303,556			-			125,000			140,000
Other assets		86,748			79,822			87,223			77,962
Total other assets		1,824,345			641,834			897,479			1,030,220

Total assets	$	12,390,607		$	13,742,802		$	7,952,401		$	11,711,374

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	456,470		$	342,790		$	210,202		$	113,708
Current portion of long-term loan payable		7,890			43,618			8,746			7,947
Current portion of lease liability - operating lease		180,939			150,931			377,005			388,325
Current portion of lease liability - finance lease		30,610			27,833			29,665			24,518
Accrued expenses		492,409			274,009			756,701			706,492
Deferred income		338,317			175,822			322,277			319,707
Other current liabilities		23,353			138,631			73,170			39,241

Total current liabilities		1,529,988			1,153,634			1,777,766			1,599,938

Non-current liabilities:
Lease liability - operating lease, net of current portion		565,825			247,656			142,776			267,786
Lease liability - finance lease, net of current portion		29,696			50,567			6,859			29,622
Loan payable - long term, net of current portion		6,753			12,696			7			4,745
Other noncurrent liabilities		80,817			65,802			81,130			66,484
Total non-current liabilities		683,091			376,721			230,772			368,637

Total liabilities	$	2,213,079		$	1,530,355			2,008,538			1,968,575

Stockholders’ equity:
Common stock; 100,000,000 shares authorized, $0.00001 par value; 19,468,017 and 17,820,390 shares issued and outstanding as of June 30, 2022, and September 30, 2021, respectively	$	194		$	178
Common stock; 200,000,000 shares authorized, $0.00001 par value; 769,239 and 676,229 shares issued and outstanding as of March 31, 2023, and September 30, 2022, respectively								8			7
Additional paid in capital		71,485,715			64,839,254			74,560,942			74,281,418
Accumulated deficit		(61,486,600	)		(52,824,808	)		(68,773,599	)		(64,622,520	)
Accumulated other comprehensive income		178,219			197,823			156,512			83,894
Total stockholders’ equity		10,177,528			12,212,447			5,943,863			9,742,799

Total liabilities and stockholders’ equity	$	12,390,607		$	13,742,802		$	7,952,401		$	11,711,374

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NuZee, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Nine Months Ended June 30, 2022			Nine Months Ended June 30, 2021
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Nine Months Ended June 30, 2022			Nine Months Ended June 30, 2021			Three Months Ended March 31, 2023			Three Months Ended March 31, 2022			Six Months Ended March 31, 2023			Six Months Ended March 31, 2022
Revenues, net	$	774,019		$	510,032		$	2,508,345		$	1,442,083		$	781,166		$	715,073		$	1,917,514		$	1,734,326
Cost of sales		857,672			413,446			2,575,646			1,352,843			744,536			714,092			1,805,352			1,717,974
Gross profit (loss)		(83,653	)		96,586			(67,301	)		89,240
Gross profit														36,630			981			112,162			16,352

Operating expenses		2,546,608			3,165,840			8,554,276			15,103,252			1,982,929			3,196,479			4,260,129			6,007,668
Loss from operations		(2,630,261	)		(3,069,254	)		(8,621,577	)		(15,014,012	)		(1,946,299	)		(3,195,498	)		(4,147,967	)		(5,991,316	)

Loss from equity method investment		(1,919	)		(102	)		(4,215	)		(4,077	)		(1,673	)		(1,139	)		(3,497	)		(2,296	)
Other income		60,672			47,909			145,890			101,623			62,464			42,461			113,202			85,218
Other expense		(60,361	)		(41,992	)		(174,889	)		(120,978	)		(89,387	)		(67,106	)		(125,177	)		(114,528	)
Interest expense, net		(2,023	)		(3,603	)		(7,001	)		(11,278	)
Interest income (expense), net														7,022			(2,415	)		12,360			(4,978	)
Net loss	$	(2,633,892	)	$	(3,067,042	)	$	(8,661,792	)	$	(15,048,722	)	$	(1,967,873	)	$	(3,223,697	)	$	(4,151,079	)	$	(6,027,900	)
Basic and diluted loss per common share	$	(0.14	)	$	(0.17	)	$	(0.47	)	$	(0.94	)	$	(2.80	)	$	(6.17	)	$	(6.02	)	$	(11.62	)

Basic and diluted weighted average number of common stock outstanding		19,332,753			17,820,390			18,475,396			15,938,931			702,862			522,872			689,550			518,711

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NuZee, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	NuZee, Inc.						NuZee, Inc.
For the three months ended June 30	2022			2021
For the three months ended March 31							2023			2022
Net loss	$	(2,633,892	)	$	(3,067,042	)	$	(1,967,873	)	$	(3,223,697	)

Foreign currency translation		(45,197	)		(7,854	)		(42,965	)		(7,095	)
Total other comprehensive loss, net of tax		(45,197	)		(7,854	)		(42,965	)		(7,095	)
Comprehensive loss	$	(2,679,089	)	$	(3,074,896	)	$	(2,010,838	)	$	(3,230,792	)


	NuZee, Inc.						NuZee, Inc.
For the nine months ended June 30	2022			2021
For the six months ended March 31							2023			2022
Net loss	$	(8,661,792	)	$	(15,048,722	)	$	(4,151,079	)	$	(6,027,900	)

Foreign currency translation		(19,604	)		(2,374	)		72,618			25,593
Total other comprehensive loss, net of tax		(19,604	)		(2,374	)
Total other comprehensive loss, net of tax		(19,604	)		(2,374	)
Total other comprehensive income, net of tax								72,618			25,593
Comprehensive loss	$	(8,681,396	)	$	(15,051,096	)	$	(4,078,461	)	$	(6,002,307	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NuZee, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Accumulated
Additional other
Common stock paid-in Accumulated comprehensive
Shares Amount capital deficit income Total

Balance September 30, 2021 17,820,390 $ 178 $ 64,839,254 $ (52,824,808 ) $ 197,823 $ 12,212,447

Exercise of warrants, net of issuance costs 384,447 4 1,721,014 - - 1,721,018
Stock option expense - - 1,124,187 - - 1,124,187
Other comprehensive gain - - - - 32,688 32,688
Net loss - - - (2,804,203 ) - (2,804,203 )
Balance December 31, 2021 18,204,837 $ 182 $ 67,684,455 $ (55,629,011 ) $ 230,511 $ 12,286,137

Warrant issuance costs - - (18,422 ) - - (18,422 )
Common stock issued for cash, ATM offering, net of issuance costs 42,448 - 88,426 - - 88,426
Common stock issued for Dripkit acquisition 178,681 2 386,842 - - 386,844
Stock option expense - - 935,447 - - 935,447
Exercise of stock options 14,000 - 12,600 - - 12,600
Restricted stock award issuance 117,920 1 9,589 - - 9,590
Other comprehensive loss - - - - (7,095 ) (7,095 )
Net loss - - - (3,223,697 ) - (3,223,697 )
Balance March 31, 2022 18,557,886 185 $ 69,098,937 $ (58,852,708 ) $ 223,416 $ 10,469,830
Common stock issued for cash, ATM offering, net of issuance costs 6,878 - $ 6,830 $ - $ - $ 6,830
Equity securities issued for cash, exempt offering, net of issuance costs 884,778 9 1,649,727 - - 1,649,736

Common stock issued to settle Dripkit Bulk Sales Holdback Amount 18,475 - 40,000 - - 40,000
Stock option expense - - 627,895 - - 627,895
Amortization of restricted stock award issued - - 62,326 - - 62,326
Other comprehensive loss - - - - (45,197 ) (45,197 )
Net loss - - - (2,633,892 ) - (2,633,892 )
Balance June 30, 2022 19,468,017 $ 194 $ 71,485,715 $ (61,486,600 ) $ 178,219 $ 10,177,528


											Accumulated
					Additional						other
	Common stock				paid-in			Accumulated			comprehensive
	Shares		Amount		capital			deficit			income			Total
Balance September 30, 2022		676,229	$	7	$	74,281,418		$	(64,622,520	)	$	83,894		$	9,742,799
Stock option expense		-		-		197,108			-			-			197,108
Restricted stock compensation		-		-		62,839			-			-			62,839
Round-up shares issued in reverse split		8,859		-		-			-			-			-
Other comprehensive income		-		-		-			-			115,583			115,583
Net loss		-		-		-			(2,183,206	)		-			(2,183,206	)
Balance December 31, 2022		685,088	$	7	$	74,541,365		$	(66,805,726	)	$	199,477		$	7,935,123

Common stock issued for services		6,000		-		57,120			-			-			57,120
Forgiveness of stock issuance costs		-		-		25,000			-			-			25,000
Stock option expense		-		-		(114,482	)		-			-			(114,482	)
Restricted stock compensation		78,151		1		51,939			-			-			51,940
Other comprehensive loss		-		-		-			-			(42,965	)		(42,965	)
Net loss		-		-		-			(1,967,873	)		-			(1,967,873	)
Balance March 31, 2023		769,239	$	8	$	74,560,942		$	(68,773,599	)	$	156,512		$	5,943,863

Accumulated
Common stock Additional paid-in Accumulated other comprehensive
Shares Amount capital deficit income Total

Balance September 30, 2020 14,570,105 $ 146 $ 40,472,229 $ (34,272,778 ) $ 190,161 $ 6,389,758
Equity securities issued for cash, net of issuance costs 324,959 3 2,683,977 - - 2,683,980
Stock option expense - - 4,507,298 - - 4,507,298
Exercise of stock options 6,000 - 9,180 - - 9,180
Other comprehensive gain - - - - 1,656 1,656
Net loss - - - (5,896,072 ) - (5,896,072 )
Balance December 31, 2020 14,901,064 $ 149 $ 47,672,684 $ (40,168,850 ) $ 191,817 $ 7,695,800
-
Equity securities issued for cash, net of issuance costs 2,782,111 28 11,017,276 - - 11,017,304
Restricted stock award issuance 137,215 1 870,999 - - 871,000
Stock option expense - - 1,989,006 - - 1,989,006
Other comprehensive gain - - - - 3,824 3,824
Net loss - - - (6,085,608 ) (6,085,608 )
Balance March 31, 2021 17,820,390 178 $ 61,549,965 $ (46,254,458 ) $ 195,641 $ 15,491,326

Amortization of restricted stock award issued - - 91,036 - - 91,036
Stock option expense - - 1,506,613 - - 1,506,613
Other comprehensive loss - - - - (7,854 ) (7,854 )
Net loss - - - (3,067,042 ) - (3,067,042 )

Balance June 30, 2021 17,820,390 178 $ 63,147,614 $ (49,321,500 ) $ 187,787 $ 14,014,079

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

~~NuZee, Inc.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

June 30, 2022 June 30, 2021
Nine Months Ended Nine Months Ended
June 30, 2022 June 30, 2021

Operating activities:
Net loss $ (8,661,792 ) $ (15,048,722 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 295,178 254,929
Noncash lease expense 213,539 215,397
Stock option expense 2,687,529 8,002,917
Restricted stock award issuance 71,916 962,036
Property and equipment impairment - 840,391
Sales allowance - (11,563 )
Loss on disposition of asset 12,618 -
Write-off of deferred offering costs - 477,605
Loss from equity method investment 4,215 4,077
Change in operating assets and liabilities:
Accounts receivable (18,752 ) (112,858 )
Inventories (99,452 ) (183,486 )
Prepaid expenses and other current assets (49,464 ) (141,018 )
Other assets (6,926 ) (1,362 )
Accounts payable 112,917 31,540
Deferred income 162,495 61,032
Lease liability – operating lease (210,194 ) (193,118 )
Accrued expenses and other current liabilities (206,140 ) (363,112 )
Other non-current liabilities 15,015 728
Net cash used in operating activities (5,677,298 ) (5,204,587 )

Investing activities:
Purchase of equipment (214,524 ) (141,445 )
Acquisition of Dripkit (413,069 ) -
Net cash used in investing activities (627,593 ) (141,445 )

Financing activities:
Proceeds from issuance of common stock, exercise of options 12,600 9,180
Repayment of loans (41,671 ) (40,407 )
Repayment of finance lease (18,094 ) (15,939 )
Proceeds from issuance of common stock, ATM offering, net of issuance costs 95,256 -
Proceeds from issuance of common stock, exercise of warrants, net of issuance costs 1,702,596 -
Proceeds from issuance of equity securities, exempt offering, net of issuance costs 1,649,736 -
Proceeds from issuance of equity securities, net of issuance costs - 13,701,284
Cash paid for offering costs (368,783) -
Net cash provided by financing activities 3,031,640 13,654,118

