| 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, 2023 as filed with the SEC on January 16, 2024. 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, 2023, 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”). 2022
Reverse Stock Split On
December 9, 2022, our stockholders approved a proposal granting the board of directors of the Company (the “Board”) discretionary
authority to file an amendment (the “Certificate of Amendment”) to our Articles of Incorporation, as amended (the “Articles”),
which amends the Articles to add a Section 1A to effect a reverse stock split of our common stock, at any ratio from 1-for-10 to 1-for-50 1-for-35 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, 2023 and December 31, 2022, the total number of common stock equivalents was 1,284,194 262,030 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. The Company has grown revenues from its principal operations; however, there is no assurance of future revenue growth similar
to historical levels. As of December 31, 2023, the Company had cash of $ 432,154 85,187 Use
of Estimates In
preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and
the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash
and Cash Equivalents The
Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
The Company had no Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The
Company places its cash with high quality banking institutions. From time to time, the Company may or may not maintain cash balances
at certain institutions in excess of the Federal Deposit Insurance Corporation limit. Accounts
Receivable Trade
accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial
condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in
the receivable portfolio and current economic conditions. The Company had $ 58,636 58,636 Major
Customers In
the three months ended December 31, 2023 and 2022, revenue was primarily derived from major customers disclosed below. SCHEDULE OF REVENUE BY MAJOR CUSTOMERS Three
months ended December 31, 2023:
Customer Name Sales Amount % of Total Revenue Accounts Receivable Amount % of Total Accounts Receivable
Customer CL $ 577,420 43 % $ 552,587 49 % Three
months ended December 31, 2022:
Customer Name Sales Amount % of Total Revenue Accounts Receivable Amount % of Total Accounts Receivable
Customer CL $ 331,211 29 % $ 340,534 52 % 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 which was scheduled to expire on January 31, 2023,
through March 31, 2025 8,451 we leased an
additional 1,796 2,514 2,111 7,040 As
of December 31, 2023, our operating leases had a weighted average remaining lease term of 0.8 5 SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE
ROU Asset – October 1, 2023 $ 403,258
ROU Asset added during the period 105,825
Amortization during the period (68,372 )
ROU Asset – December 31, 2023 $ 440,711
Lease Liability – October 1, 2023 $ 378,429
Lease Liability added during the period 105,825
Amortization during the period (104,378 )
Lease Liability – December 31, 2023 $ 379,876
Lease Liability – Short-Term $ 345,045
Lease Liability – Long-Term 34,831
Lease Liability – Total $ 379,876 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, 2023: Amounts
due within twelve months of December 31, SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES
2024 $ 227,943
2025 88,430
Total Minimum Lease Payments 316,373
Less Effect of Discounting 63,503
Present Value of Future Minimum Lease Payments 379,876
Less Current Portion of Operating Lease Liabilities 345,045
Long-Term Operating Lease Liabilities $ 34,831 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 0.3 12.75 782 The
table below summarizes future minimum finance lease payments at December 31, 2023 for the twelve months ended December 31: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES
2024 $ 19,315
2025 -
Total Minimum Lease Payments 19,315
Amount representing interest (1,064 )
Present Value of Minimum Lease Payments 18,251
Current Portion of Finance Lease Obligations 18,251
Finance Lease Obligations, Less Current Portion $ - Lease
expenses included in operating expense for the three months ended December 31, 2023, and 2022 was $ 43,756 91,119 49,195 31,956 Cash
and non-cash activities associated with the leases for the three months ended December 31, 2023, are as follows: SCHEDULE OF CASH AND NON-CASH ACTIVITIES OF LEASES
Operating cash outflows from operating leases: $ 80,761
Operating cash outflows from finance lease: $ 782
Financing cash outflows from finance lease: $ 7,797 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, 2023, we recognized sublease income
of $ 46,832 pursuant
to the sublease included in other income on our financial statements. Future minimum lease payments to be received under that sublease
as of December 31, 2023, for year ended December 31 are as follows: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE
2024 $ 64,918
Total $ 64,918 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 adjustment attributable
to NuZee, Inc. recorded to other comprehensive income amounted to $ 42,408 and $ 115,583 for the three months ended
December 31, 2023 and 2022, 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. Equity
Method Investee
companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method
of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several
factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally
a 20% 50% When
the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s
consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding.
