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 March 31, 2018

☐     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. 333-176684

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)

2865 Scott Street, Suite 101, Vista, CA, 92081

(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:

Titles of each class	Name of each exchange on which registered
None	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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).Yes ☒  No ☐

1

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	☐
Non-accelerated filer	☐	(Do not check if smaller reporting company)	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 ☒

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ☐  No ☐

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

As of April 30, 2018, NuZee, Inc. had 37,147,321 shares of common stock outstanding.

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Table of Contents

PART I.			4
Item 1.	Financial Statements.		4
	(a)	Consolidated Balance Sheets as at March 31, 2018 and September 30, 2017 (Unaudited).	4
	(b)	Consolidated Statements of Operations for the three and six months ended March 31, 2018 and 2017 (Unaudited).	5
	(c)	Consolidated Statements of Comprehensive Loss for the three and six months ended March 31, 2018 and 2017 (Unaudited).	6
	(d)	Consolidated Statements of Cash Flows for six months ended March 31, 2018 and 2017 (Unaudited).	7
	(e)	Notes to Consolidated Financial Statements (Unaudited).	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		18
Item 4.	Controls and Procedures		18
PART II.			19
Item 1.	Legal Proceedings		19
Item 1A.	Risk Factors		19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3.	Defaults Upon Senior Securities		19
Item 4.	Mine Safety Disclosures		19
Item 5.	Other Information		19
Item 6.	Exhibits		20

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q of NuZee, Inc. contains "forward-looking statements" that may state our management's plans, future events, objectives, current expectations, estimates, forecasts, assumptions or projections about the company and its business. Any statement in this report that is not a statement of historical fact is a forward-looking statement, and in some cases, words such as "believes," "estimates," "projects," "expects," "intends," "may," "anticipates," "plans," "seeks," and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual outcomes and results to differ materially from the anticipated outcomes or results. These statements are not guarantees of future performance, and undue reliance should not be placed on these statements. It is important to note that our actual results could    differ materially from what is expressed in our forward-looking statements due to the risk factors described in the section of our Form 10-K filed on February 21, 2018 entitled "Risk Factors."

We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I.

Item 1.     Financial Statements.

NuZee, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	March 31, 2018			September 30, 2017
ASSETS
Current assets:
Cash	$	515,290		$	347,327
Accounts receivable, net		177,209			143,893
Accounts receivable - Related party		503			12,380
Inventories, net		301,977			266,620
Other current assets		172,726			102,926
Other current assets - Related party		35,800			29,378
Total current assets		1,203,505			902,524
Property and equipment, net		556,762			277,987
Other assets:
Goodwill		17,112			17,112
Customer List, net		40,162			45,899
Investment in unconsolidated affiliate		-			10,733
		57,274			73,744
Total assets	$	1,817,541		$	1,254,255
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	134,785		$	104,973
Loan payable - short term - Related party		-			200
Current portion of long-term loan payable		47,336			44,681
Other current liabilities		113,385			126,687
Other current liabilities - Related party		6,452			1,089
Deferred revenue		-			72,750
Total current liabilities		301,958			350,380
Non-current liabilities:
Loan payable - long term, net of current portion	$	117,916		$	133,644
Other noncurrent liabilities		10,181			9,610
Total non-current liabilities		128,097			143,254
Total liabilities		430,055			493,634
Stockholders' equity:
Common stock; 100,000,000 shares authorized, $0.00001 par value;
37,122,321 and 34,720,538 shares issued	$	371		$	347
Additional paid in capital		11,712,443			9,718,648
Accumulated deficit		(10,422,524	)		(9,030,551	)
Accumulated other comprehensive loss		(10,975	)		(20,680	)
Total NuZee, Inc. shareholders' equity		1,279,315			667,764
Noncontrolling interest		108,171			92,857
Total stockholders' equity		1,387,486			760,621
Total liabilities and stockholders' equity	$	1,817,541		$	1,254,255