Effect of foreign exchange on cash (19,604 ) (2,374 )
Net change in cash (3,292,855 ) 8,305,712
Cash, beginning of period 10,815,954 4,398,545
Cash, end of period $ 7,523,099 $ 12,704,257

Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,077 $ 11,278
Cash paid for taxes $ 800 $ 7,044

Non-cash transactions:
ROU assets and liabilities added during the period $ 558,371 $ -
Common stock issued in acquisition of Dripkit $ 426,844 $ -
Stock issuance costs accrued $ 273,762 $ -

											Accumulated
					Additional						other
	Common stock				paid-in			Accumulated			comprehensive
	Shares		Amount		capital			deficit			income			Total
Balance September 30, 2021		509,154	$	5	$	64,839,427		$	(52,824,808	)	$	197,823		$	12,212,447
Exercise of warrants, net of insurance costs		10,984		-		1,721,018			-			-			1,721,018
Stock option expense		-		-		1,124,187			-			-			1,124,187
Other comprehensive gain		-		-		-			-			32,688			32,688
Net loss		-		-		-			(2,804,203	)		-			(2,804,203	)
Balance December 31, 2021		520,138	$	5	$	67,684,632		$	(55,629,011	)	$	230,511		$	12,286,137
Balance		520,138	$	5	$	67,684,632		$	(55,629,011	)	$	230,511		$	12,286,137

Warrant issuance costs		-		-		(18,422	)		-			-			(18,422	)
Common stock issued for cash, ATM offering		1,213		-		88,426			-			-			88,426
Common stock issued for Dripkit acquisition		5,105		-		386,844			-			-			386,844
Stock option expense		-		-		935,447			-			-			935,447
Exercise of stock options		400				12,600			-			-			12,600
Restricted stock award issuance		3,369		-		9,590			-			-			9,590
Other comprehensive loss		-		-		-			-			(7,095	)		(7,095	)
Net loss		-		-		-			(3,223,697	)		-			(3,223,697	)
Balance March 31, 2022		530,225	$	5	$	69,099,117		$	(58,852,708	)	$	223,416		$	10,469,830
Balance		530,225	$	5	$	69,099,117		$	(58,852,708	)	$	223,416		$	10,469,830

The accompanying notes are an integral part of these unaudited consolidated financial statements.

108

NuZee, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended			Six Months Ended
	March 31, 2023			March 31, 2022

Operating activities:
Net loss	$	(4,151,079	)	$	(6,027,900	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		112,637			166,161
Noncash lease expense		123,505			94,544
Stock option expense		82,626			2,059,634
Issuance of common stock for services		57,120			-
Restricted stock compensation		114,779			9,590
Bad debt expense		67,003			-
Loss on disposition of asset		41,108			12,618
Loss from investment in unconsolidated affiliate		3,497			2,296
Change in operating assets and liabilities:
Accounts receivable		(143,313	)		(91,648	)
Inventories		(281,908	)		(48,156	)
Prepaid expenses and other current assets		246,393			(432,286	)
Other assets		(9,261	)		(25,527	)
Accounts payable		96,494			398,464
Deferred income		2,570			113,209
Lease liability – operating lease		(136,330	)		(91,525	)
Accrued expenses and other current liabilities		109,138			(305,129	)
Other non-current liabilities		14,646			11,627
Net cash used in operating activities		(3,650,375	)		(4,154,028	)

Investing activities:
Purchase of equipment		(16,514	)		(165,689	)
Acquisition of Dripkit		-			(373,832	)
Net cash used in investing activities		(16,514	)		(539,521	)

Financing activities:
Proceeds from issuance of common stock, exercise of options		-			12,600
Repayment of loans		(3,939	)		(28,047	)
Repayment of finance lease		(17,616	)		(11,870	)
Proceeds from issuance of common stock, ATM offering		-			88,426
Proceeds from issuance of common stock, exercise of warrants, net of issuance costs		-			1,702,596
Advances received of sale of equity securities		-			300,000
Net cash provided by (used in) financing activities		(21,555	)		2,063,705

Effect of foreign exchange on cash		72,618			25,593
Net change in cash		(3,615,826	)		(2,604,251	)
Cash, beginning of period		8,315,053			10,815,954
Cash, end of period	$	4,699,227		$	8,211,703

Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,034		$	5,390

Non-cash transactions:
ROU assets and liabilities added during the period	$	-		$	558,371
Common stock issued in acquisition of Dripkit					386,844
Forgiveness of stock issuance costs		25,000			-
Stock issuance costs accrued	$	-		$	97,867

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NuZee, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~June 30, 2022~~March 31, 2023

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements of NuZee, Inc. (together with its subsidiaries, referred to herein as the “Company”, “we” or “NuZee”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2021~~2022 as filed with the SEC on December ~~22, 2021.~~23, 2022. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the Annual Report on Form 10-K for the year ended September 30, ~~2021,~~2022, have been omitted.

~~Reclassification~~

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. We reclassified lease expenses associated with subleased property from Operating expenses to Other expenses totaling $~~118,885~~ ~~for the nine months ended June 30, 2021 and $40,712~~ ~~for the three months ended June 30, 2021. We also reclassified $18,000~~ of capitalized software costs included in Property and Equipment, net at September 30, 2021 to Prepaid expenses and other current assets. These reclassifications had no effect on the previously reported net loss.

Principles of Consolidation

The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

The Company has two wholly owned international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”).

On February 25, 2022 (the “Closing Date”), the Company acquired substantially all the assets and certain specified liabilities (the “Acquisition”) of Dripkit, Inc., a Delaware corporation (“Dripkit”), pursuant to the Asset Purchase Agreement, dated as of February 21, 2022 (the “Asset Purchase Agreement”), by and among the Company, Dripkit, and Dripkit’s existing investors (the “Stock Recipients”) who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the Acquisition was $860,000, plus the assumption of certain assumed liabilities, subject to certain adjustments and holdbacks as provided in the Asset Purchase Agreement. Dripkit is engaged in the business of manufacturing and sales of a single serve pour over coffee format that has a large-size single serve pour over pack that sits on top of the cup. Dripkit operates as a new Dripkit Coffee business division that is wholly owned by NuZee, Inc. The Company analyzed the Acquisition under ASC 805 and concluded that it should be accounted for as a business combination. The Acquisition has been included in the Company’s financial statements from the date of the Acquisition.

2022 Reverse Stock Split

On December 28, 2022, we completed a l-for-35 reverse stock split, which became effective on December 28, 2022 upon acceptance of the Company’s filing of an amendment to the Company’s Articles of Incorporation, as amended, with the Secretary of State of Nevada (the “Reverse Stock Split”). Accordingly, each holder of common stock received one share of common stock for every 35 shares such stockholder held immediately prior to the effectiveness of the Reverse Stock Split.

All share and per share information included in these financial statements and notes thereto have been retroactively adjusted to give effect to the Reverse Stock Split.

1110

Earnings per Share

Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of ~~June 30,~~March 31, 2023, and March 31, 2022, ~~and June 30, 2021,~~ the total number of common stock equivalents was ~~9,706,438~~256,291 and ~~8,289,864~~249,771, respectively, comprised of stock options and warrants as of ~~June 30, 2022~~March 31, 2023 and ~~June 30, 2021.~~March 31, 2022. The Company incurred a net loss for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively, and therefore basic and diluted earnings per share for ~~those~~these periods are the same because all potential common equivalent shares would be antidilutive.

Going Concern and Capital Resources

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, raising capital and the commercialization and manufacture of its single serve coffee ~~products.~~products. The Company has ~~generated limited~~grown revenues from its principal ~~operations, and~~operations; however, there is no assurance of future ~~revenues.~~revenue growth similar to historical levels.

As of ~~June 30, 2022,~~March 31, 2023, the Company had cash of $~~7,523,099~~4,699,227 and working capital of $4,874,312. ~~However, the~~The Company has not attained profitable operations since inception.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP, which contemplates continuation of the Company as a going concern. The Company has had limited revenues, recurring losses and an accumulated deficit. These items raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying unaudited interim 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 and to raise additional capital for the further development and marketing of the Company’s products and business.

Major Customers

In the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ revenue was primarily derived from major customers disclosed below.

SCHEDULE OF REVENUE BY MAJOR CUSTOMERS

~~Nine~~Six months ended ~~June 30,~~March 31, 2023:

Customer Name

Sales

Amount

% of Total

Revenue

Accounts

Receivable

Amount

% of Total

Accounts

Receivable

Customer CL

273,885

214,791

Customer CN

383,248

15,573

Six months ended March 31, 2022:

Customer Name	Sales Amount		% of Total Revenue			Accounts Receivable Amount		% of Total Accounts Receivable			Sales Amount		% of Total Revenue			Accounts Receivable Amount		% of Total Accounts Receivable
Customer WP	$	660,997		26	%	$	239,579		42	%	$	520,208		30	%	$	190,978		30	%
Customer CU	$	252,137		10	%	$	52,564		9	%		252,137		15	%		189,768		29	%
Customer S	$	242,580		10	%	$	62,590		11	%

~~Nine months ended June 30, 2021:~~

Customer Name Sales Amount % of Total Revenue
Accounts Receivable
Amount
% of Total Accounts Receivable
Customer WP $ 456,247 32 % $ 124,814 39 %

Lease

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The Company implemented ASU No. 2016-02 on October 1, 2019.

The Company performs a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. The Company has a long-term operating lease for office and manufacturing space in Plano, Texas. The leased property in Plano, Texas, has a remaining lease term through June 2024. The lease has an option to extend beyond the stated termination date, but exercise of this option is not probable. The Company did not apply the recognition requirements of ASC 842 to operating leases with a remaining lease term of 12 months or less.

~~During our analysis of leases in~~In May 2022, the ~~nine months ended June 30, 2022, we determined to renew~~Company renewed the office and manufacturing space in Vista, California through March 31, 2025, which was scheduled to expire on January 31, 2023 ~~through~~ ~~March 31, 2025~~. The lease has a monthly base rent of $8,451, plus common area expenses. Along with the extension, we leased an additional 1,796 square feet that has a monthly base rent of $2,514 through March 31, ~~2025.~~2025. We extended our sub-leased property in Vista, California through January 31, ~~2023~~.2023. The lease has a monthly rent of $2,111 and has been calculated as a ROU Asset co-terminus with the ~~direct-leased~~direct leased property. The ~~Seoul, Korea office and manufacturing space lease was extended through June 2022 and there is an apartment leased through June 2022. Additionally, the~~ Company leased a new larger office and manufacturing space in Seoul, Korea beginning November 15, 2021, through November 15, 2023. The lease has a monthly expense of $7,040. Accordingly, we have added ROU ~~assets~~Assets and ~~lease liabilities~~Lease Liabilities related to those leases at ~~June~~March 31, 2023.

Effective December 1, 2022, we entered into a new operating lease for our principal executive office, which is located at 1350 East Arapaho Road, Suite #230, Richardson, Texas 75081. We lease the Richardson office on an annual basis, at a cost of $1,510 per month, through November 30, ~~2022.~~2023.

As of ~~June 30, 2022,~~March 31, 2023, our operating leases had a weighted average remaining lease term of ~~1.6~~1.2 years and a weighted-average discount rate of ~~5.5%~~5.0%. Other information related to our operating leases is as follows:

SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE


ROU Asset – October 1, 2021	$	386,587
ROU Asset – October 1, 2022				$	642,624
ROU Asset added during the period		558,371			-
Amortization during the period		(213,539	)		(123,505	)
ROU Asset – June 30, 2022	$	731,419
Lease Liability – October 1, 2021	$	398,587
ROU Asset – March 31, 2023				$	519,119
Lease Liability – October 1, 2022				$	656,111
Lease Liability added during the period		558,371			-
Amortization during the period		(210,194	)		(136,330	)
Lease Liability – June 30, 2022	$	746,764
Lease Liability – March 31, 2023				$	519,781

Lease Liability – Short-Term	$	180,939		$	377,005
Lease Liability – Long-Term		565,825			142,776
Lease Liability – Total	$	746,764		$	519,781

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of ~~June 30, 2022:~~March 31, 2023:

Amounts due within twelve months of ~~June 30,~~March 31,

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES


2024	$	392,186
2025		166,582
Total Minimum Lease Payments		558,768
Less Effect of Discounting		(38,987	)
Present Value of Future Minimum Lease Payments		519,781
Less Current Portion of Operating Lease Liabilities		377,005
Long-Term Operating Lease Liabilities	$	142,776

2023 $ 292,775
2024 322,280
2025 186,759
Total Minimum Lease Payments 801,814
Less Effect of Discounting (55,050 )
Present Value of Future Minimum Lease Payments 746,764
Less Current Portion of Operating Lease Liabilities 180,939
Long-Term Operating Lease Liabilities $ 565,825

On October 9, 2019, the Company entered into a lease agreement with Alliance Funding Group which provided for a sale lease back on certain packing equipment. The terms of this agreement require us to pay $2,987 per month through July 2024. As part of this agreement, Alliance Funding Group provided our equipment supplier with $124,500 for the purchase of this equipment. This transaction was accounted for as a finance lease. As of ~~June 30, 2022,~~March 31, 2023, our finance lease had a remaining lease term of ~~1.9~~1.2 years and a discount rate of ~~12.75%~~12.75%. The interest expense on finance lease liabilities for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was $~~6,741~~2,033.

