| 1. Basis of Presentation and Summary of Significant Accounting Policies | 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements of NuZee, Inc. (the "Company") 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, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended September 30, 2017 as filed with the SEC. 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 have been omitted. Earnings per Share Basic earnings per common share equal 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 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. The Company incurred a net loss for the three months ended December 31, 2017 and 2016, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive. Going Concern The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has recurring losses, negative operating cash flows, an accumulated deficit and is dependent on its shareholders to provide additional funding for operating expenses. These items raise substantial doubt as to the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon management's ability to develop profitable operations, continued contributions from the Company's executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company's products and business. Major Customers In the three months ended December 31, 2017 and 2016, revenue was primarily from major customers disclosed below. Besides those revenues, there were $54,318 and $0 account receivable owed by customer PO and customer B as of December 31, 2017, and $122,090 and $37,858 account receivable owed by customer PO and K as of December 31, 2016. Three months ended December 31, 2017 Sales Amount % of Total Revenue Customer Name Customer PO $ 167,682 47 % Customer B $ 72,750 20 % Three months ended December 31, 2016 Sales Amount % of Total Revenue Customer Name Customer PO $ 265,605 46 % Customer K $ 146,005 25 % Lease The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the Company as lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line basis over the lease term. NuZee JAPAN Co., Ltd is the lessee of certain equipment under a capital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $10,573 as of December 31, 2017. The capital lease liability is included in other current liabilities on the consolidated balance sheets. Future minimum lease payments under capital lease as of December 31, 2017 for each of the remaining years are as follows: 2018 $ 3,250 2019 $ 4,333 2020 $ 4,333 2021 $ 1,083 Total Minimum Lease Payments $ 12,999 The Company leases office space under leases expiring on May 31, 2020. Rent expense included in general and administrative expense for three months ended December 31, 2017 and 2016 was $32,971 and $13,367 respectively. Future minimum rents as of December 31, 2017 for each of the remaining years are as follows: 2018 $ 42,729 2019 $ 58,488 2020 $ 39,760 Total Minimum Lease Payments $ 140,977 Loan On June 30, 2016, NuZee JAPAN Co., Ltd entered into a loan agreement with Tono Shinyo Kinko Bank. The Company borrowed the sum of approximately $145,758 to be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The loan is unsecured and guaranteed by a director. The Company had $93,209 loan payable at December 31, 2017. On January 27, 2017, NuZee JAPAN Co., Ltd entered into a loan agreement with Nihon Seisaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The Company had $73,768 loan payable at December 31, 2017. During the three months ended December 31, 2017, the Company paid back the principal amount of The loan payments required for the next five years are as follows: Tono Shinyo Kinko Bank Nihon Seisaku Kouko 2018 $ 19,974 $ 13,501 2019 $ 26,631 $ 18,003 2020 $ 26,631 $ 18,003 2021 $ 19,973 $ 18,003 2022 $ - $ 6,258 Total Loan Payment $ 93,209 $ 73,768 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 majority owned subsidiary which has a fiscal year end of January 31. All significant intercompany accounts, balances and transactions have been eliminated in the consolidation. The Company consolidates its subsidiary in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation. Foreign Currency Translation The financial position and results of operations of the Company's foreign subsidiary is measured using the foreign subsidiary's local currency as the functional currency. Revenues and expenses of such subsidiary has 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 adjustment recorded to other comprehensive loss amounted to $20,883 and $20,680 as of December 31, 2017 and September 30, 2017, 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. Foreign currency transaction gains included in the consolidated statements of operations totaled $0 and $1,076 for three months ended December 31, 2017 and 2016, respectively. 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 December 31, 2017 and September 30 2017, the carrying value of inventory of $299,861 and $266,620 respectively, reflected on the consolidated balance sheets is net of this adjustment. December 31, 2017 September 30, 2017 Raw materials $ 167,518 $ 111,043 Work in process 5,535 5,535 Finished goods 135,894 159,128 Less - Inventory reserve (9,086 ) (9,086 ) Total (Inventories, net) $ 299,861 $ 266,620 Reclassifications have been made to conform with the current year presentation. |