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

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NuZee, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017			Six Months Ended March 31, 2018			Six Months Ended March 31, 2017
Revenues	$	390,653		$	376,327		$	747,532		$	953,834
Cost of sales		287,399			325,592			526,409			742,460
Gross Profit		103,254			50,735			221,123			211,374
Operating expenses		838,125			413,874			1,598,778			922,208
Loss from operations		(734,871	)		(363,139	)		(1,377,655	)		(710,834	)
Other income		8,544			13,113			9,051			30,960
Equity in loss of unconsolidated affiliate		(10,167	)		(32,721	)		(10,733	)		(47,892	)
Other expense		(3	)		(2,545	)		(3	)		(3,900	)
Interest expense		(766	)		-			(1,479	)		-
Net loss		(737,263	)		(385,292	)		(1,380,819	)		(731,666	)
Net income (loss) attributable to noncontrolling interest		17,210			(8,426	)		11,154			(14,848	)
Net loss attributable to NuZee, Inc.	$	(754,473	)	$	(376,866	)	$	(1,391,973	)	$	(716,818	)
Basic and diluted loss per common share	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.02	)
Basic and diluted weighted average number of common stock outstanding		36,267,298			32,925,132			35,580,677			32,737,443

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

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NuZee, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
							Noncontrolling
	NuZee, Inc.						Interests					Total
For the three months eneded March 31	2018			2017			2018		2017			2018			2017
Net loss	$	(754,473	)	$	(376,866	)	$	17,210	$	(8,426	)	$	(737,263	)	$	(385,292	)
Foreign currency translation		9,908			6,650			4,247		2,850			14,155			9,500
Total other comprehensive loss, net of tax		9,908			6,650			4,247		2,850			14,155			9,500
Comprehensive loss	$	(744,565	)	$	(370,216	)	$	21,457	$	(5,576	)	$	(723,108	)	$	(375,792	)
							Noncontrolling
	NuZee, Inc.						Interests					Total
For the six months eneded March 31		2018			2017			2018		2017			2018			2017
Net loss	$	(1,391,973	)	$	(716,818	)	$	11,154	$	(14,848	)	$	(1,380,819	)	$	(731,666	)
Foreign currency translation		9,705			(19,611	)		4,160		(8,405	)		13,865			(28,016	)
Total other comprehensive loss, net of tax		9,705			(19,611	)		4,160		(8,405	)		13,865			(28,016	)
Comprehensive loss	$	(1,382,268	)	$	(736,429	)	$	15,314	$	(23,253	)	$	(1,366,954	)	$	(759,682	)

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

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NuZee, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	Six months Ended March 31, 2018			Six months Ended March 31, 2017
Operating activities:
Net loss	$	(1,380,819	)	$	(731,666	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and Amortization		59,486			35,466
Option expense		249,509			12,200
Interest expense		-			3,635
Inventory impairment		-			4,112
Equity in loss of unconsolidated affiliate		10,733			47,892
Change in operating assets and liabilities:
Accounts receivable		(25,847	)		(95,681	)
Accounts receivable - Related party		12,613			-
Inventories		(28,691	)		79,496
Other current assets		(67,397	)		(31,212	)
Other current assets - Related party		(4,677	)		-
Accounts payable		28,538			21,205
Other current liabilities		(15,028	)		(25,783	)
Other current liabilities - Related party		5,297			-
Deferred revenue		(72,750	)		-
Net cash used by operating activities		(1,229,033	)		(680,336	)
Investing activities:
Purchase of equipment		(331,916	)		(135,731	)
Acquisition of investment in unconsolidated affiliate		-			(50,000	)
Net cash acquired from business acquisition		-			201,676
Net cash provided (used) by investing activities		(331,916	)		15,945
Financing activities:
Proceeds from issuance of Loan - short term - Related party		341,000			180,824
Repayment of loans - short term - Related party		(341,200	)		(119,001	)
Proceeds from issuance of Loan - short term		-			16,709
Repayment of loans - short term		(23,196	)		(15,001	)
Payments on capital lease		(1,800	)		-
Proceeds from issuance of Loan - long term		-			73,171
Proceeds from issuance of common stock		1,744,310			680,510
Net cash provided by financing activities		1,719,114			817,212
Effect of foreign exchange on cash and cash equivalents		9,798			(41,394	)
Net change in cash		167,963			111,427
Cash, beginning of period		347,327			40,613
Cash, end of period	$	515,290		$	152,040
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,082		$	1,131
Cash paid for taxes	$	800		$	800
Noncash investing and financing activities:
Acquisition of NuZee JAPAN Co., Ltd through issuance of common shares		-			258,465
Software purchased with installment agreement		-			14,807
Conversion of note payable to common stock - Related party		-			606,000

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

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NuZee, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2018

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements of NuZee, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended September 30, 2017 as filed with the SEC. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.