~~During the year ended September 30, 2021, we recorded an impairment to fully write off the related equipment as it was deemed no longer useful for our operations.~~

The table below summarizes future minimum finance lease payments at ~~June 30, 2022~~March 31, 2023 for the twelve months ended ~~June 30:~~March 31:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES


2022	$	33,113
2023		33,113		$	33,113
2024		2,759			11,037
Total Minimum Lease Payments		68,985			44,150
Amount representing interest		(8,679	)		(7,626	)
Present Value of Minimum Lease Payments		60,306			36,524
Current Portion of Finance Lease Obligations		30,610			29,665
Finance Lease Obligations, Less Current Portion	$	29,696		$	6,859

~~Rent expense~~Lease expenses included in ~~Operating~~operating expense for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~221,972~~129,292 and $~~132,279~~123,373, respectively. ~~Rent~~Lease expense, which represents sublease expense included in Other expense for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~157,267~~80,205 and $~~118,885~~99,209, respectively.

Cash and non-cash activities associated with the leases for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 are as follows:

SCHEDULE OF CASH AND NON-CASH ACTIVITIES OF LEASES


Operating cash outflows from operating leases:	$	216,334	$	160,271
Operating cash outflows from finance lease:	$	6,741	$	2,033
Financing cash outflows from finance lease:	$	18,094	$	17,616

In September 2020, we subleased the space at 1700 Capital Avenue in Plano, Texas, effective October 1, 2020, under terms that are co-terminus with the original lease ending June 30, 2024. During the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, we recognized sublease income of $~~140,753~~90,263 pursuant to the sublease included in Other income on our financial statements. Future minimum lease payments to be received under that sublease as of ~~June 30, 2022,~~March 31, 2023, for each of the twelve months ended ~~June 30~~March 31 are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE


2023	$	126,017
2024		129,835	$	128,881
2025				32,459
Total	$	255,852	$	161,340

Loans

On April 1, 2019, we purchased a delivery van from Ford Motor Credit for $41,627. The Company paid $3,500 as a down payment and financed $38,127 for 60 months at a rate of 2.9%. The loan is secured by the van. The outstanding balance on the loan at ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021~~2022 amounted to $~~14,643~~8,753 and $~~20,146~~12,692, respectively.

The remaining loan payments ~~are as follows:~~for each of the twelve months ended March 31:

SCHEDULE OF LOAN PAYMENTS

Ford Motor
Credit

2022 (Jul 2022 - Sep 2022) $ 1,951
2023 (Oct 2022 - Jun 2023) 5,939
Total Current Portion $ 7,890

2023 (Jul 2023 - Sep 2023) $ 6,753
Total Long-Term Portion $ 6,753

Grand Total $ 14,643

~~On February 15, 2019, NuZee KR entered into equipment financing for production equipment with Shin Han Bank for $60,563. In June 2019, NuZee KR purchased additional equipment and increased the loan with Shin Han Bank by $86,518. The financing had a term of~~ 36 ~~months at a rate of~~ ~~4.33%. Principal payments began in July 2019. The outstanding balance on this loan at June 30, 2022 and September 30, 2021 amounted to $~~0 ~~and $35,898, respectively. This loan was paid in full in this reporting period.~~

	Ford Motor Credit
2024	$	8,746
2025		7
Grand Total	$	8,753

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of October 1, 2018, on a modified retrospective basis. The adoption of Topic 606 did not have a material impact on our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations.

Foreign Currency Translation

The financial position and results of operations of each of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of each such subsidiary have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustments recorded to other comprehensive ~~loss~~income amounted to $($~~19,604~~72,618) and $($~~2,374~~25,593) for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Prepaid expenses and other current assets

Prepaid expenses and other current assets at ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021,~~2022, were as follows:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

June 30,
2022

September 30,
2021

Prepaid expenses and other current assets $ 1,174,297 $ 482,288

		March 31, 2023				September 30, 2022
Prepaid expenses and other current assets		$	301,380			$	547,773

The prepaid expenses and other current assets balance of $~~1,174,297~~ 301,380as of ~~June~~March 31, 2023 primarily consists of deposits on inventory purchases and facilities, prepaid insurance, and rent. The balance of $547,773 as of September 30, 2022 primarily consists of ~~deferred financing costs related to our ATM offering of $368,783~~ ~~and our underwritten public offering completed in August 2022 of $273,762 (see Note 8—Subsequent Events), prepaid insurance and~~ deposits ~~and the balance of $482,288~~ ~~as of September 30, 2021 primarily consists of prepaid insurance~~on inventory and a ~~customer deposit.~~retainer for professional services.

Inventories

Inventory, consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of cost 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 ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021,~~2022, the carrying value of inventory was $~~682,580~~1,229,903 and $~~573,464~~947,995, respectively.

SCHEDULE OF INVENTORY

June 30,
2022

September 30,
2021

Raw materials $ 638,444 $ 552,621
Finished goods 44,136 20,843
Less – Inventory reserve - -
Total $ 682,580 $ 573,464

	March 31, 2023		September 30, 2022
Raw materials	$	1,134,311	$	887,632
Finished goods		95,592		60,363
Total	$	1,229,903	$	947,995

~~Joint Venture~~Equity Method Investment

On January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (50%) and the Company (50%) forming NuZee LATIN AMERICA (NLA), S.A. de C.V. NLA was formed pursuant to the laws of Mexico, with corporate domicile in ~~Mazatlan,~~Mazatlán, Mexico. As part of the capitalization of NLA, the Company contributed two co-packing machines to the joint venture. These machines had an aggregate carrying cost of $313,012. The Company received $110,000 in cash for this contribution and recorded an investment in NLA of $160,000 and a loss of $43,012 on the contribution of the machines to NLA.

The Company accounts for NLA using the equity method of accounting since the management of day-to-day operations at NLA ultimately lies with the Company’s joint venture partner as the operations of NLA are based in its partners facilities and our partner appoints the Chairman of the joint board of directors of NLA. As of ~~June 30, 2022,~~March 31, 2023, the only activities in NLA were the contribution of two machines, as described above, and start up and initial marketing and sales activities. $~~4,215~~3,497 and $~~4,077~~2,296 of losses were recognized under the equity method of accounting during the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and March 31, 2022, ~~and June 30, 2021,~~ respectively.

2. GEOGRAPHIC CONCENTRATION

The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis. The Company is organized in three geographical segments. The Company co-packs product for customers and produces and sells its products directly in North America and Korea. The Company ~~has~~previously had a minimally staffed office in Japan that ~~provides~~provided support for import and export of product and materials between the U.S. and Japan, as well as investor relations support to ~~our shareholders~~its stockholders based in ~~Japan.~~Japan; these functions are now supported by the Company’s personnel residing in the United States. Information about the Company’s geographic operations for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ are as follows:

Geographic Concentration

SCHEDULE OF ~~GEOGRAPHIC~~GEOGRAPHICAL OPERATIONS

	Nine Months Ended		Nine Months Ended		Six Months Ended		Six Months Ended
	June 30, 2022		June 30, 2021		March 31, 2023		March 31, 2022
Net Revenue:
North America	$	2,031,781	$	1,077,986	$	1,006,717	$	1,401,285
South Korea		476,564		364,097		910,797		333,041
Net Revenue	$	2,508,345	$	1,442,083	$	1,917,514	$	1,734,326

Property and equipment, net: As of
June 30, 2022 As of
September 30, 2021
North America $ 400,842 $ 517,966
South Korea 209,254 154,562
Japan 2,200 1,496
Property and equipment, net $ 612,296 $ 674,024

3. ~~RELATED PARTY TRANSACTIONS~~

~~For the nine months ended June 30, 2022 and June 30, 2021, respectively, the Company had sales of $~~0 ~~and $28,299~~ ~~of materials to NLA.~~

Property and equipment, net:	As of March 31, 2023		As of September 30, 2022
North America	$	230,318	$	378,546
South Korea		171,376		144,865
Japan		1,150		1,664
Property and equipment, net	$	402,844	$	525,075

1615

4.3. BUSINESS COMBINATIONS

As described in Note 1, on February 25, 2022, the Company acquired substantially all the assets and certain specified liabilities of Dripkit pursuant to the Asset Purchase Agreement, dated as of February 21, 2022, by and among the Company, Dripkit, and Dripkit’s ~~existing~~ investors who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the Acquisition was $860,000, consisting of cash paid by the Company to Dripkit and the Company’s issuance to the Stock Recipients of shares of the Company’s common stock, plus the assumption of certain assumed liabilities, including a $13,000 bridge loan and approximately $3,176 of payables, subject to certain adjustments and holdbacks as provided in the Asset Purchase Agreement resulting in an acquisition accounting purchase price of $876,176. The Company analyzed the Acquisition under ASC 805 and concluded that it should be accounted for as a business combination.

Pursuant to the terms of the Asset Purchase Agreement, on the Closing Date, the cash portion of the purchase price was reduced by the following amounts: (a) $22,000, in satisfaction of a bridge loan made from the Company to Dripkit in February 2022 to provide Dripkit with operational financing prior to the Closing Date, (b) $35,500, as an indemnity holdback for the purpose of satisfying any indemnification claims made by the Company pursuant to the Asset Purchase Agreement, and (c) $40,000, as a cash bulk sales holdback (the “Cash Bulk Sales Holdback Amount”).. In addition, on the Closing Date, the Company held back $40,000 worth of stock consideration as the Stock Bulk Sales Holdback Amount (together with the Cash Bulk Sales Holdback Amount, the “Bulk Sales Holdback Amount”).

On the Closing Date, after adjustments and holdbacks under the Asset Purchase Agreement, the Company paid the aggregate purchase price as follows: (i) cash paid by the Company to Dripkit was $257,000, and (ii) the Company issued to the Stock Recipients an aggregate of ~~178,681~~5,105 shares of the Company’s common stock. The Company repaid the entire outstanding principal amount of Dripkit’s Small Business Association Economic Injury Disaster Loan in the amount of $78,656. In addition, the Company recorded a liability on its balance sheet in Accounts Payable of $115,500 related to potential future amounts due related to the Bulk Sales Holdback of $80,000 and the indemnity holdback of $35,500.

In the ~~quarter~~year ended ~~June~~September 30, 2022, pursuant to the terms of the Asset Purchase Agreement, the Bulk Sales Holdback Amount was used to satisfy sales and use taxes owed by Dripkit to the State of New York as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the amounts remaining after offsetting the cost of these sales and use taxes were distributed as ~~follows in the quarter ended June 30, 2022:~~follows: (i) $39,237 was distributed to Dripkit on May 9, 2022, in connection with the Cash Bulk Sales Holdback Amount, and (ii) ~~18,475~~528 shares of common stock were issued to the Stock Recipients on April 25, 2022, in connection with the Stock Bulk Sales Holdback Amount.

Dripkit was acquired for purposes of supplementing our current product offerings. Dripkit operates as a ~~new~~ Dripkit Coffee business division that is wholly-owned by NuZee, Inc.

The following table presents the allocation of the aggregate purchase price paid by the Company for the Acquisition of $860,000, plus the assumption of certain assumed liabilities, including a $13,000 bridge loan and approximately $3,176 of payables, resulting in an acquisition accounting purchase price of $876,176, to the assets acquired for the acquisition of Dripkit:

SCHEDULE OF ALLOCATION OF AGGREGATE PURCHASE PRICE


Total purchase price	$	876,176
Assets acquired:
Inventory	$	9,664
Property and equipment		5,100
Identifiable intangible assets		330,000
Total assets acquired	$	344,764

Estimated fair value of net assets acquired	$	344,764
Goodwill	$	531,412

Identified Intangibles ~~and Goodwill~~

The Company identified tradename and customer relationships as intangible ~~assets. The~~assets in connection with the Acquisition. Any tradename and customer ~~relationships~~relationship intangible assets will be amortized on a straight-line basis over their respective estimated useful lives. The goodwill recognized ~~results~~resulted from such factors as an assembled workforce and management’s industry know-how. During the year ended September 30, 2022, we recorded a non-cash impairment charge of $531,412 related to goodwill, resulting in a $0 goodwill balance as of September 30, 2022. During the year ended September 30, 2022, we also recorded non-cash impairment charges for the Dripkit tradename and acquired customer relationships of $80,555 and $63,167, respectively. See Note ~~5—Goodwill and~~ 4—Intangible Assets for additional information on ~~identified~~our tradename intangible assets, ~~and goodwill.~~which were the only intangible assets remaining as of March 31, 2023.

