10-Q

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, 2020

or

☐   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. 000-55157

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)

1700 Capital Avenue, Suite 100, Plano, TX, 75074

(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
None	N/A	N/A

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 x   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 x   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. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated Filer	x
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 x

As of August 3, 2020, NuZee, Inc. had 14,557,755 shares of common stock outstanding.

1

Table of Contents

	Page
PART I
Item 1.  Financial Statements	4
Consolidated Balance Sheets (unaudited)	4
Consolidated Statements of Operations (unaudited)	5
Consolidated Statements of Comprehensive Income (Loss) (unaudited)	6
Consolidated Statements of Stockholders' Equity (unaudited)	7
Consolidated Statements of Cash Flows (unaudited)	8
Notes to Consolidated Financial Statements (unaudited)	10
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	22
PART II.	23
Item 1. Legal Proceedings	23
Item 1A. Risk Factors	23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3. Defaults Upon Senior Securities	23
Item 4. Mine Safety Disclosures	24
Item 5. Other Information	24
Item 6.  Exhibits	24
SIGNATURES	25

2

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. (hereinafter "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 our 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, and indebtedness covenant compliance, 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," "targets" 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 involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: dilution of shareholder investments as a result of necessary capital raises, expenditures to produce and distribute our product, changes in sale levels, changes in the nutritional beverage market, competitor growth, third-party relationship dependent growth, general economic or industry conditions, nationally and/or in the communities in which we conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services, and prices.

We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. 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/A filed with the SEC on December 31, 2019 entitled "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.

3

Item 1. Financial Statements.

NuZee, Inc.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2020	September 30, 2019
ASSETS
Current assets:
Cash	$5,215,809	$1,326,040
Accounts receivable, net	67,455	540,310
Accounts receivable - Related party	118	-
Inventories, net	274,975	500,986
Deferred offering costs	-	225,089
Other current assets	269,793	147,367
Other current assets - Related party	-	460
Total current assets	5,828,150	2,740,252
Property and equipment, net	1,736,432	1,875,591
Other assets:
Right-of-use asset - operating lease	$645,882	$-
Right-of-use asset - finance lease	112,050	-
Investment	160,000	-
Other asset	84,028	634,701
Total other assets	1,001,960	634,701
Total assets	$8,566,542	$5,250,544
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$22,311	$341,095
Current portion of long-term loan payable	101,345	101,148
Accrued expenses and other current liabilities	803,645	531,861
Current portion of lease liability - operating lease	216,454	-
Current portion of lease liability - finance lease	20,924	-
Other current liabilities - Related party	2,108	2,812
Total current liabilities	1,166,787	976,916
Non-current liabilities:
Lease liability - operating lease, net of current portion	435,420	-
Lease liability - finance lease, net of current portion	84,058	-
Loan payable - long term, net of current portion	80,803	156,816
Other noncurrent liabilities	8,894	1,750
Total non-current liabilities	609,175	158,566
Total liabilities	1,775,962	1,135,482
Stockholders' equity:
Common stock; 100,000,000 shares authorized, $0.00001 par value; 14,429,104 and 13,617,366 shares issued	145	137
Additional paid in capital	40,046,531	28,898,344
Accumulated deficit	(33,249,588)	(24,795,687)
Accumulated other comprehensive loss	(150,145)	(90,635)
Total NuZee, Inc. stockholders' equity	6,646,943	4,012,159
Noncontrolling interest	143,637	102,903
Total stockholders' equity	6,790,580	4,115,062
Total liabilities and stockholders' equity	$8,566,542	$5,250,544

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

4

NuZee, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30, 2020	Three Months Ended June 30, 2019	Nine Months Ended June 30, 2020	Nine Months Ended June 30, 2019
Revenues	$        191,962	$       585,202	$    1,131,562	$     1,304,566
Cost of sales	331,039	469,045	1,250,904	923,903
Gross Profit (Loss)	(139,077)	116,157	(119,342)	380,663
Operating expenses	2,378,947	9,514,003	8,342,412	13,668,299
Loss from operations	(2,518,024)	(9,397,846)	(8,461,754)	(13,287,636)
Other income	25,523	10,158	28,504	14,424
Other expense	(42,113)	(4,768)	(44,712)	(140,805)
Interest expense	(6,448)	(1,471)	(16,573)	(2,679)
Net loss	(2,541,062)	(9,393,927)	(8,494,535)	(13,416,696)
Net income (loss) attributable to noncontrolling interest	1,356	12,576	(40,634)	19,501
Net loss attributable to NuZee, Inc.	$   (2,542,418)	$   (9,406,503)	$   (8,453,901)	$ (13,436,197)
Basic and diluted loss per common share	$            (0.18)	$            (0.70)	$            (0.62)	$            (1.01)
Basic and diluted weighted average number of common stock outstanding	13,782,950	13,412,541	13,724,590	13,353,005

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

5

NuZee, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	NuZee, Inc.		Noncontrolling Interests		Total
For the three months ended June 30	2020	2019	2020	2019	2020	2019
Net income (loss)	$ (2,542,418)	$ (9,406,503)	$        1,356	$      12,576	$ (2,541,062)	$ (9,393,927)
Foreign currency translation	10,209	(43,416)	530	(18,607)	10,739	(62,023)
Total other comprehensive income (loss), net of tax	10,209	(43,416)	530	(18,607)	10,739	(62,023)
Comprehensive income (loss)	$ (2,532,209)	$ (9,449,919)	$        1,886	$       (6,031)	$ (2,530,323)	$ (9,455,950)

	NuZee, Inc.		Noncontrolling Interests		Total
For the nine months ended June 30	2020	2019	2020	2019	2020	2019
Net income (loss)	$ (8,453,901)	(13,436,197)	$     (40,634)	$      19,501	$ (8,494,535)	$ (13,416,696)
Foreign currency translation	(59,510)	(35,035)	81,368	34,114	21,858	(921)
Total other comprehensive income (loss), net of tax	(59,510)	(35,035)	81,368	34,114	21,858	(921)
Comprehensive income (loss)	$ (8,513,411)	$ (13,471,232)	$      40,734	$      53,615	$ (8,472,677)	$ (13,417,617)

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

6

NuZee , Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

						Accumulated
			Additional			other
	Common stock		paid-in	Accumulated	Noncontrolling	comprehensive
	Shares	Amount	capital	deficit	interest	income (loss)	Total
Balance September 30, 2019	13,617,366	$137	$28,898,344	$(24,795,687)	$102,903	$(90,635)	$4,115,062
Common stock issued for cash	111,738	1	1,994,522	-	-	-	1,994,523
Stock option expense	-	-	2,220,861	-	-	-	2,220,861
Other comprehensive gain	-	-	-	-	5,642	27,230	32,872
Net loss for ther period	-	-	-	(3,421,232)	(11,021)	-	(3,432,253)
Balance December 31, 2019	13,729,104	$138	$33,113,727	$(28,216,919)	$97,524	$(63,405)	$4,931,065
Stock option expense	-	-	962,490	-	-	-	962,490
Other comprehensive gain / (loss)	-	-	-	-	75,196	(96,949)	(21,753)
Net loss for the period	-	-	-	(2,490,251)	(30,969)	-	(2,521,220)
Balance March 31, 2020	13,729,104	$138	$34,076,217	$(30,707,170)	$141,751	$(160,354)	$3,350,582
Common stock issued for cash	700,000	7	4,648,167	-	-	-	4,648,174
Stock option expense	-	-	1,322,147	-	-	-	1,322,147
Other comprehensive gain	-	-	-	-	530	10,209	10,739
Net income (loss) for ther period	-	-	-	(2,542,418)	1,356	-	(2,541,062)
Balance June 30, 2020	14,429,104	$145	$40,046,531	$(33,249,588)	$143,637	$(150,145)	$6,790,580

						Accumulated
			Additional			other
	Common stock		paid-in	Accumulated	Noncontrolling	comprehensive
	Shares	Amount	capital	deficit	interest	income (loss)	Total
Balance September 30, 2018	13,194,591	$132	$14,957,491	$(12,607,722)	$93,131	$(30,967)	$2,412,065
Common shares issued for cash	116,891	1	1,494,804	-	-	-	1,494,805
Common stock issued to settle payables	5,118	-	107,478	-	-	-	107,478
Stock option expense	-	-	1,789,751	-	-	-	1,789,751
NuZee foreign currency gain (loss)	-	-	-	-	4,855	11,328	16,183
Net loss for the period	-	-	-	(2,576,692)	(11,714)	-	(2,588,406)
Balance December 31, 2018	13,316,600	133	18,349,524	(15,184,414)	86,272	(19,639)	3,231,876
Common shares issued for cash	13,870	-	228,204	-	-	-	228,204
Stock issuance costs	-	-	(27,628)	-	-	-	(27,628)
Common stock issued for services	50,000	1	37,499	-	-	-	37,500
Common stock issued to settle payables	843	-	16,445	-	-	-	16,445
Stock option expense	-	-	481,742	-	-	-	481,742
NuZee foreign currency gain (loss)	-	-	-	-	47,866	(2,947)	44,919
Net loss for the period	-	-	-	(1,453,002)	18,639	-	(1,434,363)
Balance March 31, 2019	13,381,313	$134	$19,085,786	$(16,637,416)	$152,777	$(22,586)	$2,578,695
Common shares issued for cash	206,267	2	3,612,181	-	-	-	3,612,183
Stock option expense	-	-	8,337,258	-	-	-	8,337,258
NuZee foreign currency gain (loss)	-	-	-	-	(18,607)	(43,416)	(62,023)
Net income (loss) for the period	-	-	-	(9,406,503)	12,576	-	(9,393,927)
Balance June 30, 2019	13,587,580	$136	$31,035,225	$(26,043,919)	$146,746	$(66,002)	$5,072,186

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

7

NuZee, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended June 30, 2020	Nine Months Ended June 30, 2019
Operating activities:
Net loss	$(8,494,535)	$(13,416,696)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and Amortization	310,393	165,752
Noncash lease expense	101,505	-
Option expense	4,505,498	10,608,751
Inventory impairment	74,944	27,983
Allowance for sales return	3,835	22,510
Loss on sale of assets	43,012	6,096
Loss on settlement of payable	-	91,684
Common stock issued for services	-	37,500
Change in operating assets and liabilities:
Accounts receivable	469,020	(235,860)
Accounts receivable - Related party	(118)	105
Inventories	151,067	(182,962)
Other current assets	(122,426)	(144,934)
Other current assets - Related party	460	(681)
Other asset	(41,767)	(649)
Accounts payable	(199,763)	116,005
Other current liabilities - related party	(704)	(1,714)
Other noncurrent liabilities	7,144	(6,317)
Lease liability - operating lease	(83,063)	-
Accrued expense and other current liabilities	271,784	(36,142)
Net cash used by operating activities	(3,003,714)	(2,949,569)
Investing activities:
Purchase of equipment	(16,306)	(1,243,933)
Proceeds from sales of equipment	110,000	23,600
Net cash provided (used) in investing activities	93,694	(1,220,333)
Financing activities:
Repayment of finance lease	(14,039)	-
Repayment of loans	(75,816)	(32,580)
Borrowing of loans	-	147,081
Stock issuance costs	-	(27,628)
Proceeds from issuance of common stock	6,867,786	5,335,192
Net cash provided by financing activities	6,777,931	5,422,065
Effect of foreign exchange on cash and cash equivalents	21,858	2,601
Net change in cash	3,889,769	1,254,764
Cash, beginning of period	1,326,040	1,806,666
Cash, end of period	$5,215,809	$3,061,430
Supplemental disclosure of cash flow information:
Cash paid for interest	$16,573	$183
Cash paid for taxes	$800	$-
Noncash investing and financing activities:
Stock issued to settle payables	$-	$32,239
Equipment purchased through debt	$-	$38,127
Equipment purchased on credit	$-	$218,140
Recognition of right-of-use asset and lease liability upon adoption of ASU 2016-02	$517,263	$-
Recognition of right-of-use asset and lease liability during the period	$217,674	$-
Reclassification of common stock offering costs to additional paid-in capital	$1,150,989
Finance lease of equipment to pay off accounts payable	$124,500	$-
Investment in NLA	$160,000	$-

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

8

NuZee, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)    June 30, 2020

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/A for the year ended September 30, 2019 as filed with the SEC on December 31, 2019. 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.

