| 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, 2022 as filed with the SEC on December 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, 2022, have
been omitted. 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 2022
Reverse Stock Split On
December 28, 2022 l-for-35 reverse stock split an amendment to the Company’s
Articles of Incorporation, as amended, 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. 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 March 31, 2023, and March 31, 2022, the total number of common stock equivalents was 256,291 249,771 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 As
of March 31, 2023, the Company had cash of $ 4,699,227 4,874,312 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 six months ended March 31, 2023 and 2022, revenue was primarily derived from major customers disclosed below. SCHEDULE
OF REVENUE BY MAJOR CUSTOMERS Six
months ended March 31, 2023:
Customer Name Sales Amount % of Total Revenue Accounts Receivable Amount % of Total Accounts Receivable
Customer CL $ 273,885 14 % $ 214,791 51 %
Customer CN 383,248 20 % 15,573 4 % Six
months ended March 31, 2022:
Customer Name Sales Amount % of Total Revenue Accounts Receivable Amount % of Total Accounts Receivable
Customer WP $ 520,208 30 % $ 190,978 30 %
Customer CU 252,137 15 % 189,768 29 % 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. In
May 2022, the Company renewed the office and manufacturing space in Vista, California through March 31, 2025, which was scheduled to
expire on January
31, 2023 8,451 we
leased an additional 1,796 2,514 2,111 7,040 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 As
of March 31, 2023, our operating leases had a weighted average remaining lease term of 1.2 5.0% SCHEDULE
OF OTHER INFORMATION RELATED TO OPERATING LEASE
ROU Asset – October 1, 2022 $ 642,624
ROU Asset added during the period -
Amortization during the period (123,505 )
ROU Asset – March 31, 2023 $ 519,119
Lease Liability – October 1, 2022 $ 656,111
Lease Liability added during the period -
Amortization during the period (136,330 )
Lease Liability – March 31, 2023 $ 519,781
Lease Liability – Short-Term $ 377,005
Lease Liability – Long-Term 142,776
Lease Liability – Total $ 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 March 31, 2023: Amounts
due within twelve months of 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 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 $ 2,987 124,500 1.2 12.75 2,033 The
table below summarizes future minimum finance lease payments at March 31, 2023 for the twelve months ended March 31: SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES
2023 $ 33,113
2024 11,037
Total Minimum Lease Payments 44,150
Amount representing interest (7,626 )
Present Value of Minimum Lease Payments 36,524
Current Portion of Finance Lease Obligations 29,665
Finance Lease Obligations, Less Current Portion $ 6,859 Lease
expenses included in operating expense for the six months ended March 31, 2023 and 2022 was $ 129,292 123,373 80,205 99,209 Cash
and non-cash activities associated with the leases for the six months ended March 31, 2023 are as follows: SCHEDULE
OF CASH AND NON-CASH ACTIVITIES OF LEASES
Operating cash outflows from operating leases: $ 160,271
Operating cash outflows from finance lease: $ 2,033
Financing cash outflows from finance lease: $ 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 six months ended March 31, 2023, we recognized sublease income of $ 90,263 SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE
2024 $ 128,881
2025 32,459
Total $ 161,340 Loans On
April 1, 2019, we purchased a delivery van from Ford Motor Credit for $ 41,627 3,500 38,127 60 2.9% 8,753 12,692 The
remaining loan payments for each of the twelve months ended March 31: SCHEDULE OF LOAN PAYMENTS
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 income amounted to $ 72,618 25,593 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 March 31, 2023 and September 30, 2022, were as follows: SCHEDULE
OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
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 $ 301,380 547,773 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 March 31, 2023 and September 30, 2022, the carrying value of inventory
was $ 1,229,903 947,995 SCHEDULE OF INVENTORY
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 Equity
Method Investment 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 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. $ 3,497 2,296 |