~~The nine months ended June 30, 2022 includes the operating results of Dripkit for the period from February 25, 2022, the date of acquisition, to June 30, 2022.~~ The consolidated statement of operations for the ~~three and nine~~six months ended ~~June 30, 2022~~March 31, 2023 includes ~~revenue~~revenues of ~~approximately~~ $~~30,164~~ ~~and $32,645~~77,651, ~~respectively,~~ net loss of ~~approximately~~ $~~109,249~~ ~~and $122,370~~219,524, ~~respectively,~~ and amortization expense of ~~approximately~~ $~~19,833~~ ~~and $26,444~~15,000, ~~respectively,~~ contributed by Dripkit.

~~During the nine months ended June 30, 2022, the Company incurred $270,478~~ ~~of transaction costs related to the Acquisition which are included in Operating expenses.~~

Unaudited Pro forma Financial Information

The following unaudited proforma financial information presents the combined results of operations of the Company and gives effect to the Dripkit Acquisition for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022, ~~and 2021,~~ as if the Acquisition had occurred ~~as of the beginning of the first period presented~~on October 1, 2021 instead of on February 25, 2022.

The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Acquisition had been completed on October 1, 2021, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.

The following is the proforma financial information for the Company and ~~Dripkit is as follows:~~Dripkit:

SCHEDULE OF UNAUDITED PRO FORMA FINANCIAL INFORMATION


	For the three months ended June 30,				For the nine months ended June 30,				For the three months ended March 31,		For the six months ended March 31,
Description	2022		2021		2022		2021		2022		2022
Revenues	$	774,019	$	631,744	$	2,585,802	$	1,787,270	$	772,165	$	1,811,693
Net loss	$	2,624,975	$	3,101,583	$	8,491,254	$	15,234,435	$	3,025,896	$	5,866,279

For purposes of the pro forma disclosures above, the primary adjustments for the three ~~months~~ and ~~nine~~six months ended ~~June 30,~~March 31, 2022 include the elimination of transaction costs of approximately $~~8,917~~244,622 and $~~270,478~~261,561~~, respectively.~~.

5.4. ~~GOODWILL AND~~ INTANGIBLE ASSETS

~~Changes in goodwill for the nine months ended June 30, 2022, consists of the following:~~

~~SCHEDULE OF CHANGES IN GOODWILL~~

June 30, 2022
Balance at September 30, 2021 $ -
Dripkit acquisition 531,412
Balance at June 30, 2022 $ 531,412

As of ~~June 30, 2022,~~March 31, 2023, the Company’s intangible assets consisted of the following:

SCHEDULE OF INTANGIBLE ASSETS

Amortization June 30, 2022

Period
(Years)
Gross Accumulated
Amortization Net
Tradenames 5 $ 230,000 $ 15,333 $ 214,667
Customer relationships 3 100,000 11,111 88,889
Balance at June 30, 2022 $ 330,000 $ 26,444 $ 303,556

	Amortization		March 31, 2023
	Period (Years)		Gross		Accumulated Amortization		Net
Tradenames		5	$	140,000	$	15,000	$	125,000

Amortization expense of intangible assets was $~~26,444~~15,000 for the ~~nine~~six months ended ~~June 30, 2022.~~March 31, 2023.

6.5. ISSUANCE OF EQUITY SECURITIES

Restricted Stock Awards

On March 17, 2022, pursuant to the Company’s non-employee director compensation policy, the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) granted 674 restricted shares (the “Restricted Shares”) of the Company’s common stock to each of the Company’s five independent directors pursuant to the NuZee, Inc. 2013 Stock Incentive Plan, totaling 3,370 Restricted Shares. These awards are now fully vested. On March 22, 2023, pursuant to the Company’s non-employee director compensation policy, the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) granted 4,398 restricted shares (the “Restricted Shares”) of the Company’s common stock to each of the Company’s five independent directors pursuant to the NuZee, Inc. 2023 Stock Incentive Plan, totaling 21,990 Restricted Shares. The Restricted Shares are scheduled to vest in full on the one-year anniversary of the grant date, subject to each independent director’s continued service as a director of the Company. The Company recognized common stock compensation expense of $114,779and $9,590, respectively, for the six months ended March 31, 2023 and 2022, related to these Restricted Shares. The Restricted Shares are valued using the closing stock price on the grant date and the Company is expensing these restricted share awards on a straight-line basis over the requisite service period.

On March 15, 2023, the Company granted 58,619 performance-based restricted shares to executive officers, employees and consultants as part of the 2013 Stock Incentive Plan and the 2019 Stock Incentive Plan. The initial performance period for the Performance-Based Restricted Shares commenced October 1, 2022 and ends September 30, 2023.

50% of the Performance-Based Restricted Shares will vest, if at all, in Fiscal Year 2023, based on the Company’s achievement of a specified amount of cash on hand, sales growth, increased gross margin, and reduced operating losses in Fiscal Year 2023, and the other 50% of the Performance-Based Restricted Shares will vest, if at all, in Fiscal Year 2024, based on performance metrics to be set by the Board in its sole and absolute discretion on or before December 31, 2023. Based on management’s estimate as of March 31, 2023, the performance goals for Fiscal Year 2023 won’t be achieved and the Company recognized common stock compensation expense of $0 for the six months ended March 31, 2023, related to these Restricted Shares.

The following table summarizes the restricted common shares activities for the six months ended March 31, 2023 and March 31, 2022:

SCHEDULE OF RESTRICTED COMMON SHARES

	2023			2022
Number of shares outstanding at September 30, 2022 and 2021		3,370			-
Restricted shares granted		80,609			3,370
Restricted shares forfeited		(2,458	)		-
Restricted shares vested		(3,370	)		-
Number of shares outstanding at March 31, 2023 and 2022		78,151			3,370

During the six months ended March 31, 2023, 2,458 restricted shares were forfeited because of the termination of employment.

Common stock issued for services

On January 6, 2023, the Company issued 6,000 shares of common stock to a third-party unaffiliated professional services provider in exchange for certain consulting advice to be provided to the Company. The shares are valued using the closing stock price on the grant date and the Company recognized common stock compensation expense of $57,120 for the six months ended March 31, 2023, related to these common stock shares.

Exercise of Warrants

In the ~~nine~~six months ended ~~June 30,~~March 31, 2022, we issued 384,447 shares of common stock related to exercises of 2021 Warrants (as defined below), including 380,447 shares of common stock issued upon exercise of 380,447 Series A Warrants (as defined below) and 4,000 shares of common stock issued upon exercise of 8,000 Series B Warrants (as defined below). In connection with such exercises, in the ~~nine~~six months ended ~~June 30,~~March 31, 2022, we received aggregate net proceeds of $1,702,596.

~~ATM Offering~~

On December 28, 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Maxim Group LLC, as agent (the “Agent”), pursuant to which we could offer and sell, from time to time, shares of our common stock throughNo warrants have been exercised in the ~~Agent in “at-the-market-offerings”, as defined in Rule 415 under the Securities Act, having an aggregate offering price of up to $20,000,000, subject to any applicable limits when using Form S-3. Pursuant to the Equity Distribution Agreement, we paid the Agent a commission rate, in cash, equal to~~ ~~3.0%~~ of the aggregate gross proceeds from each sale of shares of our common stock under the Equity Distribution Agreement. The offer and sale of shares of our common stock were made pursuant to a shelf registration statement on Form S-3 and the related prospectus (File No. 333-248531) initially filed by us with the SEC on September 1, 2020, and declared effective by the SEC on October 2, 2020, under the Securities Act. We were not obligated to make any sales of shares of our common stock under the Equity Distribution Agreement. ~~In the nine~~six months ended ~~June 30, 2022, we issued and sold~~ ~~49,326~~ ~~shares of our common stock under the Equity Distribution Agreement, raising net proceeds of $95,256. In connection with such sales, we paid compensation to the Agent in the amount of $3,003. As further described in Note 8 – Subsequent Events, we terminated the Equity Distribution Agreement on August 5, 2022.~~March 31, 2023.

~~Grant of Restricted Stock Awards to the Company’s Independent Board Members~~

~~April 2022 Exempt Offering~~

~~On April 13, 2022, pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Securities Act, the Company sold~~ ~~884,778~~ ~~units (the “2022 Units”), at a price of $2.00~~ ~~per 2022 Unit for aggregate net proceeds of $1,649,736~~, with each 2022 Unit consisting of (a) one share of our common stock and (b) one warrant (each, a “2022 Warrant” and collectively, the “2022 Warrants”) to purchase one whole share of our common stock with an initial exercise price of $~~2.00~~ ~~per share.~~

7.6. STOCK OPTIONS AND WARRANTS

Options

During the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, the Company granted ~~100,000~~no new stock options, ~~issued~~ ~~14,000~~did not issue any shares upon the exercise of outstanding stock options, and had ~~223,500~~9,757 stock options that were forfeited and expired because of the termination of ~~employment.~~employment and expiration of options.

The fair value of each option award granted in the nine months ended June 30, 2022 was estimated on the date of grant using the Black-Scholes option valuation model using the assumptions noted as follows: expected volatility was based on the historical volatility of a peer group of companies. The expected term of options granted was determined using the simplified method under SAB 107 which 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 Black-Scholes option pricing model was used with the following weighted average assumptions for options granted during the nine months ended June 30, 2022:~~

~~SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS FOR FAIR VALUE MEASUREMENT OF OPTIONS GRANTED~~

June 30, 2022
Risk-free interest rate 2.38 %
Expected option life 6 years
Expected volatility 70.53 %
Expected dividend yield 0.00 %
Exercise price $ 2.16

The following table summarizes stock option activity for the ~~nine~~six months ended ~~June 30, 2022:~~March 31, 2023:

SUMMARY OF STOCK OPTION ACTIVITY

Number of Shares
Weighted Average
Exercise
Price
Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value
Outstanding at September 30, 2021 4,511,691 $ 4.73 8.4 $ 452,206
Granted 100,000 2.16
Exercised (14,000 ) 0.90
Expired - -
Forfeited (223,500 ) 13.16
Outstanding at June 30, 2022 4,374,191 $ 4.25 7.8 $ -
Exercisable at June 30, 2022 1,932,379 $ 4.92 6.8 $ -

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at October 1, 2022		113,650		$	149.88		7.4	$	1,207
Forfeited and expired		(9,757	)		120.25		-		-
Outstanding at March 31, 2023		103,893		$	152.66		6.7	$	1,909
Exercisable at March 31, 2023		69,579		$	171.68		6.2	$	-

The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expense of $~~2,687,529~~82,626 and $~~8,002,917~~2,059,634 for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and March 31, 2022, ~~and June 30, 2021,~~ respectively. Unamortized option expense as of ~~June 30, 2022,~~March 31, 2023, for all options outstanding amounted to $~~1,808,520~~218,123. These costs are expected to be recognized over a weighted average period of ~~1.4~~0.93 years.

A summary of the status of the Company’s nonvested options as of ~~June 30, 2022,~~March 31, 2023, is presented below:

SUMMARY OF UNVESTED SHARES

Nonvested options

	Number of Nonvested Options			Weighted Average Grant Date Fair Value		Number of Nonvested Options			Weighted Average Grant Date Fair Value
Nonvested options at September 30, 2021		2,870,799		$	5.02
Nonvested options at October 1, 2022							50,009		$	154.24
Granted		100,000			2.16		-			-
Forfeited		(54,333	)		4.43		(8,883	)		107.79
Vested		(474,653	)		5.90		(6,812	)		283.56
Nonvested options at June 30, 2022		2,441,813		$	4.74
Nonvested options at March 31, 2023							34,314		$	140.60

Warrants

~~On June 23, 2020, as part of our agreement with Benchmark~~During the six months ended March 31, 2023, the Company ~~LLC, the underwriter of the Company’s June 2020 registered public offering~~granted no new warrants to purchase shares of common stock ~~we issued~~ ~~40,250~~ ~~warrants (the “2020 Warrants”) to purchase our common stock at an exercise price of $9.00~~ ~~a share. The 2020 Warrants became exercisable on December 23, 2020~~ and ~~expire on June 18, 2025.~~

~~On March 19, 2021, we entered into an underwriting agreement in connection with our registered public offering of~~ ~~(i)~~ ~~2,777,777~~ ~~units (the “2021 Units”), at a price to the public of $4.50~~ per 2021 Unit, with each 2021 Unit consisting of (a) one share of our common stock, (b) one Series A Warrant, and (c) one Series B Warrant (together with the Series A Warrants, the “2021 Warrants”), and (ii) 416,666 Series A Warrants and 416,666 Series B Warrants, each pursuant to the underwriter’s full exercise of their overallotment option with respect to such warrants.