Earnings per Share

Basic earnings per common share equal net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. The Company incurred a net loss for the six months ended March 31, 2018 and 2017, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had recurring losses, negative operating cash flows and is dependent on its shareholders to provide additional funding for operating expenses. These items raise substantial doubt as to the Company's ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon management's ability to develop profitable operations, continued contributions from the Company's executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company's products and business.

Major Customers

In the six months ended March 31, 2018 and 2017, revenue was primarily from major customers disclosed below. Besides those revenues, there were $94,332 and $5,000 account receivable owed by customer PO and customer B as of March 31, 2018, and $128,075 and $52,616 account receivable owed by customer PO and K as of March 31, 2017,

Six months ended March 31, 2018:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	432,176		58	%
Customer B	$	77,750		10	%
Six months ended March 31, 2017:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	462,006		48	%
Customer K	$	146,005		15	%

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Lease

The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the Company as lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line basis over the lease term.

NuZee JAPAN Co., Ltd is the lessee of certain equipment under a capital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $10,281 as of March 31, 2018. The capital lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under capital lease as of March 31, 2018 for each of the remaining fiscal years are as follows:

2018	$	2,340
2019	$	4,679
2020	$	4,679
2021	$	1,170
Total Minimum Lease Payments	$	12,868

The Company leases office space under leases expiring on May 31, 2020. Rent expense included in general and administrative expense for six months ended March 31, 2018 and 2017 was $61,692 and $22,279 respectively.

Future minimum rents as of March 31, 2018 for each of the remaining fiscal years are as follows:

2018	$	28,674
2019	$	58,488
2020	$	39,760
Total Minimum Lease Payments	$	126,922

Loan

On June 30, 2016, NuZee JAPAN Co., Ltd entered into a loan agreement with Tono Shinyo Kinko Bank. The Company borrowed the sum of approximately $145,758 to be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The loan is unsecured and guaranteed by a director. The Company had $91,790 loan payable at March 31, 2018. On January 27, 2017, NuZee JAPAN Co., Ltd entered into a loan agreement with Nihon Seisaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The Company had $73,462 loan payable at March 31, 2018. During the six months ended March 31, 2018 and 2017, respectively, the Company paid back the principal amount of $23,196 and $15,001.

9

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

	Tono Shinyo Kinko Bank		Nihon Seisaku Kouko
2018	$	14,122	$	9,582
2019	$	28,243	$	19,164
2020	$	28,243	$	19,164
2021	$	21,182	$	19,164
2022	$	-	$	6,388
Total Loan Payment	$	91,790	$	73,462

Principles of Consolidation

The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and majority owned subsidiary which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated in the consolidation.

The Company consolidates its subsidiary in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation.

Foreign Currency Translation

The financial position and results of operations of the Company's foreign subsidiary is measured using the foreign subsidiary's local currency as the functional currency. Revenues and expenses of such subsidiary has been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders' equity unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustment recorded to other comprehensive loss amounted to $10,975 and $20,680 as of March 31, 2018 and September 30, 2017, respectively.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction gains included in the consolidated statements of operations totaled $3 and $890 for six months ended March 31, 2018 and 2017, respectively.

Inventories

Inventory, consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of cost or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at least quarterly and records a valuation allowance when appropriate. At March 31, 2018 and September 30 2017, the carrying value of inventory of $301,977 and $266,620 respectively, reflected on the consolidated balance sheets is net of this adjustment.

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	March 31, 2018			September 30, 2017
Raw materials	$	158,376		$	111,043
Work in process		5,535			5,535
Finished goods		147,152			159,128
Less - Inventory reserve		(9,086	)		(9,086	)
Total	$	301,977		$	266,620

Recent Accounting Pronouncements

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations.  The collective guidance is effective for interim and annual periods in the first annual period beginning after December 15, 2017, with early adoption permitted.  The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  The Company has not selected a transition method and is currently evaluating the impact of the pending adoption of this ASU on its ongoing financial reporting.

Reclassifications have been made to conform with the current year presentation.

2.  GEOGRAPHIC CONCENTRATIONS

The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis.