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, its wholly owned subsidiaries and its majority owned subsidiary, which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

The Company has three international subsidiaries in NuZee KOREA Ltd. ("NuZee KR"), NuZee JAPAN Co., Ltd ("NuZee JP") and NuZee Investment Co., Ltd. ("NuZee INV"). NuZee KR and NuZee INV are wholly owned subsidiaries of the Company, and NuZee JP is a majority owned subsidiary of the Company.

Stock Split

On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019. All share and per share information included in these financial statements and notes thereto 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 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, 2020 and June 30, 2019, the total number of common stock equivalents was 1,725,000 and 1,787,333, respectively, comprised entirely of stock options. The Company incurred a net loss for the three and nine months ended June 30, 2020 and 2019, 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 and Capital Resources

Since its inception on July 15, 2011, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues.

As of June 30, 2020, the Company had cash of $5,215,809. The Company has not attained profitable operations since inception.

The accompanying 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 and is dependent on sales of its equity, including to its majority shareholder, 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 its majority shareholder 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.

9

Major Customers

In the nine months ended June 30, 2020 and 2019, revenue was primarily derived from major customers disclosed below.

Nine months ended June 30, 2020:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer K	$ 284,099	25%	$ -	0%
Customer WP	$ 259,925	23%	$7,767	11%
Customer J	$ 188,574	17%	$175	0%

Nine months ended June 30, 2019:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer J	$333,971	26 %	$ -	0%
Customer WP	$254,765	20%	$ 153,344	28%
Customer C	$153,167	12%	$ 55,245	10%

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 core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the consolidated balance sheet. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The Company implemented ASU No. 2016-02 on October 1, 2019.

The Company elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earlies comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at October 1, 2019 but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

Beginning October 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to October 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of October 1, 2019. Because the lease in question did not have an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on ROU Asset lease is 5%.

The Company does a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. As of October 1, 2019, the Company had 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 of 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.

10

The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning October 1, 2019, through the recognition of ROU assets and lease liabilities for operating leases are as follows:

	October 1, 2019
ROU Assets	$517,263
Lease Liability	$517,263

During the June 30, 2020 analysis of leases, we determined to renew the office and manufacturing space in Vista, CA through January 31, 2022, which was previously scheduled to be vacated at June 30, 2020. Additionally, the Korean office and manufacturing space lease was extended through June 2022 and an apartment lease was signed through June 2022. Accordingly, we have added ROU assets and lease liabilities related to those leases at June 30, 2020.

The direct-leased property in Vista, California has a remaining lease term through January of 2022. The leased properties in both Korea and Vista, California have options to extend beyond the stated termination date, but exercise of these options are not probable. The sub-leased property in Vista, California, is leased month-to-month and has been calculated as a ROU Asset co-terminous with the direct-leased property.

As of June 30, 2020, our operating leases had a weighted average remaining lease term of 3.1 years. Other information related to our operating leases is as follows:

ROU Asset – October 1, 2019	$ 517,263
ROU Asset added during the period	217,674
Amortization during the period	(89,055)
ROU Asset – June 30, 2020	$ 645,882
Lease Liability – October 1, 2019	$ 517,263
Lease Liability added during the period	217,674
Amortization during the period	(83,063)
Lease Liability – June 30, 2020	$ 651,874

Lease Liability – Short-Term	$ 216,454
Lease Liability – Long-Term	435,420
Lease Liability – Total	$ 651,874

During the nine months ended June 30, 2020, we had the following cash and non-cash activities associated with our leases:

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$103,298
Operating cash flows from finance leases	$10,794
Financing cash flows from finance leases	$14,039
Non-cash transactions:
Recognition of ROU asset and lease liability of operating lease upon adoption of ASU 2016-02	$517,263
Additions to ROU assets obtained from:
New operating lease:	$217,674
New finance lease:	$124,500

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, 2020:

Amounts due within 12 months of June 30,

2021	$ 243,941
2022	206,711
2023	126,091
2024	129,873
2025	-
Total Minimum Lease Payments	706,616
Less Effect of Discounting	54,742
Present Value of Future Minimum Lease Payments	651,874
Less Current Portion of Operating Lease Obligations	216,454
Long-Term Operating Lease Obligations	$ 435,420

11

NuZee JP is the lessee of certain equipment under a finance lease extending through January 2021. The asset and liability under the finance 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 $4,536 as of June 30, 2020. The finance lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under finance lease obligations as of June 30, 2020 for each of the remaining fiscal years are as follows:

2020	$2,268
2021	$2,268
Total Minimum Lease Payments	$4,536

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 for the next 60 months. As part of this agreement, Alliance Funding Group provided our equipment supplier with $124,540 for the purchase of this equipment. This transaction was accounted for as a financing lease.

The following summarizes ROU assets under finance leases at June 30, 2020:

ROU asset-finance lease at October 9, 2019	$ 124,500
Amortization	(12,450)
ROU asset-finance lease at June 30, 2020	$ 112,050

The table below summarizes future minimum finance lease payments at June 30, 2020 for the 12 months ended June 30 of each year indicated:

2021	$ 33,113
2022	33,113
2023	33,113
2024	33,113
2025	2,759
Total Minimum Lease Payments	135,211
Amount representing interest	(30,229)
Present Value of Minimum Lease Payments	104,982
Current Portion of Finance Lease Obligations	20,924
Finance Lease Obligations, Less Current Portion	$ 84,058

The Company leases office space with terms ranging from month to month to 61 months. Rent expense included in general and administrative expense for the nine months ended June 30, 2020 and 2019 was $251,207 and $99,526, respectively.

Future minimum rents for the office space leased as of June 30, 2020, for each of the remaining fiscal years are as follows:

2020	$   69,264
2021	$ 278,530
2022	$ 208,885
2023	$ 160,149
2024	$ 124,999
Total Minimum Lease Payments	$ 841,827

Loans

On June 30, 2016, NuZee JP entered into a loan agreement with Tono Shinyo Kinko Bank. NuZee JP 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 outstanding balance on the loan at June 30, 2020 amounted to $27,835. On January 27, 2017, NuZee JP entered into a loan agreement with Nihon Seisaku Kouko. NuZee JP borrowed 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 outstanding balance on the loan at June 30, 2020 amounted to $30,060.

On April 1, 2019, NuZee 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, 2020 amounted to $29,757.

On February 15, 2019 NuZee KR entered into equipment financing for production equipment with ShinHan Bank for $60,563. In June 28, 2019 NuZee KR purchased additional equipment and increased the loan with ShinHan Bank by $86,518. The loan is secured by our production equipment at NuZee KR. The financing bears a term of 36 months at a rate of 4.33% per annum. Principal payments began in July of 2019. The outstanding balance on this loan at June 30, 2020 amounts to $94,496.

12

The loan payments required for the next five remaining fiscal years are as follows:

		Nihon	Ford
	Tono Shinyo	Seisaku	Motor	ShinHan
	Kinko Bank	Kouko	Credit	Bank	Total
2020	$ 6,959	$ 4,704	$ 1,841	$ 11,812
2021	20,876	14,112	5,605	35,436
Total Current Portion	$ 27,835	$ 18,816	$ 7,446	$ 47,248	$ 101,345
2021		$ 4,704	$ 1,895	$ 11,812
2022		6,540	7,720	35,436
2023			7,947
2024			4,749
Total Long Term Portion		$ 11,244	$ 22,311	$ 47,248	$ 80,803
Grand Total	$ 27,835	$ 30,060	$ 29,757	$ 94,496	$ 182,148

Revenue Recognition

We determine revenue recognition through the following steps in accordance with FASB Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers", which we adopted as of October 1, 2018 on a modified retrospective basis:

·identification of the contract, or contracts, with a customer; 

·identification of the performance obligations in the contract; 

·determination of the transaction price; 

·allocation of the transaction price to the performance obligations in the contract; and 

·recognition of revenue when, or as, we satisfy a performance obligation. 

Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Foreign Currency Translation

The financial position and results of operations of each of the Company's foreign subsidiary 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 comprising accumulated other comprehensive loss amounted to $(59,510) and $(35,035) for the nine months ended June 30, 2020 and 2019, 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.

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, 2020 and September 30, 2019, the carrying value of inventory of $274,975 and $500,986 respectively, reflected on the consolidated balance sheets is net of this adjustment.

	June 30, 2020	September 30, 2019
Raw materials	$   15,585	$ 327,985
Finished goods	259,390	173,001
Less – Inventory reserve	-	-
Total	$ 274,975	$ 500,986

Recent Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07 which simplifies several aspects of the accounting for non-employee transactions by stipulating that the existing accounting guidance for share-based payments to employees (accounted for under ASC Topic 718, "Compensation-Stock

13

Compensation") will also apply to non-employee share-based transactions (accounted for under ASC Topic 505, "Equity"). ASU 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company implemented ASU 2018-07 on October 1, 2019 and the impact of the implementation is not material to the financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company implemented ASU 2017-11 on October 1, 2019, and the impact of the implementation is not material to the financial statements.

Joint Venture

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, S.A. de C.V. ("NLA"). NLA was formed pursuant to the laws of Mexico, with corporate domicile in Mazatlan, Mexico. As part of the capitalization of NLA, the Company contributed two 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 will account for NLA using the equity method of accounting. As of June 30, 2020, the only activity in NLA was the contribution of two machines as described above.

2.  GEOGRAPHIC CONCENTRATION

The Company is organized based on fundamentally one geographic segment although it does sell its products on a world-wide basis. Information about the Company’s geographic operations are as follows:

Geographic Concentrations	Nine Months Ended	Nine Months Ended
	June 30, 2020	June 30, 2019
Net Revenue:
North America	$   756,000	$   715,702
Japan	258,526	549,431
South Korea	117,036	39,433
	$ 1,131,562	$ 1,304,566
Property and equipment, net:	As of June 30, 2020	As of September 30, 2019
North America	$ 1,459,948	$ 1,471,859
Japan	3,424	6,329
South Korea	273,060	397,403
	$ 1,736,432	$ 1,875,591

3.  RELATED PARTY TRANSACTIONS

Sales, Purchases and Operating Expenses

For the nine months ended June 30, 2020 and 2019, NuZee JP sold their products to Eguchi Holdings Co., Ltd ("EHCL"), and the sales to them totaled approximately $3,154 and $3,174 respectively. The corresponding accounts receivable balance from EHCL was $118 and $(106) as of June 30, 2020 and September 30, 2019, respectively. EHCL is controlled by Mr. Katsuyoshi Eguchi, who beneficially owns in excess of 5% of NuZee’s outstanding common stock and serves as the chief executive officer of NuZee JP.

Rent

During October 2016, NuZee JP entered into a rental agreement of an office space with NuZee Co., Ltd., an entity 100% beneficially owned by our chief executive officer. The Company pays $1,169 per month for the office on the last day of each month on behalf of NuZee JP. There is no set expiration date on the agreement. As of June 30, 2020, and September 30, 2019, NuZee JP had a payable balance to NuZee Co., Ltd. of $1,503 and $1,552, respectively.

14

During September 2016, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company pays $609 per month for the office and the warehouse on the last day of each month. The lease expired on December 31, 2019, and is expected to continue on a month-to-month basis. At June 30, 2020 and September 30, 2019, the payable balance under this lease was $605 and $1,154, respectively.

During February 2015, the Company entered into a rental agreement of a warehouse with Eguchi Steel Co.,Ltd ("ESCL"). The Company pays $449 per month for the warehouse on the last day of each month. There is no set expiration date on the agreement.

4.  COMMON STOCK

During the nine months ended June 30, 2020, the Company sold (i) 111,738 shares of common stock at a weighted average price of $17.85 per share, for an aggregate purchase price of $1,994,523 pursuant to private offerings of common stock and (ii) 700,000 shares of common stock at a price of $9.00 per share for an aggregate purchase price of $6,300,000 pursuant to the Company’s underwritten public offering of common stock. After deducting underwriting commission of $500,837, and expenses paid by the Company that were directly attributable to the registered offering of $1,150,989, including $225,089 that was paid in the year ended September 30, 2019, the Company received net proceeds from the registered public offering of common stock of $4,648,174. All discounts, fees, and expenses are treated as a reduction of the Company’s additional paid-in capital balance.

See Note 6 – Subsequent Events for more information.

5.  STOCK OPTIONS AND WARRANTS

The following table summarizes stock option activity for nine months ended June 30, 2020:

		Weighted	Weighted
		Average	Average
	Number of	Exercise	Remaining	Aggregate
	Shares	Price	Contractual Life (years)	Intrinsic Value
Outstanding at September 30, 2019	1,811,667	$ 6.86	8.4	$ 33,705,960
Granted	23,333	1.53
Exercised	-	-
Expired	-	-
Forfeited	(110,000)	18.14
Outstanding at June 30, 2020	1,725,000	$ 6.07	7.5	10,243,687
Exercisable at June 30, 2020	663,750	$ 6.83	7.4	$   3,802,116

The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expenses of $4,505,498 for the nine months ended June 30, 2020. Unamortized option expense as of June 30, 2020, for all options outstanding amounted to $4,566,831. These costs are expected to be recognized over a weighted- average period of 2.1 years. The Company recognized stock option expenses of $10,608,751 for the nine months ended June 30, 2019.