~~Each Series A Warrant entitles the registered holder to purchase one share of our common stock at an exercise price of $4.50~~ ~~per share. Each Series B Warrant entitles the registered holder thereof to purchase one-half of a share of our common stock at an exercise price of $5.85~~ ~~per whole share. The 2021 Warrants have a term of~~ 5 ~~years.~~

The Series A and Series B Warrant holders are obligated to pay the exercise price in cash upon exercise of the 2021 Warrants unless we fail to maintain a current prospectus relating to the common stock issuabledid not issue any shares upon the exercise of ~~the 2021 Warrants (in which case, the 2021 Warrants may only be exercised via a “cashless” exercise provision).~~

~~On April 13, 2022, pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Securities Act, the Company sold~~ ~~884,778~~ ~~2022 Units, with each 2022 Unit consisting of (a) one share of our common stock and (b) one 2022 Warrant. Each 2022 Warrant entitles the holder~~outstanding warrants to purchase ~~one share~~shares of ~~our~~ common ~~stock at an exercise price of $2.00~~ ~~per share. The 2022 Warrants have a term of~~ 5 ~~years. Holders may exercise their 2022 Warrants on a “cashless” basis pursuant to a formula set forth in the form of 2022 Warrant.~~stock.

The following table summarizes warrant activity for the ~~nine~~six months ended ~~June 30, 2022:~~March 31, 2023:

SCHEDULE OF WARRANT ACTIVITY

Number of Shares Issuable Upon Exercise of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value
Outstanding at September 30, 2021 4,831,915 $ 4.98 4.5 $ -
Issued 884,778 2.00
Exercised (384,447 ) 4.51
Expired - -
Outstanding at June 30, 2022 5,332,246 $ 4.52 3.9 -
Exercisable at June 30, 2022 5,332,246 $ 4.52 3.9 $ -

~~In the nine months ended June 30, 2022, we issued~~ ~~384,447~~ ~~shares of common stock related to exercises of 2021 Warrants, including~~ ~~380,447~~ ~~shares of common stock issued upon exercise of~~ ~~380,447~~ ~~Series A Warrants and~~ ~~4,000~~ ~~shares of common stock issued upon exercise of~~ ~~8,000~~ ~~Series B Warrants. In connection with such exercises, in the nine months ended June 30, 2022, we received aggregate net proceeds of $1,702,596~~.

8. ~~SUBSEQUENT EVENTS~~

~~Termination of Equity Distribution Agreement~~

On August 5, 2022, we terminated our Equity Distribution Agreement with the Agent. See Note 6—Issuance of Equity Securities for additional information regarding the Equity Distribution Agreement. Prior to termination, we issued and sold ~~49,326~~ ~~shares of our common stock under the Equity Distribution Agreement, raising net proceeds of $95,256~~.

~~August 2022 Underwritten Public Offering~~

~~On August 10, 2022, we completed an underwritten public offering (the “Offering”) of~~ ~~4,200,000~~ shares of our common stock, pursuant to an Underwriting Agreement dated as of August 7, 2022 and a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-248531). The aggregate gross proceeds from the Offering were approximately $~~3.4~~ ~~million. We received proceeds of approximately $3.2~~ ~~million, after deducting underwriting discounts and before deducting Offering costs payable by us.~~

	Number of Shares Issuable Upon Exercise of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at September 30, 2022		152,398	$	158.24		3.7	$	-
Issued		-		-
Exercised		-		-
Expired		-		-
Outstanding at March 31, 2023		152,398	$	158.24		3.2		-
Exercisable at March 31, 2023		152,398	$	158.24		3.2	$	-

7. Contingency

Steeped Litigation

The Company has an accrual of $150,000 for litigation costs related to the ongoing Stepped complaint regarding infringement upon their registered trademark. This accrual is based on the initial settlement proposed by the opposing party. This settlement was declined by the Company, and it has decided to take this accrual to cover any costs relating to this complaint.

2119

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a specialty coffee company and, we believe, a leading co-packer of single serve pour over coffee in the United States, as well as a preeminent co-packer of coffee brew bags, which is also referred to as tea-bag style coffee. In addition to our ~~portfolio of innovative~~ single serve pour over and coffee brew bag coffee products, we have ~~recently~~ expanded our product portfolio to offer a third type of single serve coffee format, DRIPKIT pour over products, as a result of our acquisition of substantially all of the assets of Dripkit, Inc. (“Dripkit”) ~~in February 2022, as further described below.~~. Our ~~new, premium~~ DRIPKIT pour over format features a large-size single serve pour over pack that sits on top of the cup and delivers in our view a barista-quality coffee experience to ~~coffee drinkers~~customers in the United ~~States.~~States, Canada, and Mexico. Our mission is to leverage our position as a co-packer at the forefront of the North American single serve coffee market to revolutionize the way single serve coffee is enjoyed in the United States. While the United States is our core market, we also have manufacturing and sales operations in Korea and a joint venture in Latin America.

We believe we are the only commercial-scale producer within the North American market that has the dual capacity to pack both single serve pour over coffee and coffee brew bag ~~coffee within the North American market.~~coffee. We intend to leverage our position to become the commercial coffee manufacturer of choice and aim to become the preeminent leader for coffee companies seeking to enter into and grow within the single serve coffee market in North America. We are paid per-package based on the number of single serve coffee products produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for almost every single serve coffee product our co-packing customers sell in the North American and Korean markets. While we financially benefit from the success of our co-packing customers through the sales of their respective single serve coffee products, we believe we are also able to avoid the risks associated with owning and managing the product and its related inventory.

We have also developed and sell NuZee branded single serve coffee products, including our flagship Coffee Blenders line of both single serve pour over coffee and coffee brew bag ~~or tea-bag style,~~ coffee products, which we believe offers consumers some of the best coffee available in a single serve application in the world. We have recently expanded our Coffee Blenders offerings to include a new Coldpresso latte product line that is available to purchase in Korea and online. We offer DRIPKIT pour over packs direct to consumers through our website, wholesale business-to-business to hospitality customers, and co-pack for coffee roasters.

We may also consider co-packaging other products that are complementary to our current product offerings and provide us with a deeper access to our customers. In addition, we are continually exploring potential strategic partnerships, co-ventures, and mergers, acquisitions, or other transactions with existing and future business partners to generate additional business, drive growth, reduce manufacturing costs, expand our product portfolio, enter into new markets, and further penetrate the markets in which we currently operate. Our goal is to continue to expand our product portfolio to raise our visibility, consumer awareness and brand profile.

Since 2016, we have been primarily focused on single serve pour over coffee production. Over this time, we have developed expertise in the operation of our sophisticated packing equipment and the related production of our single serve pour over coffee products at our manufacturing facilities. We have also expanded our co-packing expertise to coffee brew bag coffee products, which we believe are gaining traction in the United States, as well as our DRIPKIT pour over products, which is our innovative new product offering that we believe has significant growth potential.

~~Operational Capacity and Recent Developments~~

We currently lease manufacturing facilities in Vista, California and Seoul, Korea to produce our single serve pour over or coffee brew bag coffee products. In November 2021, we entered into a new lease in Seoul, Korea for a larger office and manufacturing space. In addition, we have recently expanded our office and manufacturing space in Vista, California by approximately 2,000 square feet and also extended our current lease through March 2025 and our sub-leased property through January 2023.

As a result of our capital investments since 2015, including our acquisition of packing equipment from manufacturers whom we believe are the global leaders for supplying such machines, we presently have the annual capacity to produce up to 150 million single serve coffee products (pour over or coffee brew bags) at our two manufacturing facilities, which we believe is sufficient to meet our current and anticipated manufacturing requirements. In addition, in May 2022 we announced a new partnership pursuant to which a manufacturing partner in Knoxville, Tennessee has agreed to provide us with additional manufacturing, coffee roasting and co-packing capabilities, and facilitate distribution efforts to the Eastern United States. In connection with the foregoing operational developments and following our strategic analysis of our current and anticipated facility requirements, we have determined to transition our manufacturing operations away from the facility we previously operated in Plano, Texas. However, we intend to retain our executive office and administrative operations in Plano, Texas.

~~Dripkit Transaction~~Reverse Stock Split

On ~~February 25,~~December 9, 2022, ~~(the “Closing Date”),~~our stockholders approved a proposal granting the board of directors of the Company ~~acquired substantially all~~(the “Board”) discretionary authority to file an amendment (the “Certificate of Amendment”) to our Articles of Incorporation, as amended (the “Articles”), which amends the ~~assets and certain specified liabilities~~Articles to add a Section 1A to effect a reverse stock split of ~~Dripkit (the “Acquisition”) pursuant~~our common stock, at any ratio from 1-for-10 to 1-for-50 at the ~~Asset Purchase Agreement, dated as of February~~Board’s discretion. On December 21, 2022, the Board approved a 1-for-35 reverse stock split of our common stock (the ~~“Asset Purchase Agreement”~~“Reverse Stock Split”)~~, by and among the Company, Dripkit, and Dripkit’s existing investors (the “Stock Recipients”) who executed joinders to the Asset Purchase Agreement as~~. The Certificate of ~~the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid~~Amendment was filed by the Company ~~for the Acquisition was $860,000, plus the assumption of certain assumed liabilities, subject to certain adjustments~~on December 28, 2022 and ~~holdbacks as provided in the Asset Purchase Agreement.~~

On the Closing Date, after adjustments and holdbacks under the Asset Purchase Agreement, the Company paid the aggregate purchase price as follows: (i) cash paid by the Company to Dripkit was $257,000, and (ii) the Company issued to the Stock Recipients an aggregate of 178,681 sharesbecame effective upon acceptance of the Company’s ~~common stock. In addition, the Company repaid the entire outstanding principal amount of Dripkit’s Small Business Association Economic Injury Disaster Loan in the amount of $78,656.~~

~~On May 2, 2022, pursuant to the terms~~filing of the ~~Asset Purchase Agreement,~~Certificate of Amendment with the ~~Bulk Sales Holdback Amount was used to satisfy sales and use taxes owed by Dripkit to the~~Secretary of State of ~~New York as~~Nevada. Accordingly, each holder of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the amounts remaining after offsetting the cost of these sales and use taxes were distributed as follows: (i) $39,237 was distributed to Dripkit on May 9, 2022, in connection with the Cash Bulk Sales Holdback Amount, and (ii) 18,475 sharesour common stock received one share of common stock ~~were issued~~for every 35 shares such stockholder held immediately prior to the effectiveness of the Reverse Stock ~~Recipients on April 25, 2022, in connection with the Stock Bulk Sales Holdback Amount.~~

~~For additional information regarding the Acquisition and the Asset Purchase Agreement, see Note 4—Business Combinations to the Unaudited Consolidated Financial Statements.~~

~~Dripkit operates as a new Dripkit Coffee business division that is wholly owned by NuZee, Inc.~~Split

Impact of the COVID-19 Pandemic

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies, financial markets and financial markets. In the nine months ended June 30, 2022, as a result of the COVID-19 pandemic and responses to the outbreak, certain of our customers slowed or delayed purchases of our co-packing services or single serve coffee products, and we also believe that potential sales of our single serve coffee products to new or potential customers in the hospitality industry were adversely impacted. We have also experienced delays in the submission and approval of custom artwork and packaging as well as the shipment to us of coffee for co-packing. In addition, we incurred lost production time due to employee absences.supply chains. We do not believe, however, that these ~~delays and~~ disruptions had a significant effect on our business or results of operations to date, and in some cases, we have been able to mitigate ~~these~~any adverse effects in part by sourcing coffee and other supplies from alternative suppliers in the United States. The COVID-19 crisis may have an adverse impact on our business and financial results going forward that we are not currently able to fully determine or quantify. The COVID-19 crisis may adversely affect the ability of our customers to pay for goods delivered on a timely basis, or at all. Any increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.

2320

Geographic Concentration

Our operations are primarily split between two geographic areas: North America and ~~Asia.~~South Korea.