Information about the Company's geographic operations are as follows:

Geographic Concentrations
	Six Months Ended March 31, 2018		Six Months Ended March 31, 2017
Net Revenue:
North America	$	266,836	$	381,293
Japan		480,696		572,541
	$	747,532	$	953,834
Property and equipment, net:	March 31, 2018		September 30, 2017
North America	$	546,481	$	266,522
Japan		10,281		11,465
	$	556,762	$	277,987

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3.  RELATED PARTY TRANSACTIONS

Loans

During February 2015, the Company issued a secured convertible promissory note in the sum of $600,000 to Masateru Higashida, the Company's major shareholder.  Interest was calculated at the annual rate of zero percent (0%) for the period until April 2016.  During March 2016, the Company and Masateru Higashida decided to extend the repayment date to March 31, 2017 so that the Company has more funds for production and marketing to fulfill customers' requirements, which is in the best interest of the Corporation and its shareholders. The annual rate of repayment is at an interest rate of one percent (1%) for the period until March 31, 2017. This promissory note will convert to 1,176,471 shares of NuZee, Inc common stock at $0.51 per share if Company is unable to pay back the note by then. During three months ended March 31, 2017, the Company accrued interest of $6,000 relating to this related party note.

On March 31, 2017, Masateru Higashida (Lender, a/k/a the "Seller") deemed it beneficial to engage in a private sale (the "Sale") and to sell the Amended Note to Kenichi Miura (the "Purchaser") upon the terms and conditions of the Convertible Note Purchase Agreement. The Amended Note shall continue to bear interest on the principal amount at the annual interest rate of one percent (1%) per year; and the Amended Note shall continue to be convertible in whole or in part to shares of the Corporation's common stock, at the election of the Lender (now at the election of Purchaser), at a price of $.51 per share, on or after March 31, 2017;

During February 2017, the Company borrowed the sum of approximately $4,000 short-term loan from Travis Gorney to be repaid on or before February 14, 2018 at an interest rate of one percent (1%). The Company paid back the full principal amount of the loan on March 31, 2017.

During March 2017, the Company borrowed the sum of $100,000 short-term loan from Takayuki Nagashima to be repaid on or before June 30, 2017 at an interest rate of one percent (1%).

During June 2017, the Company borrowed the sum of $1,200 unsecured short-term loan from Masateru Higashida to be repaid on or before June 14, 2018 at an interest rate of one percent (1%). During the six months ended March 31, 2018, the Company borrowed the sum of $2,000 unsecured short-term loan from Masateru Higashida to be repaid on or before December 31, 2018 at an interest rate of one percent (1%). The Company made principal payments of $2,000 during the six months ended March 31, 2018. The Company accrued interest of $1 and $341 for the six months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, the loan had principal and accrued interest balances of $200 and $559, respectively.

During December 2016, the Company borrowed the sum of $18,384 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before December 14, 2017 at an interest rate of one percent (1%). Between February and March 2017, the Company borrowed the sum of $ 14,440 short-term loan from NuZee Co., Ltd to be repaid on or before March 23, 2018 at an interest rate of one percent (1%). As of March 31, 2017, Company paid back $19,331 of this short-term loan. During the six months ended March 31, 2017, the Company accrued interest of $57.

During March 2017, the Companyborrowed the sum of $44,000 short-term loan from Masateru Higashida to be repaid on or before March 14, 2018 at an interest rate of one percent (1%). During the six months ended March 31, 2017, the Company accrued interest of $341 and paid back the total principal amount of $75,670.

During the six months ended March 31, 2018, the Company borrowed the sum of $154,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before October 31, 2018 at an interest rate of one percent (1%) and the sum of $185,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before January 31, 2019 at an interest rate of one percent (1%). The Company made principal payments of $339,200 during six month ended March 31, 2018.The Company accrued interest of $396 for six months ended March 31, 2018. As of March 31, 2018, the loans had overpaid principal and accrued interest balances of $200 and $668, respectively. The Company plans to take new loans from NuZee Co., Ltd after the balance sheet date in excess of the overpayment.

12

All short-term loans are related party transactions since Masateru Higashida is the Company's major shareholder and he holds 100% ownership of NuZee Co., Ltd.