On June 23, 2020, as part of our agreement with Benchmark Company, LLC the underwriter of the Company’s registered public offering of common stock, we issued 40,250 warrants to purchase our common stock at an exercise price of $9.00 a share. These warrants are exercisable beginning on December 23, 2020 and expire on June 18, 2025.

A summary of the status of the Company’s nonvested options as of June 30, 2020, is presented below:

Nonvested options
	Number of
	Nonvested Shares
Nonvested shares at September 30, 2019	1,355,000
Granted	23,333
Exercised	-
Forfeited	(110,000)
Vested	(207,083)
Nonvested shares at June 30, 2020	1,061,250

15

The following table summarizes warrant activity for the nine months ended June 30, 2020:

		Weighted	Weighted
		Average	Average
	Number of	Exercise	Remaining	Aggregate
	Warrants	Price	Contractual Life (years)	Intrinsic Value
Outstanding at September 30, 2019	-	$      -		$             -
Granted	40,250	9.00
Exercised	-	-
Expired	-	-
Forfeited	-	-
Outstanding at June 30, 2020	40,250	$ 9.00	5.0	36,012
Exercisable at June 30, 2020	-	$      -		$             -

6.  SUBSEQUENT EVENT

Exercise of over-allotment option

On July 21, 2020, the underwriters in the Company’s registered public offering of common stock exercised their over-allotment option, resulting in the issuance of an additional 105,000 shares at $9.00 per share. As part of this exercise, the Company received net proceeds of $878,850 (net of underwriting commissions).

Exercise of options

On July 31, 2020, 23,334 shares were issued upon the exercise of stock options. As part of this exercise, the Company received $35,700 in proceeds.

16

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

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward- looking statements. These forward-looking statements are subject to certain risk s and uncertainties that could cause actual results to differ materially from our predictions.

Overview

We are a specialty coffee company and, we believe, the leading single serve pour over coffee co-packer in the United States. Our mission is to leverage our position as a co-packer at the forefront of the North American single serve pour over 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 single serve pour over coffee sales operations in Japan as well as manufacturing and sales operations in Korea and a joint venture in Latin America. In addition, we plan to opportunistically leverage our strengths and relationships to grow our proprietary NuZee and Coffee Blenders brands in the United States and select international markets.

We believe we are the only commercial-scale producer of single serve drip cup coffee and that we have certain advantages in place within the North American market. We intend to leverage our position to be the commercial manufacturer of choice for major companies seeking to enter the single serve drip cup market in North America. We target existing large, high-margin companies and are paid per- package based on the number of single serve pour over drip cups produced by us. Accordingly, we consider our business model to be a form of tolling arrangement, as we receive a fee for every single serve drip cup our co-packing customers sell in the North American market. While we financially benefit from the success of our manufacturing customers through the sales of their respective single serve drip cup products, we are also able to avoid the risks associated with owning and managing the product and its related inventory. As these companies gain market acceptance of single serve drip cup coffee in North America, we plan to leverage that market expansion to further grow our own brands.

Our primary focus is the development of single serve pour over coffee in the North American market targeting the individual consumer for use at home and office or other settings that would benefit from single serve pour over products, such as our recent expansion into the lodging market through our arrangement with Royal Cup Coffee & Tea, and positioning ourselves as the leading commercial-scale co- packer of single serve pour over coffee products. We may also look to co-package other products that are complementary to single serve pour over drip coffee and provide us with a deeper access to our customers, such as tea bag coffee. The competitive landscape for our services and products can be illustrated as follows:

 

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 the single serve pour over product at both our Vista, California facility and at our production operations in Korea. We plan to carry over this expertise to our recently announced Plano, Texas manufacturing facility, which will serve as our new single serve pour over co-packing hub and corporate headquarters to capture the location’s logistical advantages and lower cost structure.

17

Recent Developments

Expiration of Exclusivity Agreement with FUSO Industries Co. Ltd.

We were engaged in negotiations with FUSO Industries Co. Ltd. (“FUSO”) to extend the term of the exclusivity agreement between us and FUSO (the “FUSO Agreement”). We acquired certain of the machines we use in the production of our single serve pour over coffee products pursuant to the terms of the FUSO Agreement. The FUSO Agreement expired pursuant to its terms on June 30, 2020.

Employees

During March 2020, we terminated the employment of two part-time and three full-time employees located in the U.S. Each such employee was offered two weeks’ pay as a severance package. We do not expect the departure of these employees to adversely impact our ability to provide our top-quality services and products.

Geographic Concentration

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

For the three months ended June 30, 2020, net revenues attributable to our operations in North America totaled $119,313 compared to $420,083 of net revenues attributable to our operations in North America for the three months ended June 30, 2019. For the nine months ended June 30, 2020, net revenues attributable to our operations in North America totaled $756,000 compared to $715,702 of net revenues attributable to our operations in North America for the nine months ended June 30, 2019. Additionally, as of June 30, 2020, $1,459,948 of our Property and equipment, net was attributable to our North American operations, compared to $1,471,859 attributable to our North American operations as of September 30, 2019.

For the three months ended June 30, 2020, net revenues attributable to our operations in Asia totaled $72,649 compared to $165,119 of net revenues attributable to our operations in Asia during the three months ended June 30, 2019. For the nine months ended June 30, 2020, net revenues attributable to our operations in Asia totaled $375,562 compared to $588,864 of net revenues attributable to our operations in Asia during the nine months ended June 30, 2019. Additionally, as of June 30, 2020, $276,484 of our Property and equipment, net was attributable to our Asian operations, compared to $403,732 attributable to our Asian operations as of September 30, 2019.

Results of Operations

Comparison of three months ended June 30, 2020 and 2019:

Revenue

	Three months ended June 30,			Change
	2020	2019		Dollars	%
Revenue	$ 191,962	$	585,202	$ (393,240)	(67%)

For the three months ended June 30, 2020, our revenue decreased by $393,240, or approximately 67%, compared with the three months ended June 30, 2019. This decrease was related to the loss of a major co-packing in North America and in Japan as well the worldwide impacts of COVID-19.

Cost of sales and gross margin

	Three months ended June 30,			Change
	2020	2019		Dollars	%
Cost of sales	$ 331,039		$ 469,045	($138,006)	(29%)
Gross margin	($139,077)		$ 116,157	($255,234)	(220%)
Gross margin %	(72%)		20 %

For the three months ended June 30, 2020, we incurred a total gross loss of $139,077, from sales of our products and co-packing services, compared to a total gross profit of $116,157 for the three months ended June 30, 2019. The gross margin rate was (72%) for the three months ended June 30, 2020, and 20% for the three months ended June 30, 2019. This decrease in margin was driven primarily by significantly reduced revenues and greater operating capacity during the period compared to the prior year with significantly higher revenues with lower operating capacity. Greater operating capacity has increased our labor and other expenses.

18

Operating Expenses

	Three months ended June 30,		Change
	2020	2019	Dollars	%
Operating Expenses	$ 2,378,947	$ 9,514,003	($7,135,056)	(75%)

For the three months ended June 30, 2020, the Company’s operating expenses totaled $2,378,947 compared to $9,514,003 for the three months ended June 30, 2019, representing a 75% decrease. This decrease is primarily attributable to a decrease in stock based compensation expense.

Net Loss

	Three months ended June 30,			Change
	2020	2019		Dollars	%
Net Loss attributable to NuZee, Inc.	$ 2,542,418	$	9,406,503	$ (6,864,085)		(73%)

For the three months ended June 30, 2020, we generated net losses attributable to NuZee, Inc. of $2,542,418 versus $9,406,503 for the three months ended June 30, 2019. This improvement in net losses is primarily attributable to lower stock compensation expense.

Comparison of nine months ended June 30, 2020 and 2019:

Revenue

	Nine months ended June 30,			Change
	2020	2019		Dollars	%
Revenue	$ 1,131,562	$	1,304,566	$ (173,004)	(13%)

For the nine months ended June 30, 2020, our revenue decreased by $173,004, or approximately 13%, compared with the nine months ended June 30, 2019. This decrease was primarily related to a decrease in co-packing revenues attributable to a loss of a major customer in North America and Japan during the current period.

Cost of sales and gross margin

	Nine months ended June 30,			Change
	2020	2019		Dollars	%
Cost of sales	$ 1,250,904		$ 923,903	$  327,001	35 %
Gross profit	$  (119,342)		$ 380,663	$ (500,005)	(131%)
Gross profit margin %	(11%)		29 %

For the nine months ended June 30, 2020, we incurred a total gross loss $119,342 from sales of our products and co-packing services, compared to a total gross profit of $380,663 for the nine months ended June 30, 2019. The gross margin rate was (11%) for the nine months ended June 30, 2020, and 29% for the nine months ended June 30, 2019. This decrease in margin was driven primarily by significantly reduced revenues and greater operating capacity during the period compared to the prior year with significantly higher revenues with lower operating capacity.

Operating Expenses

	Nine months ended June 30,			Change
	2020	2019		Dollars	%
Operating Expenses	$ 8,342,412	$	13,668,299	$ (5,325,887)		(39%)

For the nine months ended June 30, 2020, the Company’s operating expenses totaled $8,342,412, compared to $13,668,299 for the nine months ended June 30, 2019, representing a 39% decrease. This decrease is primarily attributable to a decrease in stock based compensation expense.

19

Net Loss

	Nine months ended June 30,		Change
	2020	2019	Dollars	%
Net Loss attributable to NuZee, Inc.	$ 8,453,901	$ 13,436,197	$ (4,982,296)		(37%)

For the nine months ended June 30, 2020, we generated net losses attributable to NuZee, Inc. of $8,453,901, versus $13,436,197 for the nine months ended June 30, 2019. This improvement in net losses is primarily attributable to lower stock compensation expense.

Liquidity and Capital Resources

Since our inception in 2011, we have incurred significant losses, and as of June 30, 2020, we had an accumulated deficit of approximately $33 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 additional losses as a result of the costs associated with operating as an exchange-listed public company in the future.

To date, we have funded our operations primarily with proceeds from the public and private sale of shares of our common stock.

Our principal use of cash is to fund our operations, which includes the commercialization of our pour over coffee products, the continuation of efforts to improve our products, administrative support of our operations and other working capital requirements.

We may need to raise additional funds to support our operating activities, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. 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.

As of June 30, 2020, we had a cash balance of $5,215,809.

Summary of Cash Flows

	Nine Months Ended June 30,
	2020		2019
Cash used in operating activities		$(3,003,714)		$(2,949,569)
Cash provided (used) in investing activities		$93,694		$(1,220,333)
Cash provided by financing activities		$6,777,931		$5,422,065
Effect of foreign exchange on cash		$21,858		$2,601
Net increase in cash		$3,889,769		$1,254,764

Operating Activities

We used $3,003,714 and $2,949,569 of cash in operating activities during the nine months ended June 30, 2020 and 2019, respectively, principally to fund our operating loss. Excluding the impact of stock compensation expense, the increase in cash used in operating activities of $54,145 was primarily attributable to the increase in net loss for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019 partially offset by an improvement in cash flow from accounts receivables and inventories.

Investing Activities

We provided $93,694 of cash versus used $1,220,333 of cash in investing activities during the nine months ended June 30, 2020 and 2019, respectively, principally to fund the purchase of equipment.

Financing Activities

Historically, we have funded our operations primarily through the issuance of our common stock.

Cash provided by financing activities increased to $6,777,931 for the nine months ended June 30, 2020 from $5,422,065 for the nine months ended June 30, 2019. During the nine months ended June 30, 2020, we issued 811,738 shares of common stock which generated net cash proceeds of $6,867,786.

20

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 by our Company 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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and 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 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 Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective, at the reasonable assurance level, to ensure 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, in part due to the material weaknesses in our internal control over financial reporting described in our Annual Report on Form 10-K/A for the year ended September 30, 2019 filed with the SEC on December 31, 2019, which have not yet been remediated. Management is responsible for implementing changes and improvements to internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses. We will not consider these material weaknesses fully remediated until management has tested those internal controls and found them to be operating effectively.

