| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 as filed with the SEC on December 22, 2021. 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 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. 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”). 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 December 31, 2021 and December 31, 2020, the total number of common stock equivalents was 8,766,493 2,314,053 Capital
Resources Since
its inception, the Company has devoted substantially all 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. The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues. As
of December 31, 2021, the Company had cash of $ 10,967,104 Major
Customers In
the three months ended December 31, 2021 and 2020, revenue was primarily derived from major customers disclosed below. Three
months ended December 31, 2021: SCHEDULE
OF REVENUE BY MAJOR CUSTOMERS
Customer Name Sales Amount % of Total Revenue Accounts Receivable Amount % of Total Accounts Receivable
Customer WP $ 310,551 30 % $ 279,273 35 %
Customer CU $ 199,936 20 % $ 137,566 17 % Three
months ended December 31, 2020:
Customer Name Sales Amount % of Total Revenue Accounts Receivable Amount % of Total Accounts Receivable
Customer WP $ 156,299 30 % $ 94,066 43 %
Customer RSM $ 66,811 13 % $ - 0 %
Customer GR $ 65,536 13 % $ 65,352 30 % 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 one significant 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 the three months ended December 31, 2021, we determined to renew the office and manufacturing space in Vista,
California which was originally scheduled to expire on January 31, 2022 8,451 We extended our sub-leased property in Vista, California, through January
31, 2023, which has been calculated as a ROU Asset co-terminus with the 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 7,040 As
of December 31, 2021, our operating leases had a weighted average remaining lease term of 1.7 5 SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE
1
ROU Asset – October 1, 2021 $ 386,587
ROU Asset added during the period 192,397
Amortization during the period (36,822 )
ROU Asset –December 31, 2021 $ 542,162
Lease Liability – October 1, 2021 $ 398,587
Lease Liability added during the period 192,397
Amortization during the period (36,949 )
Lease Liability – December 31, 2021 $ 554,035
Lease Liability – Short-Term $ 205,098
Lease Liability – Long-Term 348,937
Lease Liability – Total $ 554,035 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 December 31, 2021: Amounts
due within 12 months of December 31, SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES
2021
2022 $ 335,586
2023 220,913
2024 64,936
2025 -
2026 -
Total Minimum Lease Payments 621,435
Less Effect of Discounting (67,400 )
Present Value of Future Minimum Lease Payments 554,035
Less Current Portion of Operating Lease Obligations 205,098
Long-Term Operating Lease Obligations $ 348,937 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 financing lease. As of December 31, 2021, our financing lease had a remaining lease term of 2.5
years and a discount rate of 12.75 %.
The interest expense on finance lease liabilities for the three months ended December 31, 2021 was $ 2,437 . 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 December 31, 2021 for the 12 months ended December 31: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES
2021
2022 $ 33,113
2023 33,113
2024 19,316
2025 -
2026 -
Total Minimum Lease Payments 85,542
Amount representing interest (12,983 )
Present Value of Minimum Lease Payments 72,559
Current Portion of Finance Lease Obligations 28,729
Finance Lease Obligations, Less Current Portion $ 43,830 Rent
expense included in general and administrative expense for the three months ended December 31, 2021 and 2020 was $ 90,525 93,750 Cash
and non-cash activities associated with the leases for the three months ended December 31, 2021 are as follows: SCHEDULE OF CASH AND NON-CASH ACTIVITIES OF LEASES
Operating cash outflows from operating leases: $ 36,949
Operating cash outflows from finance lease: $ 2,437
Financing cash outflows from finance lease: $ 5,841 In
September 2020, we subleased the space at 1700 Capital Avenue in Plano, Texas, effective October 1, 2020, under favorable terms that
are co-terminus with the original lease ending June 30, 2024. During the three months ended December 31, 2021, we recognized sublease
income of $ 42,757 SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE
2021
2022 $ 124,190
2023 127,926
2024 64,918
2025 -
2026 -
Total $ 317,034 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 December 31, 2021 and September 30, 2021 amounted to $ 18,506
and $ 20,416 ,
respectively. 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 has a term of 36
months at a rate of 4.33 %.
Principal payments began in July 2019. The outstanding balance on this loan at December 31, 2021 and September 30, 2021 amounted
to $ 23,833
and $ 35,898 ,
respectively. The
remaining loan payments are as follows: SCHEDULE OF LOAN PAYMENTS
Ford Motor Credit ShinHan Bank Total
2022 (Jan 2022 - Sep 2022) $ 5,812 $ 13,248 $ 19,060
2023 (Oct 2022 - Dec 2022) 1,965 10,585 12,550
Total Current Portion $ 7,777 $ 23,833 $ 31,610
2023 (Jan 2023 - Sep 2023) $ 8,005 - $ 8,005
2024 2,724 - 2,724
Total Long-Term Portion $ 10,729 $ - $ 10,729
Grand Total $ 18,506 $ 23,833 $ 42,339 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 gain amounted to $ 32,688 1,656 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. 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, 2021 and September 30, 2021, the carrying value of inventory
was $ 384,198 573,464 SCHEDULE OF INVENTORY
December 31, 2021 September 30, 2021
Raw materials $ 366,639 $ 552,621
Finished goods 17,559 20,843
Less – Inventory reserve - -
Total $ 384,198 $ 573,464 Joint
Venture On
January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. ( 50 50 313,012 110,000 160,000 43,012 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 December 31, 2021, the only activity in NLA was the contribution of two machines
as described above and other start up related activities. $ 1,157 2,056 |