For the three months ended ~~June 30, 2022,~~March 31, 2023, net revenues attributable to our operations in North America totaled ~~$630,496~~$340,976 compared to ~~$419,648~~$583,944 of net revenues attributable to our operations in North America for the three months ended ~~June 30, 2021.~~March 31, 2022. For the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, net revenues attributable to our operations in North America totaled ~~$2,031,781~~$1,006,717 compared to ~~$1,077,986~~$1,401,285 of net revenues attributable to our operations in North America for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. Additionally, as of ~~June 30, 2022, $400,842~~March 31, 2023, $230,318 of our property and equipment, net was attributable to our North American operations, compared to ~~$517,966~~$378,546 attributable to our North American operations as of September 30, ~~2021.~~2022.

For the three months ended ~~June 30, 2022,~~March 31, 2023, net revenues attributable to our operations in Asia totaled ~~$143,523~~$440,190 compared to ~~$90,383~~$131,129 of net revenues attributable to our operations in Asia ~~during~~for the three months ended ~~June 30, 2021.~~March 31, 2022. For the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, net revenues attributable to our operations in Asia totaled ~~$476,564~~$910,797 compared to ~~$364,097~~$333,041 of net revenues attributable to our operations in Asia ~~during~~for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. Additionally, as of ~~June 30, 2022, $211,454~~March 31, 2023, $171,376 of our property and equipment, net was attributable to our ~~Asian~~Asia operations, compared to ~~$156,058~~$144,865 attributable to our ~~Asian~~Asia operations as of September 30, ~~2021.~~2022.

Results of Operations

On February 25, 2022, we acquired substantially all of the assets and certain specified liabilities of Dripkit (the “Acquisition”). Our results of operations for the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 includes the operations of ~~Dripkit for the period from February 25, 2022, the date of the Acquisition, to June 30, 2022.~~Dripkit. The ~~Acquisition~~acquisition of Dripkit did not contribute to the periods prior to its acquisition in our financial statements, which therefore impacts comparisons to ~~2021~~2022 for our results of operations in the discussion that follows.

Comparison of three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021:~~

Revenue

Three months ended
June 30, Change
2022 2021 Dollars %
Revenue $ 774,019 $ 510,032 $ 263,987 52 %

	Three months ended March 31,				Change
	2023		2022		Dollars		%
Revenue	$	781,166	$	715,073	$	66,093		9	%

For the three months ended ~~June 30, 2022,~~March 31, 2023, our revenue increased by ~~$263,987,~~$66,093, or approximately ~~52%~~9%, compared with the three months ended ~~June 30, 2021.~~March 31, 2022. This increase was primarily related to increased revenue in South Korea, driven by a new co-packing ~~revenue to existing~~arrangement with a new customer in South Korea and ~~new customers. In the third and fourth quarters of fiscal year 2021, we expanded our U.S. sales and support operations, which resulted in~~ increased orders ~~and increased co-packing opportunities~~from an existing significant customer in South Korea in the three months ended ~~June 30, 2022~~March 31, 2023.

Cost of sales and gross margin

Three months ended

June 30, Change
2022 2021 Dollars %
Cost of sales $ 857,672 $ 413,446 $ 444,226 107 %
Gross profit (loss) (83,653 ) $ 96,586 $ (180,239 ) (187 )%
Gross profit (loss) % (11 )% 19 %

	Three months ended
	March 31,						Change
	2023			2022			Dollars		%
Cost of sales	$	744,536		$	714,092		$	30,444		4	%
Gross profit		36,630		$	981		$	35,649		3,634	%
Gross profit %		5	%		0	%

For the three months ended ~~June 30, 2022,~~March 31, 2023, we generated a total gross ~~loss~~profit of ~~($83,653)~~$36,630 from sales of our products and co-packing services, compared to a total gross profit of ~~$96,586~~$981 for the three months ended ~~June 30, 2021.~~March 31, 2022. The gross margin rate was ~~(11%)~~5% for the three months ended ~~June 30, 2022,~~March 31, 2023, and ~~19%~~0% for the three months ended ~~June 30, 2021. This~~March 31, 2022. The increase is primarily attributable to a decrease in ~~gross profit was driven primarily by increased materials~~production salaries and ~~labor costs as compared to the same period in the prior year.~~temporary labor.

Operating Expenses

Three months ended

June 30, Change
2022 2021 Dollars %
Operating Expenses $ 2,546,608 $ 3,165,840 $ (619,232 ) (20 )%

	Three months ended
	March 31,				Change
	2023		2022		Dollars			%
Operating Expenses	$	1,982,929	$	3,196,479	$	(1,213,550	)		(38	)%

For the three months ended ~~June 30, 2022,~~March 31, 2023, the Company’s operating expenses totaled ~~$2,546,608~~$1,982,929 compared to ~~$3,165,840~~$3,196,479 for the three months ended ~~June 30, 2021,~~March 31, 2022, representing a ~~20%~~38% decrease. This decrease is primarily attributable to a decrease of $950,459 in stock-based compensation ~~expense, offset by an increase in operating expenses associated with greater staffing levels, marketing activities, and administrative costs.~~expense.

Net Loss

Three months ended

June 30, Change
2022 2021 Dollars %
Net Loss $ 2,633,892 $ 3,067,042 $ (433,150 ) (14 )%

	Three months ended
	March 31,				Change
	2023		2022		Dollars			%
Net Loss	$	1,967,873	$	3,223,697	$	(1,255,824	)		(39	)%

For the three months ended ~~June 30, 2022,~~March 31, 2023, we generated a net loss of ~~$2,633,892 versus $3,067,042~~$1,967,873 compared to a net loss of $3,223,697 for the three months ended ~~June 30, 2021.~~March 31, 2022. This decrease in net loss is primarily attributable to lower stock-based compensation expense ~~offset by an increase in cost of sales, and an increase in operating expenses associated with greater staffing levels, marketing activities, and administrative costs.~~as discussed above.

Comparison of ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Revenue

Nine months ended
June 30, Change
2022 2021 Dollars %
Revenue $ 2,508,345 $ 1,442,083 $ 1,066,262 74 %

	Six months ended March 31,				Change
	2023		2022		Dollars		%
Revenue	$	1,917,514	$	1,734,326	$	183,188		11	%

For the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, our revenue increased by ~~$1,066,262,~~$183,188, or approximately ~~74%~~11%, compared with the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. This increase was primarily related to increased revenue in South Korea, driven by a new co-packing ~~revenue to existing~~arrangement with a new customer in South Korea and ~~new customers. In the third and fourth quarters of fiscal year 2021, we expanded our U.S. sales and support operations, which resulted in~~ increased orders ~~and increased co-packing opportunities~~from an existing significant customer in South Korea in the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023.

Cost of sales and gross margin

Nine months ended
June 30, Change
2022 2021 Dollars %
Cost of sales $ 2,575,646 $ 1,352,843 $ 1,222,803 90 %
Gross profit (loss) (67,301 ) $ 89,240 $ (156,541 ) (175 )%
Gross profit (loss)% (3 )% 6 %

	Six months ended
	March 31,						Change
	2023			2022			Dollars		%
Cost of sales	$	1,805,352		$	1,717,974		$	87,378		5	%
Gross profit		112,162		$	16,352		$	95,810		586	%
Gross profit %		6	%		1	%

For the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, we generated a total gross ~~loss~~profit of ~~($67,301),~~$112,162 from sales of our products and co-packing services, compared to a total gross profit of ~~$89,240~~$16,352 for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. The gross margin rate was ~~(3%) for the nine months ended June 30, 2022, and~~ 6% for the ~~nine~~six months ended ~~June 30, 2021. This~~March 31, 2023, and 1% for the six months ended March 31, 2022. The increase is primarily attributable to decrease in ~~gross profit was driven primarily by increased materials~~cost of labor in South Korea along with decrease in production and temporary labor ~~costs as compared to the same period~~ in ~~the prior year.~~North America.

2522

Operating Expenses

Nine months ended
June 30, Change
2022 2021 Dollars %
Operating Expenses $ 8,554,276 $ 15,103,252 $ (6,548,976 ) (43 )%

	Six months ended
	March 31,				Change
	2023		2022		Dollars			%
Operating Expenses	$	4,260,129	$	6,007,668	$	(1,747,539	)		(29	)%

For the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, the Company’s operating expenses totaled ~~$8,554,276~~$4,260,129 compared to ~~$15,103,252~~$6,007,668 for the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, representing a ~~43%~~29% decrease. This decrease is primarily attributable to a decrease of $1,814,699 in stock-based compensation expense.

Net Loss

	Six months ended
	March 31,				Change
	2023		2022		Dollars			%
Net Loss	$	4,151,079	$	6,027,900	$	(1,876,821	)		(31	)%

For the six months ended March 31, 2023, we realized a net loss of $4,151,079 compared to a net loss of $6,027,900 for the six months ended March 31, 2022. This decrease in net loss is primarily attributable to a decrease in stock-based compensation expense ~~and professional services costs, offset by an increase in operating expenses associated with greater staffing levels, marketing activities and administrative costs.~~

~~Net Loss~~

Nine months ended
June 30, Change
2022 2021 Dollars %
Net Loss $ 8,661,792 $ 15,048,722 $ (6,386,930 ) (42 )%

For the nine months ended June 30, 2022, we generated a net loss of $8,661,792 versus $15,048,722 for the nine months ended June 30, 2021. This decrease in net loss is primarily attributable to lower stock-based compensation expense, impairment charges and professional services costs, offset by an increase in operating expenses associated with greater staffing levels, marketing activities and administrative costs.as discussed above.

Liquidity and Capital Resources

Since our inception in 2011, we have incurred significant losses, and as of ~~June 30, 2022,~~March 31, 2023, we had an accumulated deficit of approximately ~~$61.5~~$69 million. We have not yet achieved profitability and anticipate that we will continue to incur significant sales and marketing expenses prior to recording sufficient revenue from our operations to offset these expenses. In the United States, we expect to ~~incur~~realize additional losses ~~because~~due to lack of positive cash flow from operations including the substantial on-going regulatory costs associated with operating as an United States exchange-listed public company. We are unable to predict the extent of any future losses or when we will ~~become profitable,~~realize positive cash flow from operations, if at all.

To date, we have funded our operations primarily with proceeds from registered public offerings and private placements of shares of our common ~~stock.~~stock and other equity securities. Our principal use of cash is to fund our operations, which includes the commercialization of our single serve coffee products, the continuation of efforts to improve our products, administrative support of our operations and other working capital requirements.

As of ~~June 30, 2022,~~March 31, 2023, we had a cash balance of ~~$7,523,099. We~~$4,699,227. Considering our current cash resources and our current and expected levels of operating expenses including the substantial on-going regulatory costs associated with being a United States exchange-listed public company, we believe that our cash and cash equivalents will be sufficient to fund our planned operations ~~and capital expenditure requirements~~ for at least ~~twelve~~six months from ~~August 11, 2022.~~May 12, 2023, however, we expect to need additional capital to fund our planned operations beyond that. This evaluation is based on relevant conditions and events that are currently known or reasonably knowable. ~~As a result, we could deplete our available capital resources sooner than we currently expect, and a~~A reduction in consumer demand for, or revenues from the sale of, our single serve coffee products could further constrain our cash resources. We have based these estimates on assumptions that may prove to be wrong, and our operating projections, including our projected revenues from sales of our single serve coffee products, may change as a result of many micro and macroeconomic and non-economic factors currently unknown to us.

On April 13, 2022, pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Securities Act, we sold 884,778 units (the “2022 Units”), at a price of $2.00 per 2022 Unit for aggregate net proceeds of approximately $1.65 million, with each 2022 Unit consisting of (a) one share of our common stock and (b) one warrant (each, a “2022 Warrant” and collectively, the “2022 Warrants”) to purchase one whole share of our common stock with an initial exercise price of $2.00 per share. For additional information regarding the 2022 Warrants, see Note 7— Stock Options and Warrants to the Unaudited Consolidated Financial Statements.

~~On August 5, 2022, we terminated our Equity Distribution Agreement, dated December 28, 2021~~ (the “Equity Distribution Agreement”), with Maxim Group LLC, as agent (the “Agent”), pursuant to which we could from time to time offer and sell up to an aggregate of $20.0 million of shares of our common stock, subject to any applicable limits when using Form S-3, through the Agent in “at-the-market-offerings” (the “ATM Program”), as defined in Rule 415 under the Securities Act. Prior to termination, we issued and sold 49,326 shares of our common stock under the Equity Distribution Agreement, raising net proceeds of $95,256. We terminated the Equity Distribution Agreement because we do not intend to raise additional capital through the ATM Program.