Changes in Internal Control Over Financial Reporting

Other than as described above, there have been no changes in our internal control over financial reporting during the three-month period ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II.

Item 1. Legal Proceedings

From time to time, we may be subject to 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

Except as set forth below, there have been no changes to our risk factors from those disclosed in our annual report on Form 10-K/A filed with the SEC on December 31, 2019.

The COVID-19 pandemic is significantly affecting our operations and financial condition, and our liquidity could also be negatively impacted, particularly if the U.S. economy remains unstable for a significant amount of time.

The novel coronavirus (“COVID-19”) global pandemic is significantly affecting our business operations, as well as the U.S. economy and financial markets. As the COVID-19 crisis is still rapidly evolving, much of its impact remains unknown and difficult to predict. The COVID-19 crisis may have an adverse impact on our business and financial results that we are not currently able to fully quantify.

Broad economic factors resulting from the current COVID-19 pandemic, including increasing unemployment rates and reduced consumer spending, may affect our revenues and our ability to collect outstanding receivables. Business closings and layoffs, along with travel bans and restrictions and shelter-in-place or similar orders issued to combat the spread of COVID-19, may adversely affect demand for our products, as well as the ability of our customers to pay for goods delivered. 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. If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our liquidity may be harmed and the trading price of our common stock could decline significantly.

In addition, our results and financial condition may be adversely affected by federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the current COVID-19 pandemic which, if adopted, could result in direct or indirect restrictions to our business, financial condition, results of operations and cash flow. We may also be subject to lawsuits from employees and others exposed to COVID-19 at our facilities. Such actions may involve large demands, as well as substantial defense costs. Our professional and general liability insurance may not cover all claims against us.

The COVID-19 pandemic is significantly affecting our business operations.

In December 2019, COVID-19 originated in Wuhan, China, and quickly spread to infect many people in the city and surrounding area.  In some cases, COVID-19 causes severe illness and even death.  Since its discovery, COVID-19 has spread worldwide and significantly impacted global economies.  Restrictive measures that have been implemented in the United States and other countries to combat the virus and its spread, such as travel bans, social distancing, quarantines and shelter-in-place orders may also adversely affect our ability to produce as well as the demand for our products and therefore have an adverse effect on our operations, business and financial condition. 

We have a sales office in Japan and a manufacturing and sales office in Korea, and we source our manufacturing equipment and filters from East Asian companies. The continued spread of COVID-19 and implementation of restrictive measures may adversely affect our operations in North America and Asia and our business generally, depending on the extent of its spread of the virus, the rate of infection, the severity of illness and the probability of lethality, the relative effect on various portions of the population (such as the aged), the effect on international trade and commerce and on foreign and domestic travel generally of any measures taken to combat the virus, any action taken (such as the lowering of interest rates) by government entities to combat the negative macroeconomic effects of these measures, the timing and availability of any vaccine for the virus, and other factors. If such circumstances continue to deteriorate, our production capabilities and demand for our products may decline, which would have an adverse effect on our results of operations and financial condition.

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

None.

Item 3. Defaults Upon Senior Securities

None.

22

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6.  Exhibits

EXHIBIT NO.	DESCRIPTION
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***	Interactive Data Files
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*  Filed herewith

** Furnished herewith

** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed  or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

23

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 6, 2020	NUZEE, INC.
		By:	/s/ Masateru Higashida
			Masateru Higashida, Chief Executive Officer (Principal Executive Officer)
		By:	/s/ Shanoop Kothari
			Shanoop Kothari, Chief Financial Officer (Principal Financial Officer)

24

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Masateru Higashida, certify that:

1.I have reviewed this report on Form 10-Q of NuZee, Inc. for the quarter ended June 30, 2020; 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 

5.The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditor and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 

Date:	August 6, 2020	NUZEE, INC.
		By:	/s/ Masateru Higashida
			Masateru Higashida, Chief Executive Officer (Principal Executive Officer)

EX-31.2

Certification

EX-32.1

Certification

EX-32.2

Certification

XML

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2020	Aug. 03, 2020
Details
Registrant CIK	0001527613
Fiscal Year End	--09-30
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2020
Document Transition Report	false
Entity File Number	000-55157
Entity Registrant Name	NUZEE, INC.
Entity Incorporation, State or Country Code	NV
Entity Tax Identification Number	38-3849791
Entity Address, Address Line One	1700 Capital Avenue
Entity Address, Address Line Two	Suite 100
Entity Address, City or Town	Plano
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75074
Entity Address, Address Description	Address of principal executive offices
City Area Code	760
Local Phone Number	295-2408
Phone Fax Number Description	Registrant’s telephone number, including area code
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		14,557,755
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Current assets:
Cash	$ 5,215,809	$ 1,326,040
Accounts receivable, net	67,455	540,310
Accounts receivable - Related party	118	0
Inventories, net	274,975	500,986
Deferred offering costs	0	225,089
Other current assets	269,793	147,367
Other current assets - Related party	0	460
Total current assets	5,828,150	2,740,252
Property and equipment, net	1,736,432	1,875,591
Other assets:
Right-of-use asset - operating lease	645,882	0
Right-of-use asset - finance lease	112,050	0
Investment	160,000	0
Other asset	84,028	634,701
Total other assets	1,001,960	634,701
Total assets	8,566,542	5,250,544
Current liabilities:
Accounts payable	22,311	341,095
Current portion of long-term loan payable	101,345	101,148
Accrued expenses and other current liabilities	803,645	531,861
Current portion of lease liability - operating lease	216,454	0
Current portion of lease liability - finance lease	20,924	0
Other current liabilities - Related party	2,108	2,812
Total current liabilities	1,166,787	976,916
Non-current liabilities:
Lease liability - operating lease, net of current portion	435,420	0
Lease liability - finance lease, net of current portion	84,058	0
Loan payable - long term, net of current portion	80,803	156,816
Other noncurrent liabilities	8,894	1,750
Total non-current liabilities	609,175	158,566
Total liabilities	1,775,962	1,135,482
Stockholders' equity:
Common Stock, Value	145	137
Additional paid in capital	40,046,531	28,898,344
Accumulated deficit	(33,249,588)	(24,795,687)
Accumulated other comprehensive loss	(150,145)	(90,635)
Total NuZee, Inc. stockholders' equity	6,646,943	4,012,159
Noncontrolling interest	143,637	102,903
Total stockholders' equity	6,790,580	4,115,062
Total liabilities and stockholders' equity	$ 8,566,542	$ 5,250,544

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - Parenthetical - $ / shares	Jun. 30, 2020	Sep. 30, 2019
Details
Common Stock, Shares Authorized	100,000,000	100,000,000
Common Stock, Par or Stated Value Per Share	$ 0.00001	$ 0.00001
Common Stock, Shares, Issued	14,429,104	13,617,366
Common Stock, Shares, Outstanding	14,429,104	13,617,366

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Details
Revenues	$ 191,962	$ 585,202	$ 1,131,562	$ 1,304,566
Cost of sales	331,039	469,045	1,250,904	923,903
Gross Profit (Loss)	(139,077)	116,157	(119,342)	380,663
Operating expenses	2,378,947	9,514,003	8,342,412	13,668,299
Loss from operations	(2,518,024)	(9,397,846)	(8,461,754)	(13,287,636)
Other income	25,523	10,158	28,504	14,424
Other expense	(42,113)	(4,768)	(44,712)	(140,805)
Interest expense	(6,448)	(1,471)	(16,573)	(2,679)
Net loss	(2,541,062)	(9,393,927)	(8,494,535)	(13,416,696)
Net income (loss) attributable to noncontrolling interest	1,356	12,576	(40,634)	19,501
Net loss attributable to NuZee, Inc.	$ (2,542,418)	$ (9,406,503)	$ (8,453,901)	$ (13,436,197)
Basic and diluted loss per common share	$ (0.18)	$ (0.70)	$ (0.62)	$ (1.01)
Basic and diluted weighted average number of common stock outstanding	13,782,950	13,412,541	13,724,590	13,353,005

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Net loss	$ (2,541,062)	$ (9,393,927)	$ (8,494,535)	$ (13,416,696)
Foreign currency translation	10,739	(62,023)	21,858	(921)
Other Comprehensive Income (Loss), Net of Tax	10,739	(62,023)	21,858	(921)
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	(2,530,323)	(9,455,950)	(8,472,677)	(13,417,617)
Parent
Net loss	(2,542,418)	(9,406,503)	(8,453,901)	(13,436,197)
Foreign currency translation	10,209	(43,416)	(59,510)	(35,035)
Other Comprehensive Income (Loss), Net of Tax	10,209	(43,416)	(59,510)	(35,035)
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	(2,532,209)	(9,449,919)	(8,513,411)	(13,471,232)
Noncontrolling Interest
Net loss	1,356	12,576	(40,634)	19,501
Foreign currency translation	530	(18,607)	81,368	34,114
Other Comprehensive Income (Loss), Net of Tax	530	(18,607)	81,368	34,114
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	$ 1,886	$ (6,031)	$ 40,734	$ 53,615

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) - USD ($)	Common Stock	Additional Paid-in Capital	Retained Earnings	Noncontrolling Interest	AOCI Attributable to Parent	Total
Equity Balance, Starting at Sep. 30, 2018	$ 132	$ 14,957,491	$ (12,607,722)	$ 93,131	$ (30,967)	$ 2,412,065
Shares Outstanding, Starting at Sep. 30, 2018	13,194,591
Stock Issued During Period, Value, New Issues	$ 1	1,494,804	0	0	0	1,494,805
Stock Issued During Period, Shares, New Issues	116,891
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	1,789,751	0	0	0	1,789,751
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	0
Stock Issued During Period, Value, Other	$ 0	107,478	0	0	0	107,478
Stock Issued During Period, Shares, Other	5,118
NuZee foreign currency gain (loss)	$ 0	0	0	4,855	11,328	16,183
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest	$ 0	0	(2,576,692)	(11,714)	0	(2,588,406)
Shares Outstanding, Ending at Dec. 31, 2018	13,316,600
Equity Balance, Ending at Dec. 31, 2018	$ 133	18,349,524	(15,184,414)	86,272	(19,639)	3,231,876
Equity Balance, Starting at Sep. 30, 2018	$ 132	14,957,491	(12,607,722)	93,131	(30,967)	2,412,065
Shares Outstanding, Starting at Sep. 30, 2018	13,194,591
Other Comprehensive Gain (Loss)				34,114		(921)
Stock issuance costs						(27,628)
Shares Outstanding, Ending at Jun. 30, 2019	13,587,580
Equity Balance, Ending at Jun. 30, 2019	$ 136	31,035,225	(26,043,919)	146,746	(66,002)	5,072,186
Equity Balance, Starting at Dec. 31, 2018	$ 133	18,349,524	(15,184,414)	86,272	(19,639)	3,231,876
Shares Outstanding, Starting at Dec. 31, 2018	13,316,600
Stock Issued During Period, Value, New Issues	$ 0	228,204	0	0	0	228,204
Stock Issued During Period, Shares, New Issues	13,870
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	481,742	0	0	0	481,742
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	0
Stock Issued During Period, Value, Other	$ 0	16,445	0	0	0	16,445
Stock Issued During Period, Shares, Other	843
NuZee foreign currency gain (loss)	$ 0	0	0	47,866	(2,947)	44,919
Stock issuance costs	0	(27,628)	0	0	0	(27,628)
Stock Issued During Period, Value, Issued for Services	$ 1	37,499	0	0	0	37,500
Stock Issued During Period, Shares, Issued for Services	50,000
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest	$ 0	0	(1,453,002)	18,639	0	(1,434,363)
Shares Outstanding, Ending at Mar. 31, 2019	13,381,313
Equity Balance, Ending at Mar. 31, 2019	$ 134	19,085,786	(16,637,416)	152,777	(22,586)	2,578,695
Stock Issued During Period, Value, New Issues	$ 2	3,612,181	0	0	0	3,612,183
Stock Issued During Period, Shares, New Issues	206,267
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	8,337,258	0	0	0	8,337,258
Other Comprehensive Gain (Loss)				(18,607)		(62,023)
NuZee foreign currency gain (loss)	0	0	0	(18,607)	(43,416)	(62,023)
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest	$ 0	0	(9,406,503)	12,576	0	(9,393,927)
Shares Outstanding, Ending at Jun. 30, 2019	13,587,580
Equity Balance, Ending at Jun. 30, 2019	$ 136	31,035,225	(26,043,919)	146,746	(66,002)	5,072,186
Equity Balance, Starting at Sep. 30, 2019	$ 137	28,898,344	(24,795,687)	102,903	(90,635)	4,115,062
Shares Outstanding, Starting at Sep. 30, 2019	13,617,366
Stock Issued During Period, Value, New Issues	$ 1	1,994,522	0	0	0	1,994,523
Stock Issued During Period, Shares, New Issues	111,738
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	2,220,861	0	0	0	2,220,861
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	0
Other Comprehensive Gain (Loss)	$ 0	0	0	5,642	27,230	32,872
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest	$ 0	0	(3,421,232)	(11,021)	0	(3,432,253)
Shares Outstanding, Ending at Dec. 31, 2019	13,729,104
Equity Balance, Ending at Dec. 31, 2019	$ 138	33,113,727	(28,216,919)	97,524	(63,405)	4,931,065
Equity Balance, Starting at Sep. 30, 2019	$ 137	28,898,344	(24,795,687)	102,903	(90,635)	4,115,062
Shares Outstanding, Starting at Sep. 30, 2019	13,617,366
Other Comprehensive Gain (Loss)				81,368		21,858
Stock issuance costs						0
Shares Outstanding, Ending at Jun. 30, 2020	14,429,104
Equity Balance, Ending at Jun. 30, 2020	$ 145	40,046,531	(33,249,588)	143,637	(150,145)	6,790,580
Equity Balance, Starting at Dec. 31, 2019	$ 138	33,113,727	(28,216,919)	97,524	(63,405)	4,931,065
Shares Outstanding, Starting at Dec. 31, 2019	13,729,104
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	962,490	0	0	0	962,490
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	0
Other Comprehensive Gain (Loss)	$ 0	0	0	75,196	(96,949)	(21,753)
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest	$ 0	0	(2,490,251)	(30,969)	0	(2,521,220)
Shares Outstanding, Ending at Mar. 31, 2020	13,729,104
Equity Balance, Ending at Mar. 31, 2020	$ 138	34,076,217	(30,707,170)	141,751	(160,354)	3,350,582
Stock Issued During Period, Value, New Issues	$ 7	4,648,167	0	0	0	4,648,174
Stock Issued During Period, Shares, New Issues	700,000
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture	$ 0	1,322,147	0	0	0	1,322,147
Other Comprehensive Gain (Loss)	0	0	0	530	10,209	10,739
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest	$ 0	0	(2,542,418)	1,356	0	(2,541,062)
Shares Outstanding, Ending at Jun. 30, 2020	14,429,104
Equity Balance, Ending at Jun. 30, 2020	$ 145	$ 40,046,531	$ (33,249,588)	$ 143,637	$ (150,145)	$ 6,790,580