When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount
of its share of losses not previously recognized. 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 as well as our partner appoints
the Chairman of the joint Board. As of December 31, 2023, the activity in NLA consisted of the contribution of two machines as described
above and other start up and initial sales and marketing related activities. $ 2,051 1,823 of losses were recognized under
the equity method of accounting for the three months ended December 31, 2023 and December 31, 2022, respectively. 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. Return
and Exchange Policy The
Company provides a 30-day money-back guarantee if a buyer is not satisfied with a product. All products are thoroughly inspected and
securely packaged before they are shipped to ensure buyers receive the best possible product. If for any reason buyers are unsatisfied
with the products, they can return them and the Company will exchange or refund the purchase minus any shipping charges. For wholesale
customers, return policies vary based on their specific agreements with customers. Under chargebacks agreements with the customers, the
Company agrees to reimburse the seller for a portion of the costs incurred by the seller to advertise and promote certain of the Company’s
products. The Company estimates, accrues and recognizes such chargebacks. These amounts are included in the determination of net sales. For
the three months ended December 31, 2023 and 2022, the Company had no Cost
Recognition Cost
of products sold is primarily comprised of direct materials consumed in the manufacturing of co-packing arrangements or the production
of our own products for resale. Cost of products sold also includes directly related labor salaries and other overhead cost including
depreciation, temporary labor and shipping costs for shipment of raw materials to our facilities. Selling,
General and Administrative Expense Selling,
general and administrative expense (SG&A) is primarily comprised of personnel costs, sales and marketing expenses, depreciation and
amortization, insurance expenses, legal and professional services fees, travel and office expenses, and facilities costs. In some situations,
the Company covers shipping fees for delivering customer orders, and the shipping and handling expenses are recorded under operating
expenses in the consolidated statements of operations. Other
Expense Other
expense of $ 50,100 35,790 Prepaid
expenses and other current assets Prepaid
expenses and other current assets for the three months ended December 31, 2023 and September 30, 2023 is as follows: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
December 31, 2023 September 30, 2023
Prepaid expenses and other current assets $ 389,614 $ 418,200 The
Prepaid expenses and other current assets balance of $ 389,614 as of December 31, 2023 primarily
consists of prepaid rent, prepaid insurance, a retainer for professional services, and deferred offering costs. The balance of $ 418,200 as of September 30, 2023 primarily
consists of prepaid insurance, deposits on inventory purchases, and rent. Inventory 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, 2023 and September 30, 2023, the carrying value of inventory
of $ 1,253,646 and
$ 998,070 respectively,
reflected on the consolidated balance sheets is net of this adjustment. SCHEDULE OF INVENTORY
December 31, 2023 September 30, 2023
Raw materials $ 1,225,534 $ 982,626
Finished goods $ 28,112 15,444
Total $ 1,253,646 $ 998,070 Property
and Equipment Property
and equipment is stated at cost, net of accumulated depreciation. The Company generally depreciates property and equipment on a straight-line
basis over the estimated useful lives of the assets after the assets are placed in service except for NuZee KR which uses the declining
balance method. Office equipment is depreciated over a 3 7 5 32,480 66,305 Expenditures associated with upgrades and enhancements that improve, add functionality, or otherwise
extend the life of property and equipment that exceed $1,000 are capitalized. SCHEDULE OF PROPERTY AND EQUIPMENT
December 31, 2023 September 30, 2023
Machinery & Equipment 2,253,784 1,895,859
Vehicles 78,378 73,980
Leasehold Improvements - -
Less - Accumulated Depreciation (1,748,043 ) (1,660,284 )
Net Property and Equipment $ 584,119 $ 309,555 The
Company is required to make deposits or prepayments and progress payments on equipment purchases before the Company receives possession
and title. As a result, the Company accounts for such payments as Other Assets until it has possession at which time the equipment is
recorded as Property and Equipment. There were no Loans On
April 1, 2019, the Company purchased a delivery van from Ford Motor Credit for $ 41,627 3,500 38,127 60 2.9% 2,732 4,753 The
remainder of the loan is due in fiscal year ending December 31, 2024 in the amount of $ 2,732 Other
noncurrent liabilities On
October 12, 2023, the Company entered into a finance agreement with a lender for the purchase of packaging equipment with future payments
of $ 262,893 |