On August 10, 2022, we completed an underwritten public offering (the “Offering”) of 4,200,000 shares of our common stock, pursuant to an Underwriting Agreement dated as of August 7, 2022 and a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-248531). The aggregate gross proceeds from the Offering were approximately $3.4 million. We received proceeds of approximately $3.2 million, after deducting underwriting discounts and before deducting Offering costs payable by us.

In the future, we ~~expect to seek to raise additional capital through public or private equity offerings. We also~~ may receive additional funds upon the exercise for cash of outstanding warrants, if and when exercised for cash at the election of the warrant holders, including the Series A warrants (the “Series A Warrants”) and Series B warrants (the “Series B Warrants” and, collectively with the Series A Warrants, the “2021 Warrants”) that were ~~sold~~issued by us in March 2021 in an underwritten registered public offering and the 2022 ~~Warrants. For additional information regarding~~warrants (the “2022 Warrants”) that were issued by us in an April 2022 offering pursuant to Securities Act registration exemptions under Regulation S and/or Section 4(a)(2) of the Securities Act. The 2021 Warrant holders are obligated to pay the exercise price ($157.46 in the case of the Series A Warrants and $204.69 in the case of the Series B Warrants) in cash upon exercise of the 2021 Warrants ~~see Note 7—Stock Options and Warrants~~unless we fail to maintain a current prospectus relating to the ~~Unaudited Consolidated Financial Statements.~~common stock issuable upon the exercise of the 2021 Warrants (in which case, the 2021 Warrants may only be exercised via a “cashless” exercise provision). Each 2022 Warrant entitles the holder to purchase one share of our common stock at an exercise price of $69.98. The 2022 Warrant holders may exercise their 2022 Warrants on a “cashless” basis pursuant to a formula set forth in the form of 2022 Warrant.

~~In the long term, we expect we will need~~

We intend to seek to raise additional ~~funds~~capital, including through public or private equity offerings, to support our operating activities for the next twelve months and beyond, and such funding may not be available to us on acceptable terms, or at all. The timing and amount of funds that we will need to raise will depend on a number of factors, including our ability to generate a sufficient amount of revenues from the sale of our single serve coffee products to fund our business operations and the timing and amount of funds received upon the exercise for cash of outstanding warrants by the warrant holders. ~~If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.~~ Until we can generate a sufficient amount of revenue, we may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.

While we believe our plans to raise additional funds will alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, these plans are not entirely within our control and cannot be assessed as being probable of occurring at this time. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.

If we are unsuccessful in our efforts to raise additional capital, based on our current and expected levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months from May 15, 2023. These conditions raise substantial doubt about our ability to continue as a going concern.

Contractual Obligations

Our significant contractual cash requirements as of ~~June 30, 2022,~~March 31, 2023, primarily include payments for operating and finance lease liabilities and principal and interest on loans. Additionally, we may incur purchase obligations in the ordinary course of business that are enforceable and legally binding and enter into enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities to be purchased and fixed or estimated prices to be paid at the time of settlement. As of ~~June 30, 2022,~~March 31, 2023, we had payments for lease and loan obligations of approximately ~~$821,713,~~$565,058 of which ~~$219,439~~$415,416 are payable within 12 months as of ~~June 30, 2022.~~March 31, 2023. We had no purchase obligations as of ~~June 30, 2022.~~March 31, 2023.

Summary of Cash Flows

	Nine Months Ended						Six Months Ended
	June 30,						March 31,
	2022			2021			2023			2022
Cash used in operating activities	$	(5,677,298	)	$	(5,204,587	)	$	(3,650,375	)	$	(4,154,028	)
Cash used in investing activities	$	(627,593	)	$	(141,445	)	$	(16,514	)	$	(539,521	)
Cash provided by financing activities	$	3,031,640		$	13,654,118	)
Cash provided by (used in) financing activities							$	(21,555	)	$	2,063,705
Effect of foreign exchange on cash	$	(19,604	)	$	(2,374	)	$	72,618		$	25,593
Net change in cash	$	(3,292,855	)	$	8,305,712		$	(3,615,826	)	$	(2,604,251	)

Operating Activities

We used ~~$5,677,298~~$3,650,375 and ~~$5,204,587~~$4,154,028 of cash in operating activities during the ~~nine~~six months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively, principally to fund our operations.

Investing Activities

We used ~~$627,593~~$16,514 and ~~$141,445~~$539,521 of cash in investing activities during the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Cash used in ~~the nine months ended June 30,~~ 2022 was mainly for the acquisition of ~~substantially all of the assets of~~ Dripkit and ~~the purchase of equipment. Cash~~cash used in the ~~nine months ended June 30, 2021~~current period was for the purchase of equipment.

Financing Activities

~~Historically, we have funded our operations~~Cash used in financing activities of $21,555 for the six months ended March 31, 2023 was primarily ~~through the issuance of our equity securities.~~

~~Cash~~related to repayments on loans and an equipment lease, and cash provided by financing activities of ~~$3,031,640 and $13,654,118~~$2,063,705 for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 ~~and 2021, respectively, is~~was primarily related to proceeds received upon the exercise of outstanding 2021 Warrants by the 2021 Warrant holders, as further described ~~below, the sale~~in “Note 5—Issuance of ~~equity securities from our exempt offering in April 2022, and the issuance of shares of our common stock under the~~ Equity ~~Distribution Agreement in the nine months ended June 30, 2022, and issuance of equity securities in the nine months ended June 30, 2021.~~

~~Exercise of Warrants~~Securities

In the nine months ended June 30, 2022, we issued 384,447 shares of common stock related to exercises of 2021 Warrants, including 380,447 shares of common stock issued upon exercise of 380,447 Series A Warrants and 4,000 shares of common stock issued upon exercise of 8,000 Series B Warrants. In connection with such exercises, in the nine months ended June 30, 2022, we received aggregate net proceeds of $1,702,596. For additional information regarding the Series A Warrants and Series B Warrants, see Note 7—Stock Options and Warrants” to the ~~Unaudited~~unaudited Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. See Note 1—Basis of Presentation and Summary of Significant Accounting Policies of the Notes to the Unaudited Consolidated Financial Statements for a summary of our accounting policies.

~~Except as described below, there~~There were no significant and material changes in our critical accounting policies and use of estimates during the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, as compared to those disclosed in ~~“Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and ~~Estimates”~~Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~2022, filed with the SEC on December ~~22, 2021.~~23, 2022.

~~Business Combinations~~

On February 25, 2022, we completed the acquisition of substantially all of the assets of Dripkit. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill acquired include but are not limited to future (i) expected cash flows from acquired customer relationships and trademarks, (ii) attrition, (iii) revenues, (iv) royalty rate, (v) operating profit and (vi) discount rate.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 4. Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is collected and communicated to management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Interim Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. In designing and evaluating our disclosure controls and procedures, management recognizes that no matter how well conceived and operated, disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

On February 25, 2022, we completed the acquisition of substantially all of the assets of Dripkit. We are in the process of integrating Dripkit’s processes and controls into our current state processes. Except for this integration of Dripkit into our overall internal control over financial reporting program, thereThere were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2925

PART II.

Item 1. Legal Proceedings

Next Vision Litigation

As previously disclosed, on November 23, 2021, Next Vision, Inc. (the “Consultant”) filed a complaint against the Company in the Superior Court of California, County of San Diego Central Division (Case No. 37-2021-00049557-CU-BC-CTL) (the ~~“Complaint”~~“Next Vision Complaint”). The Next Vision Complaint alleges that the Company’s delay in issuing shares of the Company’s common stock (the “Shares”) to the Consultant after receiving due notice from the Consultant of its intent to exercise vested stock options to acquire 70,000 Shares, as initially granted in 2018 (or, as adjusted to account for the ~~Company’s~~ reverse stock ~~split~~splits effected by the Company on each of November 12, 2019 and December 28, 2022, vested stock options to acquire ~~23,334~~667 Shares) (the “Options”), which had previously been issued to the Consultant as compensation for consulting services provided in 2018, breached express and implied contractual obligations to the Consultant and resulted in the Company reporting an overstated amount of income on the IRS Form 1099-B that was issued to the Consultant for U.S. federal tax purposes. In addition, the Next Vision Complaint alleges that the ~~23,334~~667 Shares issued to the Consultant upon exercise of the Options improperly contained a six-month restriction on resale and that such restriction prevented the Consultant from selling the Shares at the desired time. The Next Vision Complaint ~~seeks equitable relief requiring the Company to issue an IRS Form 1099-NEC to reflect the correct amount of compensation. The Complaint also~~ seeks compensatory damages, including to recover for alleged lost profits due to the alleged improper six-month restriction on resale for the Shares, as well as punitive damages, costs of suit, attorney’s fees and interest.

~~As previously disclosed, on~~On January 20, 2022, the Company filed its general denial and answer in which it raised affirmative defenses and disputed the claims contained in the Next Vision Complaint.

On ~~July 1,~~November 29, 2022, the parties engaged in Court-ordered mediation but did not resolve the matter. The Court has set a trial date for August 11, 2023, ~~and ordered~~which has since been continued to December 1, 2023. A new legal counsel was substituted for the ~~Company and the Consultant to mediate prior to October 28, 2022.~~Company.

We believe the allegations set forth in the Next Vision Complaint are without merit and intend to defend vigorously against the allegations. However, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in its defense.

Steeped, Inc. Litigation

As previously disclosed, on June 27, 2019, Steeped, Inc. d/b/a Steeped Coffee (the “Plaintiff”) filed a complaint (the “First Steeped Complaint”) against the Company in the United States District Court for the Northern District of California (the “District Court”), alleging that the Company’s promotion of certain coffee products and services during a trade show in 2019 constituted an infringement upon the Plaintiff’s registered trademark. In May 2021, the Company entered into a settlement agreement with the Plaintiff, pursuant to which the Company denied the allegations in the First Steeped Complaint, denied any liability arising therefrom, and agreed to pay $35,000 to resolve all claims asserted by the Plaintiff (the “Settlement Agreement”). As a result, a Joint Stipulation and Order for Dismissal was filed with the District Court on May 21, 2021, and the Order of the Court dismissing the case was entered on the same day. On January 27, 2023, the Plaintiff filed a new complaint against the Company in the Superior Court of California, Santa Cruz County (Case No. 23CV00234) (the “New Steeped Litigation”), alleging several causes of action related to the Company’s alleged breach of the Settlement Agreement. On March 29, 2023, the Company filed a demurrer and motion to strike, seeking to dismiss Plaintiff’s causes of action. On April 12, 2023, Plaintiff filed the First Amended Complaint, alleging breach of contract, intentional interference with contractual relations, intentional interference with prospective economic advantage, and fraud in the inducement of contract. Plaintiff seeks a trial by jury and relief in the form of a permanent injunction for use of “Steep Coffee” or any confusingly similar variant of “STEEPED COFFEE”; the impoundment and destruction of allegedly violating packaging materials and/or finished goods; a final judgment for all profits derived from the Company’s allegedly unlawful conduct, actual damages, damages to the Plaintiff’s reputation and goodwill among its customers and partners; and reasonable attorneys’ fees and costs. The Company believes it has basis to defend the claims, however, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in any defense or counterclaim. A new legal counsel was substituted for the Company.

Curtin Litigation

On January 6, 2023, a former employee of the Company, Rosaline Curtin (“Ms. Curtin”), filed a complaint against the Company and another former employee of the Company, Jose Ramirez (“Mr. Ramirez”), in the Superior Court of California, County of San Diego (Case No. 37-2023-00000841-CU-WT-NC) (the “Curtin Complaint”). The Curtin Complaint alleges that Ms. Curtin was subject to harassment by her supervisor, Mr. Ramirez, and gender discrimination throughout her employment, that she reported this discrimination and harassment to the Company, and that the Company retaliated against her and wrongfully terminated her for whistleblowing and failed to prevent discrimination, harassment, and retaliation. The Curtin Complaint seeks compensatory damages, including loss of past, present and future earnings, and benefits, as well as punitive damages, penalties, attorney’s fees and costs and interest. The Company has responded to the complaint and discovery is underway. A new legal counsel was substituted for the Company. We believe the allegations set forth in the Curtin Complaint are without merit and intend to defend vigorously against the allegations. However, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in its defense.