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating activities:
Net loss	$ (8,494,535)	$ (13,416,696)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and Amortization	310,393	165,752
Noncash lease expense	101,505	0
Option expense	4,505,498	10,608,751
Inventory impairment	74,944	27,983
Allowance for sales return	3,835	22,510
Loss on sale of assets	43,012	6,096
Loss on settlement of payable	0	91,684
Common stock issued for services	0	37,500
Change in operating assets and liabilities:
Accounts receivable	469,020	(235,860)
Accounts receivable - Related party	(118)	105
Inventories	151,067	(182,962)
Other current assets	(122,426)	(144,934)
Increase (Decrease) in Contract with Customer, Asset	460	(681)
Other asset	(41,767)	(649)
Accounts payable	(199,763)	116,005
Other current liabilities - related party	(704)	(1,714)
Other noncurrent liabilities	7,144	(6,317)
Operating lease liabilities	(83,063)	0
Accrued expense and other current liabilities	271,784	(36,142)
Net cash used by operating activities	(3,003,714)	(2,949,569)
Investing activities:
Purchase of equipment	(16,306)	(1,243,933)
Proceeds from sales of equipment	110,000	23,600
Net cash provided (used) in investing activities	93,694	(1,220,333)
Financing activities:
Repayment of finance lease	(14,039)	0
Repayment of loans	(75,816)	(32,580)
Borrowing of loans	0	147,081
Stock issuance costs	0	(27,628)
Proceeds from issuance of common stock	6,867,786	5,335,192
Net cash provided by financing activities	6,777,931	5,422,065
Effect of foreign exchange on cash and cash equivalents	21,858	2,601
Net change in cash	3,889,769	1,254,764
Cash and Cash Equivalents, at Carrying Value, Beginning Balance	1,326,040	1,806,666
Cash and Cash Equivalents, at Carrying Value, Ending Balance	5,215,809	3,061,430
Supplemental disclosure of cash flow information:
Cash paid for interest	16,573	183
Cash paid for taxes	800	0
Noncash investing and financing activities:
Stock issued to settle payables	0	32,239
Equipment purchased through debt	0	38,127
Equipment purchased on credit	0	218,140
Recognition of right-of-use asset and lease liability upon adoption of ASU 2016-02	517,263	0
Recognition of right-of-use asset and lease liability during the period	217,674	0
Finance lease of equipment to pay off accounts payable	124,500	0
Investment in NLA	$ 160,000	$ 0

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jun. 30, 2020

Notes

1. 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/A for the year ended September 30, 2019 as filed with the SEC on December 31, 2019. 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.

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, its wholly owned subsidiaries and its majority owned subsidiary, which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

The Company has three international subsidiaries in NuZee KOREA Ltd. ("NuZee KR"), NuZee JAPAN Co., Ltd ("NuZee JP") and NuZee Investment Co., Ltd. ("NuZee INV"). NuZee KR and NuZee INV are wholly owned subsidiaries of the Company, and NuZee JP is a majority owned subsidiary of the Company.

Stock Split

On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019. All share and per share information included in these financial statements and notes thereto 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 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, 2020 and June 30, 2019, the total number of common stock equivalents was 1,725,000 and 1,787,333, respectively, comprised entirely of stock options. The Company incurred a net loss for the three and nine months ended June 30, 2020 and 2019, 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 and Capital Resources

Since its inception on July 15, 2011, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues.

As of June 30, 2020, the Company had cash of $5,215,809. The Company has not attained profitable operations since inception.

The accompanying 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 and is dependent on sales of its equity, including to its majority shareholder, 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 its majority shareholder 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 nine months ended June 30, 2020 and 2019, revenue was primarily derived from major customers disclosed below.

Nine months ended June 30, 2020:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer K	$ 284,099	25%	$ -	0%
Customer WP	$ 259,925	23%	$7,767	11%
Customer J	$ 188,574	17%	$175	0%

Nine months ended June 30, 2019:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer J	$333,971	26 %	$ -	0%
Customer WP	$254,765	20%	$ 153,344	28%
Customer C	$153,167	12%	$ 55,245	10%

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 core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the consolidated balance sheet. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The Company implemented ASU No. 2016-02 on October 1, 2019.

The Company elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earlies comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at October 1, 2019 but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

Beginning October 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to October 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of October 1, 2019. Because the lease in question did not have an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on ROU Asset lease is 5%.

The Company does a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. As of October 1, 2019, the Company had 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 of 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.

The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning October 1, 2019, through the recognition of ROU assets and lease liabilities for operating leases are as follows:

	October 1, 2019
ROU Assets	$517,263
Lease Liability	$517,263

During the June 30, 2020 analysis of leases, we determined to renew the office and manufacturing space in Vista, CA through January 31, 2022, which was previously scheduled to be vacated at June 30, 2020. Additionally, the Korean office and manufacturing space lease was extended through June 2022 and an apartment lease was signed through June 2022. Accordingly, we have added ROU assets and lease liabilities related to those leases at June 30, 2020.

The direct-leased property in Vista, California has a remaining lease term through January of 2022. The leased properties in both Korea and Vista, California have options to extend beyond the stated termination date, but exercise of these options are not probable. The sub-leased property in Vista, California, is leased month-to-month and has been calculated as a ROU Asset co-terminous with the direct-leased property.

As of June 30, 2020, our operating leases had a weighted average remaining lease term of 3.1 years. Other information related to our operating leases is as follows:

ROU Asset – October 1, 2019	$ 517,263
ROU Asset added during the period	217,674
Amortization during the period	(89,055)
ROU Asset – June 30, 2020	$ 645,882
Lease Liability – October 1, 2019	$ 517,263
Lease Liability added during the period	217,674
Amortization during the period	(83,063)
Lease Liability – June 30, 2020	$ 651,874

Lease Liability – Short-Term	$ 216,454
Lease Liability – Long-Term	435,420
Lease Liability – Total	$ 651,874

During the nine months ended June 30, 2020, we had the following cash and non-cash activities associated with our leases:

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$103,298
Operating cash flows from finance leases	$10,794
Financing cash flows from finance leases	$14,039
Non-cash transactions:
Recognition of ROU asset and lease liability of operating lease upon adoption of ASU 2016-02	$517,263
Additions to ROU assets obtained from:
New operating lease:	$217,674
New finance lease:	$124,500

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, 2020:

Amounts due within 12 months of June 30,

2021	$ 243,941
2022	206,711
2023	126,091
2024	129,873
2025	-
Total Minimum Lease Payments	706,616
Less Effect of Discounting	54,742
Present Value of Future Minimum Lease Payments	651,874
Less Current Portion of Operating Lease Obligations	216,454
Long-Term Operating Lease Obligations	$ 435,420

NuZee JP is the lessee of certain equipment under a finance lease extending through January 2021. The asset and liability under the finance 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 $4,536 as of June 30, 2020. The finance lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under finance lease obligations as of June 30, 2020 for each of the remaining fiscal years are as follows:

2020	$2,268
2021	$2,268
Total Minimum Lease Payments	$4,536

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 for the next 60 months. As part of this agreement, Alliance Funding Group provided our equipment supplier with $124,540 for the purchase of this equipment. This transaction was accounted for as a financing lease.

The following summarizes ROU assets under finance leases at June 30, 2020:

ROU asset-finance lease at October 9, 2019	$ 124,500
Amortization	(12,450)
ROU asset-finance lease at June 30, 2020	$ 112,050

The table below summarizes future minimum finance lease payments at June 30, 2020 for the 12 months ended June 30 of each year indicated:

2021	$ 33,113
2022	33,113
2023	33,113
2024	33,113
2025	2,759
Total Minimum Lease Payments	135,211
Amount representing interest	(30,229)
Present Value of Minimum Lease Payments	104,982
Current Portion of Finance Lease Obligations	20,924
Finance Lease Obligations, Less Current Portion	$ 84,058

The Company leases office space with terms ranging from month to month to 61 months. Rent expense included in general and administrative expense for the nine months ended June 30, 2020 and 2019 was $251,207 and $99,526, respectively.

Future minimum rents for the office space leased as of June 30, 2020, for each of the remaining fiscal years are as follows:

2020	$   69,264
2021	$ 278,530
2022	$ 208,885
2023	$ 160,149
2024	$ 124,999
Total Minimum Lease Payments	$ 841,827

Loans

On June 30, 2016, NuZee JP entered into a loan agreement with Tono Shinyo Kinko Bank. NuZee JP 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 outstanding balance on the loan at June 30, 2020 amounted to $27,835. On January 27, 2017, NuZee JP entered into a loan agreement with Nihon Seisaku Kouko. NuZee JP borrowed 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 outstanding balance on the loan at June 30, 2020 amounted to $30,060.

On April 1, 2019, NuZee 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, 2020 amounted to $29,757.

On February 15, 2019 NuZee KR entered into equipment financing for production equipment with ShinHan Bank for $60,563. In June 28, 2019 NuZee KR purchased additional equipment and increased the loan with ShinHan Bank by $86,518. The loan is secured by our production equipment at NuZee KR. The financing bears a term of 36 months at a rate of 4.33% per annum. Principal payments began in July of 2019. The outstanding balance on this loan at June 30, 2020 amounts to $94,496.

The loan payments required for the next five remaining fiscal years are as follows:

		Nihon	Ford
	Tono Shinyo	Seisaku	Motor	ShinHan
	Kinko Bank	Kouko	Credit	Bank	Total
2020	$ 6,959	$ 4,704	$ 1,841	$ 11,812
2021	20,876	14,112	5,605	35,436
Total Current Portion	$ 27,835	$ 18,816	$ 7,446	$ 47,248	$ 101,345
2021		$ 4,704	$ 1,895	$ 11,812
2022		6,540	7,720	35,436
2023			7,947
2024			4,749
Total Long Term Portion		$ 11,244	$ 22,311	$ 47,248	$ 80,803
Grand Total	$ 27,835	$ 30,060	$ 29,757	$ 94,496	$ 182,148

Revenue Recognition

We determine revenue recognition through the following steps in accordance with FASB Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers", which we adopted as of October 1, 2018 on a modified retrospective basis:

·identification of the contract, or contracts, with a customer; 

·identification of the performance obligations in the contract; 

·determination of the transaction price; 

·allocation of the transaction price to the performance obligations in the contract; and 

·recognition of revenue when, or as, we satisfy a performance obligation. 

Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Foreign Currency Translation

The financial position and results of operations of each of the Company's foreign subsidiary 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 comprising accumulated other comprehensive loss amounted to $(59,510) and $(35,035) for the nine months ended June 30, 2020 and 2019, 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.

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, 2020 and September 30, 2019, the carrying value of inventory of $274,975 and $500,986 respectively, reflected on the consolidated balance sheets is net of this adjustment.

	June 30, 2020	September 30, 2019
Raw materials	$   15,585	$ 327,985
Finished goods	259,390	173,001
Less – Inventory reserve	-	-
Total	$ 274,975	$ 500,986

Recent Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07 which simplifies several aspects of the accounting for non-employee transactions by stipulating that the existing accounting guidance for share-based payments to employees (accounted for under ASC Topic 718, "Compensation-Stock

Compensation") will also apply to non-employee share-based transactions (accounted for under ASC Topic 505, "Equity"). ASU 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company implemented ASU 2018-07 on October 1, 2019 and the impact of the implementation is not material to the financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company implemented ASU 2017-11 on October 1, 2019, and the impact of the implementation is not material to the financial statements.

Joint Venture

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, S.A. de C.V. ("NLA"). NLA was formed pursuant to the laws of Mexico, with corporate domicile in Mazatlan, Mexico. As part of the capitalization of NLA, the Company contributed two 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 will account for NLA using the equity method of accounting. As of June 30, 2020, the only activity in NLA was the contribution of two machines as described above.

XML

2. GEOGRAPHIC CONCENTRATION

9 Months Ended

Jun. 30, 2020

Notes

2. GEOGRAPHIC CONCENTRATION

2.  GEOGRAPHIC CONCENTRATION

The Company is organized based on fundamentally one geographic segment although it does sell its products on a world-wide basis. Information about the Company’s geographic operations are as follows:

Geographic Concentrations	Nine Months Ended	Nine Months Ended
	June 30, 2020	June 30, 2019
Net Revenue:
North America	$   756,000	$   715,702
Japan	258,526	549,431
South Korea	117,036	39,433
	$ 1,131,562	$ 1,304,566
Property and equipment, net:	As of June 30, 2020	As of September 30, 2019
North America	$ 1,459,948	$ 1,471,859
Japan	3,424	6,329
South Korea	273,060	397,403
	$ 1,736,432	$ 1,875,591

XML

3. RELATED PARTY TRANSACTIONS

9 Months Ended

Jun. 30, 2020

Notes

3. RELATED PARTY TRANSACTIONS

3.  RELATED PARTY TRANSACTIONS

Sales, Purchases and Operating Expenses

For the nine months ended June 30, 2020 and 2019, NuZee JP sold their products to Eguchi Holdings Co., Ltd ("EHCL"), and the sales to them totaled approximately $3,154 and $3,174 respectively. The corresponding accounts receivable balance from EHCL was $118 and $(106) as of June 30, 2020 and September 30, 2019, respectively. EHCL is controlled by Mr. Katsuyoshi Eguchi, who beneficially owns in excess of 5% of NuZee’s outstanding common stock and serves as the chief executive officer of NuZee JP.

Rent

During October 2016, NuZee JP entered into a rental agreement of an office space with NuZee Co., Ltd., an entity 100% beneficially owned by our chief executive officer. The Company pays $1,169 per month for the office on the last day of each month on behalf of NuZee JP. There is no set expiration date on the agreement. As of June 30, 2020, and September 30, 2019, NuZee JP had a payable balance to NuZee Co., Ltd. of $1,503 and $1,552, respectively.

During September 2016, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company pays $609 per month for the office and the warehouse on the last day of each month. The lease expired on December 31, 2019, and is expected to continue on a month-to-month basis. At June 30, 2020 and September 30, 2019, the payable balance under this lease was $605 and $1,154, respectively.

During February 2015, the Company entered into a rental agreement of a warehouse with Eguchi Steel Co.,Ltd ("ESCL"). The Company pays $449 per month for the warehouse on the last day of each month. There is no set expiration date on the agreement.

XML

4. COMMON STOCK

9 Months Ended

Jun. 30, 2020

Notes

4. COMMON STOCK

4.  COMMON STOCK

During the nine months ended June 30, 2020, the Company sold (i) 111,738 shares of common stock at a weighted average price of $17.85 per share, for an aggregate purchase price of $1,994,523 pursuant to private offerings of common stock and (ii) 700,000 shares of common stock at a price of $9.00 per share for an aggregate purchase price of $6,300,000 pursuant to the Company’s underwritten public offering of common stock. After deducting underwriting commission of $500,837, and expenses paid by the Company that were directly attributable to the registered offering of $1,150,989, including $225,089 that was paid in the year ended September 30, 2019, the Company received net proceeds from the registered public offering of common stock of $4,648,174. All discounts, fees, and expenses are treated as a reduction of the Company’s additional paid-in capital balance.

See Note 6 – Subsequent Events for more information.

XML

5. STOCK OPTIONS AND WARRANTS

9 Months Ended

Jun. 30, 2020

Notes

5. STOCK OPTIONS AND WARRANTS

5.  STOCK OPTIONS AND WARRANTS

The following table summarizes stock option activity for nine months ended June 30, 2020:

		Weighted	Weighted
		Average	Average
	Number of	Exercise	Remaining	Aggregate
	Shares	Price	Contractual Life (years)	Intrinsic Value
Outstanding at September 30, 2019	1,811,667	$ 6.86	8.4	$ 33,705,960
Granted	23,333	1.53
Exercised	-	-
Expired	-	-
Forfeited	(110,000)	18.14
Outstanding at June 30, 2020	1,725,000	$ 6.07	7.5	10,243,687
Exercisable at June 30, 2020	663,750	$ 6.83	7.4	$   3,802,116

The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock option expenses of $4,505,498 for the nine months ended June 30, 2020. Unamortized option expense as of June 30, 2020, for all options outstanding amounted to $4,566,831. These costs are expected to be recognized over a weighted- average period of 2.1 years. The Company recognized stock option expenses of $10,608,751 for the nine months ended June 30, 2019.

On June 23, 2020, as part of our agreement with Benchmark Company, LLC the underwriter of the Company’s registered public offering of common stock, we issued 40,250 warrants to purchase our common stock at an exercise price of $9.00 a share. These warrants are exercisable beginning on December 23, 2020 and expire on June 18, 2025.

A summary of the status of the Company’s nonvested options as of June 30, 2020, is presented below:

Nonvested options
	Number of
	Nonvested Shares
Nonvested shares at September 30, 2019	1,355,000
Granted	23,333
Exercised	-
Forfeited	(110,000)
Vested	(207,083)
Nonvested shares at June 30, 2020	1,061,250

The following table summarizes warrant activity for the nine months ended June 30, 2020:

		Weighted	Weighted
		Average	Average
	Number of	Exercise	Remaining	Aggregate
	Warrants	Price	Contractual Life (years)	Intrinsic Value
Outstanding at September 30, 2019	-	$      -		$             -
Granted	40,250	9.00
Exercised	-	-
Expired	-	-
Forfeited	-	-
Outstanding at June 30, 2020	40,250	$ 9.00	5.0	36,012
Exercisable at June 30, 2020	-	$      -		$             -

XML

6. SUBSEQUENT EVENT

9 Months Ended

Jun. 30, 2020

Notes

6. SUBSEQUENT EVENT

6.  SUBSEQUENT EVENT

Exercise of over-allotment option

On July 21, 2020, the underwriters in the Company’s registered public offering of common stock exercised their over-allotment option, resulting in the issuance of an additional 105,000 shares at $9.00 per share. As part of this exercise, the Company received net proceeds of $878,850 (net of underwriting commissions).

Exercise of options

On July 31, 2020, 23,334 shares were issued upon the exercise of stock options. As part of this exercise, the Company received $35,700 in proceeds.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Accounting, Policy (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Basis of Accounting, Policy

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/A for the year ended September 30, 2019 as filed with the SEC on December 31, 2019. 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.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reclassification (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Reclassification

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.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Principles of Consolidation

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, its wholly owned subsidiaries and its majority owned subsidiary, which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

The Company has three international subsidiaries in NuZee KOREA Ltd. ("NuZee KR"), NuZee JAPAN Co., Ltd ("NuZee JP") and NuZee Investment Co., Ltd. ("NuZee INV"). NuZee KR and NuZee INV are wholly owned subsidiaries of the Company, and NuZee JP is a majority owned subsidiary of the Company.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Stock Split (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Stock Split

Stock Split

On October 28, 2019, we completed a l-for-3 reverse stock split, which became effective on November 12, 2019. All share and per share information included in these financial statements and notes thereto give effect to the reverse stock split.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Earnings per Share (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Earnings per Share

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 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, 2020 and June 30, 2019, the total number of common stock equivalents was 1,725,000 and 1,787,333, respectively, comprised entirely of stock options. The Company incurred a net loss for the three and nine months ended June 30, 2020 and 2019, respectively, and therefore basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Going Concern and Capital Resources (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Going Concern and Capital Resources

Going Concern and Capital Resources

Since its inception on July 15, 2011, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has generated limited revenues from its principal operations, and there is no assurance of future revenues.

As of June 30, 2020, the Company had cash of $5,215,809. The Company has not attained profitable operations since inception.

The accompanying 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 and is dependent on sales of its equity, including to its majority shareholder, 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 its majority shareholder 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.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Major Customers (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Major Customers

Major Customers

In the nine months ended June 30, 2020 and 2019, revenue was primarily derived from major customers disclosed below.

Nine months ended June 30, 2020:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer K	$ 284,099	25%	$ -	0%
Customer WP	$ 259,925	23%	$7,767	11%
Customer J	$ 188,574	17%	$175	0%

Nine months ended June 30, 2019:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer J	$333,971	26 %	$ -	0%
Customer WP	$254,765	20%	$ 153,344	28%
Customer C	$153,167	12%	$ 55,245	10%

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Lease

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 core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the consolidated balance sheet. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The Company implemented ASU No. 2016-02 on October 1, 2019.

The Company elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earlies comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at October 1, 2019 but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

Beginning October 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to October 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of October 1, 2019. Because the lease in question did not have an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on ROU Asset lease is 5%.

The Company does a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. As of October 1, 2019, the Company had 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 of 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.

The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning October 1, 2019, through the recognition of ROU assets and lease liabilities for operating leases are as follows:

	October 1, 2019
ROU Assets	$517,263
Lease Liability	$517,263

During the June 30, 2020 analysis of leases, we determined to renew the office and manufacturing space in Vista, CA through January 31, 2022, which was previously scheduled to be vacated at June 30, 2020. Additionally, the Korean office and manufacturing space lease was extended through June 2022 and an apartment lease was signed through June 2022. Accordingly, we have added ROU assets and lease liabilities related to those leases at June 30, 2020.

The direct-leased property in Vista, California has a remaining lease term through January of 2022. The leased properties in both Korea and Vista, California have options to extend beyond the stated termination date, but exercise of these options are not probable. The sub-leased property in Vista, California, is leased month-to-month and has been calculated as a ROU Asset co-terminous with the direct-leased property.

As of June 30, 2020, our operating leases had a weighted average remaining lease term of 3.1 years. Other information related to our operating leases is as follows:

ROU Asset – October 1, 2019	$ 517,263
ROU Asset added during the period	217,674
Amortization during the period	(89,055)
ROU Asset – June 30, 2020	$ 645,882
Lease Liability – October 1, 2019	$ 517,263
Lease Liability added during the period	217,674
Amortization during the period	(83,063)
Lease Liability – June 30, 2020	$ 651,874

Lease Liability – Short-Term	$ 216,454
Lease Liability – Long-Term	435,420
Lease Liability – Total	$ 651,874

During the nine months ended June 30, 2020, we had the following cash and non-cash activities associated with our leases:

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$103,298
Operating cash flows from finance leases	$10,794
Financing cash flows from finance leases	$14,039
Non-cash transactions:
Recognition of ROU asset and lease liability of operating lease upon adoption of ASU 2016-02	$517,263
Additions to ROU assets obtained from:
New operating lease:	$217,674
New finance lease:	$124,500

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, 2020:

Amounts due within 12 months of June 30,

2021	$ 243,941
2022	206,711
2023	126,091
2024	129,873
2025	-
Total Minimum Lease Payments	706,616
Less Effect of Discounting	54,742
Present Value of Future Minimum Lease Payments	651,874
Less Current Portion of Operating Lease Obligations	216,454
Long-Term Operating Lease Obligations	$ 435,420

NuZee JP is the lessee of certain equipment under a finance lease extending through January 2021. The asset and liability under the finance 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 $4,536 as of June 30, 2020. The finance lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under finance lease obligations as of June 30, 2020 for each of the remaining fiscal years are as follows:

2020	$2,268
2021	$2,268
Total Minimum Lease Payments	$4,536

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 for the next 60 months. As part of this agreement, Alliance Funding Group provided our equipment supplier with $124,540 for the purchase of this equipment. This transaction was accounted for as a financing lease.