From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on December ~~22, 2021,~~23, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on December ~~22, 2021.~~23, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In the quarter ended ~~June 30, 2022,~~March 31, 2023, we issued the following securities that were not registered under the Securities Act:

●

~~Pursuant~~On January 6, 2023, we issued 6,000 shares of our common stock to a third-party unaffiliated professional services provider in exchange for certain consulting advice to be provided to us. This issuance was made in reliance on the ~~terms~~exemption from registration provided by Section 4(a)(2) of the Asset Purchase Agreement, 18,475 shares of common stock were issued to the Stock Recipients on April 25, 2022 in connection with the Stock Bulk Sales Holdback Amount. See Note 4—Business Combinations for additional information regarding the Stock Bulk Sales Holdback Amount and the Asset Purchase Agreement. ~~Each Stock Recipient was an accredited investor (as that term is defined in~~Securities Act as a transaction not involving a public offering and/or Regulation D under the Securities ~~Act).~~Act as sales to accredited investors.

~~In issuing shares of our common stock in the transactions described above, the Company relied on the exemptions from the registration requirements of the~~Item 3. Defaults Upon Senior Securities ~~Act provided for in Regulation D and/or Section 4(a)(2) of the Securities Act.~~

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

3027

Item 6. Exhibits

EXHIBIT NO.		DESCRIPTION
~~2.1+~~		Asset Purchase Agreement, dated as of February 21, 2022, by and among the Company, Dripkit, Inc., and Dripkit’s existing investors party thereto (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 22, 2022, SEC File Number 001-39338)
3.1		Articles of Incorporation of the Company, dated July 15, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s ~~Registration Statement~~Annual Report on Form ~~S-1~~10-K filed on ~~September 6, 2011,~~December 23, 2022, SEC File Number ~~333-176684)~~001-39338)
3.2		Certificate of Amendment to Articles of Incorporation of the Company, dated May 6, 2013 (incorporated by reference to Exhibit 3.01(b) to the Company’s Current Report on Form 8-K filed on April 25, 2013, SEC File Number 333-176684)
3.3		Certificate of Amendment to Articles of Incorporation of the Company, dated October 28, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 28, 2019, SEC File Number 000-55157)
3.4		Certificate of Amendment to Articles of Incorporation of the Company, dated December 28, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 28, 2022 SEC File Number 001-39338)
3.5		Third Amended and Restated Bylaws of the Company, effective March 17, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 23, 2022, SEC File Number 001-39338)
~~4.1~~10.1†		NuZee, Inc. 2023 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on March 21, 2023, SEC File Number 333-270724)
10.2*†		Form of ~~Common~~Restricted Stock ~~Purchase Warrant (incorporated by reference to Exhibit 4.1 to~~Award Agreement under the ~~Company’s Current Report on~~ NuZee, Inc. 2019 Stock Incentive Plan (Performance-Based)
10.3*†		Form ~~8-K filed on April 15, 2022, SEC File Number 001-39338)~~of Nonqualified Stock Option Award Agreement under the NuZee, Inc. 2023 Equity Incentive Plan (Time-Based)
10.4*†		Form of Nonqualified Stock Option Award Agreement under the NuZee, Inc. 2023 Equity Incentive Plan (Performance-Based)
10.5*†		Form of Incentive Stock Option Award Agreement under the NuZee, Inc. 2023 Equity Incentive Plan (Time-Based)
10.6*†		Form of Incentive Stock Option Award Agreement under the NuZee, Inc. 2023 Equity Incentive Plan (Performance-Based)
10.7*†		Form of Restricted Stock Award Agreement under the NuZee, Inc. 2023 Equity Incentive Plan (Time-Based)
31.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document***
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Filed herewith.

† Indicates management contract or compensatory plan.

** Furnished herewith.

*** The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

+ Certain schedules to this agreement have been omitted pursuant to Item 601 of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

3128

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:	~~August 12, 2022~~May 15, 2023	NUZEE, INC.

		By:	/s/ Masateru Higashida
			Masateru Higashida, Chief Executive Officer and President (Principal Executive Officer), Secretary, Treasurer, and Director

		By:	/s/ ~~Patrick Shearer~~Shana Bowman
			~~Patrick Shearer,~~Shana Bowman, Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

3229


											Accumulated
					Additional						other
	Common stock				paid-in			Accumulated			comprehensive
	Shares		Amount		capital			deficit			income			Total

Balance September 30, 2021		17,820,390	$	178	$	64,839,254		$	(52,824,808	)	$	197,823		$	12,212,447

Exercise of warrants, net of issuance costs		384,447		4		1,721,014			-			-			1,721,018
Stock option expense		-		-		1,124,187			-			-			1,124,187
Other comprehensive gain		-		-		-			-			32,688			32,688
Net loss		-		-		-			(2,804,203	)		-			(2,804,203	)
Balance December 31, 2021		18,204,837	$	182	$	67,684,455		$	(55,629,011	)	$	230,511		$	12,286,137

Warrant issuance costs		-		-		(18,422	)		-			-			(18,422	)
Common stock issued for cash, ATM offering, net of issuance costs		42,448		-		88,426			-			-			88,426
Common stock issued for Dripkit acquisition		178,681		2		386,842			-			-			386,844
Stock option expense		-		-		935,447			-			-			935,447
Exercise of stock options		14,000		-		12,600			-			-			12,600
Restricted stock award issuance		117,920		1		9,589			-			-			9,590
Other comprehensive loss		-		-		-			-			(7,095	)		(7,095	)
Net loss		-		-		-			(3,223,697	)		-			(3,223,697	)
Balance March 31, 2022		18,557,886		185	$	69,098,937		$	(58,852,708	)	$	223,416		$	10,469,830
Common stock issued for cash, ATM offering, net of issuance costs		6,878		-	$	6,830		$	-		$	-		$	6,830
Equity securities issued for cash, exempt offering, net of issuance costs		884,778		9		1,649,727			-			-			1,649,736

Common stock issued to settle Dripkit Bulk Sales Holdback Amount		18,475		-		40,000			-			-			40,000
Stock option expense		-		-		627,895			-			-			627,895
Amortization of restricted stock award issued		-		-		62,326			-			-			62,326
Other comprehensive loss		-		-		-			-			(45,197	)		(45,197	)
Net loss		-		-		-			(2,633,892	)		-			(2,633,892	)
Balance June 30, 2022		19,468,017	$	194	$	71,485,715		$	(61,486,600	)	$	178,219		$	10,177,528

										Accumulated
	Common stock				Additional paid-in		Accumulated			other comprehensive
	Shares		Amount		capital		deficit			income			Total

Balance September 30, 2020		14,570,105	$	146	$	40,472,229	$	(34,272,778	)	$	190,161		$	6,389,758
Equity securities issued for cash, net of issuance costs		324,959		3		2,683,977		-			-			2,683,980
Stock option expense		-		-		4,507,298		-			-			4,507,298
Exercise of stock options		6,000		-		9,180		-			-			9,180
Other comprehensive gain		-		-		-		-			1,656			1,656
Net loss		-		-		-		(5,896,072	)		-			(5,896,072	)
Balance December 31, 2020		14,901,064	$	149	$	47,672,684	$	(40,168,850	)	$	191,817		$	7,695,800
								-
Equity securities issued for cash, net of issuance costs		2,782,111		28		11,017,276		-			-			11,017,304
Restricted stock award issuance		137,215		1		870,999		-			-			871,000
Stock option expense		-		-		1,989,006		-			-			1,989,006
Other comprehensive gain		-		-		-		-			3,824			3,824
Net loss		-		-		-		(6,085,608	)					(6,085,608	)
Balance March 31, 2021		17,820,390		178	$	61,549,965	$	(46,254,458	)	$	195,641		$	15,491,326

Amortization of restricted stock award issued		-		-		91,036		-			-			91,036
Stock option expense		-		-		1,506,613		-			-			1,506,613
Other comprehensive loss		-		-		-		-			(7,854	)		(7,854	)
Net loss		-		-		-		(3,067,042	)		-			(3,067,042	)

Balance June 30, 2021		17,820,390		178	$	63,147,614	$	(49,321,500	)	$	187,787		$	14,014,079

	June 30, 2022			June 30, 2021
	Nine Months Ended			Nine Months Ended
	June 30, 2022			June 30, 2021

Operating activities:
Net loss	$	(8,661,792	)	$	(15,048,722	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		295,178			254,929
Noncash lease expense		213,539			215,397
Stock option expense		2,687,529			8,002,917
Restricted stock award issuance		71,916			962,036
Property and equipment impairment		-			840,391
Sales allowance		-			(11,563	)
Loss on disposition of asset		12,618			-
Write-off of deferred offering costs		-			477,605
Loss from equity method investment		4,215			4,077
Change in operating assets and liabilities:
Accounts receivable		(18,752	)		(112,858	)
Inventories		(99,452	)		(183,486	)
Prepaid expenses and other current assets		(49,464	)		(141,018	)
Other assets		(6,926	)		(1,362	)
Accounts payable		112,917			31,540
Deferred income		162,495			61,032
Lease liability – operating lease		(210,194	)		(193,118	)
Accrued expenses and other current liabilities		(206,140	)		(363,112	)
Other non-current liabilities		15,015			728
Net cash used in operating activities		(5,677,298	)		(5,204,587	)

Investing activities:
Purchase of equipment		(214,524	)		(141,445	)
Acquisition of Dripkit		(413,069	)		-
Net cash used in investing activities		(627,593	)		(141,445	)

Financing activities:
Proceeds from issuance of common stock, exercise of options		12,600			9,180
Repayment of loans		(41,671	)		(40,407	)
Repayment of finance lease		(18,094	)		(15,939	)
Proceeds from issuance of common stock, ATM offering, net of issuance costs		95,256				-
Proceeds from issuance of common stock, exercise of warrants, net of issuance costs		1,702,596			-
Proceeds from issuance of equity securities, exempt offering, net of issuance costs		1,649,736			-
Proceeds from issuance of equity securities, net of issuance costs		-			13,701,284
Cash paid for offering costs		(368,783)			-
Net cash provided by financing activities		3,031,640			13,654,118

Effect of foreign exchange on cash		(19,604	)		(2,374	)
Net change in cash		(3,292,855	)		8,305,712
Cash, beginning of period		10,815,954			4,398,545
Cash, end of period	$	7,523,099		$	12,704,257

Supplemental disclosure of cash flow information:
Cash paid for interest	$	7,077		$	11,278
Cash paid for taxes	$	800		$	7,044

Non-cash transactions:
ROU assets and liabilities added during the period	$	558,371		$	-
Common stock issued in acquisition of Dripkit	$	426,844		$	-
Stock issuance costs accrued	$	273,762		$	-


2023	$	292,775
2024		322,280
2025		186,759
Total Minimum Lease Payments		801,814
Less Effect of Discounting		(55,050	)
Present Value of Future Minimum Lease Payments		746,764
Less Current Portion of Operating Lease Liabilities		180,939
Long-Term Operating Lease Liabilities	$	565,825

	Ford Motor Credit
2022 (Jul 2022 - Sep 2022)	$	1,951
2023 (Oct 2022 - Jun 2023)		5,939
Total Current Portion	$	7,890

2023 (Jul 2023 - Sep 2023)	$	6,753
Total Long-Term Portion	$	6,753

Grand Total	$	14,643

	June 30, 2022		September 30, 2021
Raw materials	$	638,444	$	552,621
Finished goods		44,136		20,843
Less – Inventory reserve		-		-
Total	$	682,580	$	573,464

Property and equipment, net:	As of June 30, 2022		As of September 30, 2021
North America	$	400,842	$	517,966
South Korea		209,254		154,562
Japan		2,200		1,496
Property and equipment, net	$	612,296	$	674,024

	June 30, 2022
Balance at September 30, 2021	$	-
Dripkit acquisition		531,412
Balance at June 30, 2022	$	531,412

	June 30, 2022
Risk-free interest rate		2.38	%
Expected option life		6 years
Expected volatility		70.53	%
Expected dividend yield		0.00	%
Exercise price	$	2.16

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at September 30, 2021		4,511,691		$	4.73		8.4	$	452,206
Granted		100,000			2.16
Exercised		(14,000	)		0.90
Expired		-			-
Forfeited		(223,500	)		13.16
Outstanding at June 30, 2022		4,374,191		$	4.25		7.8	$	-
Exercisable at June 30, 2022		1,932,379		$	4.92		6.8	$	-

	Number of Shares Issuable Upon Exercise of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at September 30, 2021		4,831,915		$	4.98		4.5	$	-
Issued		884,778			2.00
Exercised		(384,447	)		4.51
Expired		-			-
Outstanding at June 30, 2022		5,332,246		$	4.52		3.9		-
Exercisable at June 30, 2022		5,332,246		$	4.52		3.9	$	-

	Three months ended June 30,				Change
	2022		2021		Dollars		%
Revenue	$	774,019	$	510,032	$	263,987		52	%

	Nine months ended June 30,				Change
	2022		2021		Dollars		%
Revenue	$	2,508,345	$	1,442,083	$	1,066,262		74	%