The following summarizes ROU assets under finance leases at June 30, 2020:

ROU asset-finance lease at October 9, 2019	$ 124,500
Amortization	(12,450)
ROU asset-finance lease at June 30, 2020	$ 112,050

The table below summarizes future minimum finance lease payments at June 30, 2020 for the 12 months ended June 30 of each year indicated:

2021	$ 33,113
2022	33,113
2023	33,113
2024	33,113
2025	2,759
Total Minimum Lease Payments	135,211
Amount representing interest	(30,229)
Present Value of Minimum Lease Payments	104,982
Current Portion of Finance Lease Obligations	20,924
Finance Lease Obligations, Less Current Portion	$ 84,058

The Company leases office space with terms ranging from month to month to 61 months. Rent expense included in general and administrative expense for the nine months ended June 30, 2020 and 2019 was $251,207 and $99,526, respectively.

Future minimum rents for the office space leased as of June 30, 2020, for each of the remaining fiscal years are as follows:

2020	$   69,264
2021	$ 278,530
2022	$ 208,885
2023	$ 160,149
2024	$ 124,999
Total Minimum Lease Payments	$ 841,827

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Revenue Recognition (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Revenue Recognition

Revenue Recognition

We determine revenue recognition through the following steps in accordance with FASB Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers", which we adopted as of October 1, 2018 on a modified retrospective basis:

·identification of the contract, or contracts, with a customer; 

·identification of the performance obligations in the contract; 

·determination of the transaction price; 

·allocation of the transaction price to the performance obligations in the contract; and 

·recognition of revenue when, or as, we satisfy a performance obligation. 

Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Foreign Currency Translation (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Foreign Currency Translation

Foreign Currency Translation

The financial position and results of operations of each of the Company's foreign subsidiary 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 comprising accumulated other comprehensive loss amounted to $(59,510) and $(35,035) for the nine months ended June 30, 2020 and 2019, 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.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Inventories (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Inventories

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, 2020 and September 30, 2019, the carrying value of inventory of $274,975 and $500,986 respectively, reflected on the consolidated balance sheets is net of this adjustment.

	June 30, 2020	September 30, 2019
Raw materials	$   15,585	$ 327,985
Finished goods	259,390	173,001
Less – Inventory reserve	-	-
Total	$ 274,975	$ 500,986

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Recent Accounting Pronouncements (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07 which simplifies several aspects of the accounting for non-employee transactions by stipulating that the existing accounting guidance for share-based payments to employees (accounted for under ASC Topic 718, "Compensation-Stock

Compensation") will also apply to non-employee share-based transactions (accounted for under ASC Topic 505, "Equity"). ASU 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company implemented ASU 2018-07 on October 1, 2019 and the impact of the implementation is not material to the financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company implemented ASU 2017-11 on October 1, 2019, and the impact of the implementation is not material to the financial statements.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Joint Venture (Policies)

9 Months Ended

Jun. 30, 2020

Policies

Joint Venture

Joint Venture

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, S.A. de C.V. ("NLA"). NLA was formed pursuant to the laws of Mexico, with corporate domicile in Mazatlan, Mexico. As part of the capitalization of NLA, the Company contributed two 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 will account for NLA using the equity method of accounting. As of June 30, 2020, the only activity in NLA was the contribution of two machines as described above.

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Major Customers: Schedule of Revenue by Major Customers by Reporting Segments (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Revenue by Major Customers by Reporting Segments

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer K	$ 284,099	25%	$ -	0%
Customer WP	$ 259,925	23%	$7,767	11%
Customer J	$ 188,574	17%	$175	0%

Nine months ended June 30, 2019:

Customer Name	Sales Amount	% of Total Revenue	Accounts Receivable Amount	% of Total Accounts Receivable
Customer J	$333,971	26 %	$ -	0%
Customer WP	$254,765	20%	$ 153,344	28%
Customer C	$153,167	12%	$ 55,245	10%

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of ROU Assets and Lease Liability (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of ROU Assets and Lease Liability

	October 1, 2019
ROU Assets	$517,263
Lease Liability	$517,263

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Other information related to operating lease (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Other information related to operating lease

ROU Asset – October 1, 2019	$ 517,263
ROU Asset added during the period	217,674
Amortization during the period	(89,055)
ROU Asset – June 30, 2020	$ 645,882
Lease Liability – October 1, 2019	$ 517,263
Lease Liability added during the period	217,674
Amortization during the period	(83,063)
Lease Liability – June 30, 2020	$ 651,874

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Total Lease Liability (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Total Lease Liability

Lease Liability – Short-Term	$ 216,454
Lease Liability – Long-Term	435,420
Lease Liability – Total	$ 651,874

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Cash and non-cash activities associated with leases (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Cash and non-cash activities associated with leases

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$103,298
Operating cash flows from finance leases	$10,794
Financing cash flows from finance leases	$14,039
Non-cash transactions:
Recognition of ROU asset and lease liability of operating lease upon adoption of ASU 2016-02	$517,263
Additions to ROU assets obtained from:
New operating lease:	$217,674
New finance lease:	$124,500

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Amounts due on lease liabilities (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Amounts due on lease liabilities

2021	$ 243,941
2022	206,711
2023	126,091
2024	129,873
2025	-
Total Minimum Lease Payments	706,616
Less Effect of Discounting	54,742
Present Value of Future Minimum Lease Payments	651,874
Less Current Portion of Operating Lease Obligations	216,454
Long-Term Operating Lease Obligations	$ 435,420

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Future Minimum Lease Payments for Capital Leases (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Future Minimum Lease Payments for Capital Leases

2020	$2,268
2021	$2,268
Total Minimum Lease Payments	$4,536

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of ROU assets under finance leases (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of ROU assets under finance leases

The following summarizes ROU assets under finance leases at June 30, 2020:

ROU asset-finance lease at October 9, 2019	$ 124,500
Amortization	(12,450)
ROU asset-finance lease at June 30, 2020	$ 112,050

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of future minimum finance lease payments (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of future minimum finance lease payments

The table below summarizes future minimum finance lease payments at June 30, 2020 for the 12 months ended June 30 of each year indicated:

2021	$ 33,113
2022	33,113
2023	33,113
2024	33,113
2025	2,759
Total Minimum Lease Payments	135,211
Amount representing interest	(30,229)
Present Value of Minimum Lease Payments	104,982
Current Portion of Finance Lease Obligations	20,924
Finance Lease Obligations, Less Current Portion	$ 84,058

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

2020	$   69,264
2021	$ 278,530
2022	$ 208,885
2023	$ 160,149
2024	$ 124,999
Total Minimum Lease Payments	$ 841,827

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Loans (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Loans

Loans

On June 30, 2016, NuZee JP entered into a loan agreement with Tono Shinyo Kinko Bank. NuZee JP 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 outstanding balance on the loan at June 30, 2020 amounted to $27,835. On January 27, 2017, NuZee JP entered into a loan agreement with Nihon Seisaku Kouko. NuZee JP borrowed 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 outstanding balance on the loan at June 30, 2020 amounted to $30,060.

On April 1, 2019, NuZee 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, 2020 amounted to $29,757.

On February 15, 2019 NuZee KR entered into equipment financing for production equipment with ShinHan Bank for $60,563. In June 28, 2019 NuZee KR purchased additional equipment and increased the loan with ShinHan Bank by $86,518. The loan is secured by our production equipment at NuZee KR. The financing bears a term of 36 months at a rate of 4.33% per annum. Principal payments began in July of 2019. The outstanding balance on this loan at June 30, 2020 amounts to $94,496.

The loan payments required for the next five remaining fiscal years are as follows:

		Nihon	Ford
	Tono Shinyo	Seisaku	Motor	ShinHan
	Kinko Bank	Kouko	Credit	Bank	Total
2020	$ 6,959	$ 4,704	$ 1,841	$ 11,812
2021	20,876	14,112	5,605	35,436
Total Current Portion	$ 27,835	$ 18,816	$ 7,446	$ 47,248	$ 101,345
2021		$ 4,704	$ 1,895	$ 11,812
2022		6,540	7,720	35,436
2023			7,947
2024			4,749
Total Long Term Portion		$ 11,244	$ 22,311	$ 47,248	$ 80,803
Grand Total	$ 27,835	$ 30,060	$ 29,757	$ 94,496	$ 182,148

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Schedule of Loan Payments (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Loan Payments

		Nihon	Ford
	Tono Shinyo	Seisaku	Motor	ShinHan
	Kinko Bank	Kouko	Credit	Bank	Total
2020	$ 6,959	$ 4,704	$ 1,841	$ 11,812
2021	20,876	14,112	5,605	35,436
Total Current Portion	$ 27,835	$ 18,816	$ 7,446	$ 47,248	$ 101,345
2021		$ 4,704	$ 1,895	$ 11,812
2022		6,540	7,720	35,436
2023			7,947
2024			4,749
Total Long Term Portion		$ 11,244	$ 22,311	$ 47,248	$ 80,803
Grand Total	$ 27,835	$ 30,060	$ 29,757	$ 94,496	$ 182,148

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Inventories: Schedule of Inventory, Current (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Inventory, Current

	June 30, 2020	September 30, 2019
Raw materials	$   15,585	$ 327,985
Finished goods	259,390	173,001
Less – Inventory reserve	-	-
Total	$ 274,975	$ 500,986

XML

2. GEOGRAPHIC CONCENTRATION: Schedule of Geographic Operations (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Geographic Operations

Geographic Concentrations	Nine Months Ended	Nine Months Ended
	June 30, 2020	June 30, 2019
Net Revenue:
North America	$   756,000	$   715,702
Japan	258,526	549,431
South Korea	117,036	39,433
	$ 1,131,562	$ 1,304,566
Property and equipment, net:	As of June 30, 2020	As of September 30, 2019
North America	$ 1,459,948	$ 1,471,859
Japan	3,424	6,329
South Korea	273,060	397,403
	$ 1,736,432	$ 1,875,591

XML

5. STOCK OPTIONS AND WARRANTS: Schedule of Stock Option Activity (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Stock Option Activity

		Weighted	Weighted
		Average	Average
	Number of	Exercise	Remaining	Aggregate
	Shares	Price	Contractual Life (years)	Intrinsic Value
Outstanding at September 30, 2019	1,811,667	$ 6.86	8.4	$ 33,705,960
Granted	23,333	1.53
Exercised	-	-
Expired	-	-
Forfeited	(110,000)	18.14
Outstanding at June 30, 2020	1,725,000	$ 6.07	7.5	10,243,687
Exercisable at June 30, 2020	663,750	$ 6.83	7.4	$   3,802,116

XML

5. STOCK OPTIONS AND WARRANTS: Schedule of Company's unvested shares (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Company's unvested shares

Nonvested options
	Number of
	Nonvested Shares
Nonvested shares at September 30, 2019	1,355,000
Granted	23,333
Exercised	-
Forfeited	(110,000)
Vested	(207,083)
Nonvested shares at June 30, 2020	1,061,250

XML

5. STOCK OPTIONS AND WARRANTS: Schedule of Warrant Activity (Tables)

9 Months Ended

Jun. 30, 2020

Tables/Schedules

Schedule of Warrant Activity

		Weighted	Weighted
		Average	Average
	Number of	Exercise	Remaining	Aggregate
	Warrants	Price	Contractual Life (years)	Intrinsic Value
Outstanding at September 30, 2019	-	$      -		$             -
Granted	40,250	9.00
Exercised	-	-
Expired	-	-
Forfeited	-	-
Outstanding at June 30, 2020	40,250	$ 9.00	5.0	36,012
Exercisable at June 30, 2020	-	$      -		$             -

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Earnings per Share (Details) - shares	Jun. 30, 2020	Jun. 30, 2019
Details
Common stock equivalents	1,725,000	1,787,333

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Going Concern and Capital Resources (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019	Jun. 30, 2019	Sep. 30, 2018
Details
Cash	$ 5,215,809	$ 1,326,040	$ 3,061,430	$ 1,806,666

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Major Customers: Schedule of Revenue by Major Customers by Reporting Segments (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Customer K
Sales Amount	$ 284,099
Percent of Total Revenue	25.00%
Accounts Receivable Amount	$ 0
Percent of Total Accounts Receivable	0.00%
Customer WP
Sales Amount	$ 259,925	$ 254,765
Percent of Total Revenue	23.00%	20.00%
Accounts Receivable Amount	$ 7,767	$ 153,344
Percent of Total Accounts Receivable	11.00%	28.00%
Customer J
Sales Amount	$ 188,574	$ 333,971
Percent of Total Revenue	17.00%	26.00%
Accounts Receivable Amount	$ 175	$ 0
Percent of Total Accounts Receivable	0.00%	0.00%
Customer C
Sales Amount		$ 153,167
Percent of Total Revenue		12.00%
Accounts Receivable Amount		$ 55,245
Percent of Total Accounts Receivable		10.00%

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of ROU Assets and Lease Liability (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Details
ROU Assets	$ 645,882	$ 517,263
Lease Liability	$ 651,874	$ 517,263

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Other information related to operating lease (Details)	9 Months Ended
	Jun. 30, 2020 USD ($)
Details
ROU Asset - October 1, 2019	$ 517,263
ROU Asset - ROU Asset added during the period	217,674
ROU Asset - Amortization during the period	(89,055)
ROU Asset - June 30, 2020	645,882
Lease Liability - October 1, 2019	517,263
Lease Liability - Lease Liability added during the period	217,674
Lease Liability - Amortization during the period	(83,063)
Lease Liability - June 30, 2020	$ 651,874

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Total Lease Liability (Details)	Jun. 30, 2020 USD ($)
Details
Lease Liability –Short-Term	$ 216,454
Lease Liability –Long-Term	435,420
Lease Liability –Total	$ 651,874

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Cash and non-cash activities associated with leases (Details)	9 Months Ended
	Jun. 30, 2020 USD ($)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$ 103,298
Operating cash flows from finance leases	10,794
Financing cash flows from finance leases	14,039
Non-cash transactions
Recognition of ROU asset and lease liability of operating lease upon adoption of ASU 2016-02	517,263
Additions to ROU assets obtained from
New operating lease	217,674
New finance lease	$ 124,500

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Amounts due on lease liabilities (Details)	Jun. 30, 2020 USD ($)
Details
Amounts due within 12 months of December 31, 2019	$ 243,941
Amounts due within 12 months of December 31, 2020	206,711
Amounts due within 12 months of December 31, 2021	126,091
Amounts due within 12 months of December 31, 2022	129,873
Amounts due within 12 months of December 31, 2023	0
Total Minimum Lease Payments	706,616
Less Effect of Discounting	54,742
Present Value of Future Minimum Lease Payments	651,874
Less Current Obligations Under Lease	216,454
Long-Term Lease Obligations	$ 435,420

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Future Minimum Lease Payments for Capital Leases (Details) - Finance lease obligations	Jun. 30, 2020 USD ($)
Capital Leases, Future Minimum Payments Due, Next Twelve Months	$ 2,268
Capital Leases, Future Minimum Payments Due in Two Years	2,268
Capital Leases, Future Minimum Payments Due	$ 4,536

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of ROU assets under finance leases (Details) - ROU assets under finance leases	9 Months Ended
	Jun. 30, 2020 USD ($)
ROU asset-finance lease	$ 124,500
ROU asset amortization	(12,450)
ROU asset-finance lease	$ 112,050

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of future minimum finance lease payments (Details) - Finance lease payments	Jun. 30, 2020 USD ($)
Capital Leases, Future Minimum Payments Due, Next Twelve Months	$ 33,113
Capital Leases, Future Minimum Payments Due in Two Years	33,113
Capital Leases, Future Minimum Payments Due in Three Years	33,113
Capital Leases, Future Minimum Payments Due in Four Years	33,113
Capital Leases, Future Minimum Payments Due in Five Years	2,759
Capital Leases, Future Minimum Payments Due	135,211
Amount representing interest	(30,229)
Present Value of Minimum Lease Payments	104,982
Current Portion of Finance Lease Obligations	20,924
Finance Lease Obligations, Less Current Portion	$ 84,058

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Details
Payments for Rent	$ 251,207	$ 99,526

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lease: Schedule of Future Minimum Rental Payments for Operating Leases (Details)	Jun. 30, 2020 USD ($)
Details
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 69,264
Operating Leases, Future Minimum Payments, Due in Two Years	278,530
Operating Leases, Future Minimum Payments, Due in Three Years	208,885
Operating Leases, Future Minimum Payments, Due in Four Years	160,149
Operating Leases, Future Minimum Payments, Due in Five Years	124,999
Operating Leases, Future Minimum Payments Due	$ 841,827

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Loans (Details)	9 Months Ended
	Jun. 30, 2020 USD ($)
Long-term Debt	$ 182,148
Loan 1
Debt Instrument, Issuance Date	Jun. 30, 2016
Debt Instrument, Issuer	NuZee JP
Debt Instrument, Description	loan agreement with Tono Shinyo Kinko Bank
Debt Instrument, Face Amount	$ 145,758
Debt Instrument, Maturity Date	Jun. 05, 2021
Debt Instrument, Interest Rate, Stated Percentage	1.20%
Debt Instrument, Collateral	unsecured and guaranteed by a director
Long-term Debt	$ 27,835
Loan 2
Debt Instrument, Issuance Date	Jan. 27, 2017
Debt Instrument, Issuer	NuZee JP
Debt Instrument, Description	loan agreement with Nihon Seisaku Kouko
Debt Instrument, Face Amount	$ 87,268
Debt Instrument, Maturity Date	Jan. 20, 2022
Debt Instrument, Interest Rate, Stated Percentage	0.16%
Debt Instrument, Collateral	unsecured and not guaranteed by a director
Long-term Debt	$ 30,060
Loan 3
Debt Instrument, Issuance Date	Apr. 01, 2019
Debt Instrument, Description	NuZee purchased a delivery van from Ford Motor Credit
Debt Instrument, Face Amount	$ 41,627
Debt Instrument, Interest Rate, Stated Percentage	2.90%
Debt Instrument, Collateral	secured by the van
Long-term Debt	$ 29,757
Loan 4
Debt Instrument, Issuance Date	Feb. 15, 2019
Debt Instrument, Description	NuZee KR entered into equipment financing for production equipment
Debt Instrument, Face Amount	$ 60,563
Debt Instrument, Interest Rate, Stated Percentage	4.33%
Debt Instrument, Collateral	secured by our production equipment
Long-term Debt	$ 94,496

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Schedule of Loan Payments (Details)	Jun. 30, 2020 USD ($)
Grand Total	$ 182,148
Tono Shinyo Kinko Bank
Grand Total	27,835
Tono Shinyo Kinko Bank | Current Portion
2020	6,959
2021	20,876
Nihon Seisaku Kouko
Grand Total	30,060
Nihon Seisaku Kouko | Current Portion
2020	4,704
2021	14,112
Nihon Seisaku Kouko | Non-Current Portion
2021	4,704
2022	6,540
Ford Motor Credit
Grand Total	29,757
Ford Motor Credit | Current Portion
2020	1,841
2021	5,605
Ford Motor Credit | Non-Current Portion
2021	1,895
2022	7,720
2023	7,947
2024	4,749
(ShinHan Bank)
Grand Total	94,496
(ShinHan Bank) | Current Portion
2020	11,812
2021	35,436
(ShinHan Bank) | Non-Current Portion
2021	11,812
2022	$ 35,436

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Foreign Currency Translation (Details) - USD ($)	Jun. 30, 2020	Jun. 30, 2019
Details
Accumulated Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Net of Tax	$ (59,510)	$ (35,035)

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Inventories: Schedule of Inventory, Current (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Details
Raw materials	$ 15,585	$ 327,985
Finished goods	259,390	173,001
Less - Inventory reserve	0	0
Inventories, net	$ 274,975	$ 500,986

XML

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Joint Venture (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019
Details
Investment	$ 160,000		$ 0
Gain (Loss) on Disposition of Assets	$ (43,012)	$ (6,096)

XML

2. GEOGRAPHIC CONCENTRATION: Schedule of Geographic Operations (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019
Net Revenue	$ 191,962	$ 585,202	$ 1,131,562	$ 1,304,566
Property and equipment, net	1,736,432		1,736,432		$ 1,875,591
North America
Net Revenue			756,000	715,702
Property and equipment, net	1,459,948		1,459,948		1,471,859
JAPAN
Net Revenue			258,526	549,431
Property and equipment, net	3,424		3,424		6,329
South Korea
Net Revenue			117,036	39,433
Property and equipment, net	273,060		273,060		397,403
Total
Net Revenue			1,131,562	$ 1,304,566
Property and equipment, net	$ 1,736,432		$ 1,736,432		$ 1,875,591

XML

3. RELATED PARTY TRANSACTIONS (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019
Lessee, Operating Lease, Liability, to be Paid	$ 605		$ 1,154
Sales or Purchase Transaction 1
Sales-type Lease, Revenue	3,154	$ 3,174
Accounts Receivable, after Allowance for Credit Loss	$ 118
Accounts Payable			$ (106)

XML

4. COMMON STOCK (Details) - USD ($)		9 Months Ended	12 Months Ended
		Jun. 30, 2020	Sep. 30, 2019
Stock Transaction 1
Sale of Stock, Description of Transaction	[1]	Company sold
Shares, Issued	[1]	111,738
Sale of Stock, Price Per Share	[1]	$ 17.85
Stock Issued	[1]	$ 1,994,523
Stock Transaction 2
Sale of Stock, Description of Transaction	[1]	Company sold
Shares, Issued	[1]	700,000
Sale of Stock, Price Per Share	[1]	$ 9.00
Stock Issued	[1]	$ 6,300,000
Stock Transactions 1 and 2
Other Underwriting Expense	[1]	500,837	$ 225,089
Proceeds from issuance of common stock	[1]	$ 4,648,174

[1] See Note 6 – Subsequent Events for more information.

XML

5. STOCK OPTIONS AND WARRANTS: Schedule of Stock Option Activity (Details) - Stock Options - USD ($)			9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019	Jun. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance			1,811,667
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance			$ 6.86
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	7 years 6 months	8 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value			$ 33,705,960
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			23,333
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 1.53
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period			0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price			$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period			0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price			$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period			(110,000)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price			$ 18.14
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	1,725,000	1,811,667	1,725,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 6.07	$ 6.86	$ 6.07
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 10,243,687	$ 33,705,960	$ 10,243,687
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	663,750		663,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 6.83		$ 6.83
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	7 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 3,802,116		$ 3,802,116

XML

5. STOCK OPTIONS AND WARRANTS: Schedule of Company's unvested shares (Details) - Non-vested	9 Months Ended
	Jun. 30, 2020 shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Beginning Balance	1,355,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	23,333
Share-based Compensation Arrangement by Share-based Payment Award, Options, Number of Shares, Period Increase (Decrease)	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited, Number of Shares	(110,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	(207,083)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Ending Balance	1,061,250

XML

5. STOCK OPTIONS AND WARRANTS: Schedule of Warrant Activity (Details) - Warrants - USD ($)		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance		0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	5 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		40,250
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price		$ 9.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period		0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period		0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	40,250	40,250
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 9.00	$ 9.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 36,012	$ 36,012
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 0	$ 0

XML

6. SUBSEQUENT EVENT (Details)	9 Months Ended
	Jun. 30, 2020 USD ($) $ / shares shares
Event 1
Subsequent Event, Date	Jul. 21, 2020
Sale of Stock, Transaction Date	Jul. 21, 2020
Subsequent Event, Description	the underwriters in the Company’s registered public offering of common stock exercised their over-allotment option
Sale of Stock, Description of Transaction	the underwriters in the Company’s registered public offering of common stock exercised their over-allotment option
Stock Issued During Period, Shares, New Issues | shares	105,000
Sale of Stock, Price Per Share | $ / shares	$ 9.00
Stock Issued | $	$ 878,850
Event 2
Sale of Stock, Transaction Date	Jul. 31, 2020
Sale of Stock, Description of Transaction	23,334 shares were issued upon the exercise of stock options.
Stock Issued During Period, Shares, New Issues | shares	23,334
Stock Issued | $	$ 35,700