Sales, Purchases and Operating Expenses

For six months ended March 31, 2018, NuZee JP sold their products to Eguchi Holdings Co.,Ltd ("EHCL") and the sales to them totaled approximately $2,805. The corresponding accounts receivable balance from them was $35 as of March 31, 2018. NuZee JP sold their products to NuZee Co., Ltd. during the 2017 fiscal year. The related accounts receivable outstanding was $468 as of March 31, 2018. EHCL is the Company's related party as they are controlled by Katsuyoshi Eguchi who is a director and the minority owner of NuZee JP.

NuZee JP leased an employee to NuZee Co., Ltd. for Contlus during October 2016 to January 2017 for $10,936 and sold greeting cards to NuZee Co., Ltd. for $7,418 during the year ended September 30, 2017. The related receivables outstanding was $0 as of March 31, 2018.

NuZee JP leased an employee to Contlus. For six months ended March 31, 2018, NuZee JP billed $20,456 for this arrangement and $35,800 remains outstanding as of March 31, 2018. Contlus is the Company's related party as the Company holds 50% of their issued shares.

Rent

During October 2016, NuZee JP entered into a rental agreement of an office space with NuZee Co., Ltd.   The Company agrees to pay $1,169 per month for the office on the last day of each month. There is no set expiration date on the agreement. The corresponding rent payable balance to them was $1,529 as of March 31, 2018.

During September 2016, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company agrees to pay $1,213 per month for the office and the warehouse on the last day of each month. The term of this agreement is 3 years and will be automatically renewed. The corresponding rent payable balance to them was $4,923 as of March 31, 2018.

During February 2015, the Company entered into a rental agreement of a warehouse with Eguchi Steel Co.,Ltd ("ESCL"). The Company agrees to pay $449 per month for the warehouse on the last day of each month. There is no set expiration date on the agreement. ESCL is the Company's related party as they are controlled by Katsuyoshi Eguchi who is a director and the minority owner of NuZee JP.

4.  INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company has an investment in an equity method affiliate which has main businesses related to the production, sale, import and export of coffee & beans, tea & tea leaf, healthy foods and drinks. The investment of $50,000 was made during the three months ended December 31, 2016.

The following table is a reconciliation of the Company's investment in equity affiliate as presented on the consolidated balance sheet as of March 31, 2018:

INVESTMENT IN AFFILIATE
	March 31, 2018
Beginning of period	$	10,733
Additional investments in unconsolidated affiliate	$	-
Distributions received	$	-
Sale of investment in unconsolidated affiliate	$	-
Equity in net income (loss) of unconsolidated affiliate	$	(10,733	)
End of period	$	-

13

5.  COMMON STOCK

On October 3rd, 2016, the "Company" exchanged 1,148,734 shares of its common stock, par value $0.00001 per share, for seventy percent (70%) of the issued and outstanding common stock of NuZee JP.

During six months ended March 31, 2017, the Company sold 680,510 shares of common stock at $1.00 per share, for an aggregate purchase price of $680,510.

On March 31, 2017, Kenichi Miura exercised his right to convert the Amended Note to shares of the Corporation's common stock (the "Conversion"), at the price of $.51 per share, in accordance with the terms and conditions of the Convertible Note Purchase Agreement, thus equating to a conversion of $606,000 [i.e., $600,000 principal, plus $6,000 in accrued interest] to the equivalent 1,188,236 shares of the Corporation's common stock.

During six months ended March 31, 2018, the Company sold 1,341,783 shares of common stock at $0.51 per share, for an aggregate purchase price of $684,310 and 1,060,000 shares of common stock at $1.00 per share, for an aggregate purchase price of $1,060,000.

6.  STOCK OPTIONS

The following table summarizes stock option activity for six months ended March 31, 2018:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of Shares			Exercise Price		Contractual Life (years)		Intrinsic Value
Outstanding at September 30, 2017		3,064,500		$	0.58		9.6		17,425
Granted		-			-
Exercised		-			-
Expired		-			-
Forfeited		(100,000	)		0.51
Outstanding at March 31, 2018		2,964,500		$	0.58		9.1		1,809,165
Exercisable at March 31, 2018		244,500		$	0.48		8.1		173,965

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 $249,509 for the six months ended March 31, 2018. Unamortized option expense as of March 31, 2018, for all options outstanding amounted to approximately $702,746. These costs are expected to be recognized over a weighted-average period of 2.8 years. The Company recognized stock option expenses of $12,200 for the six months ended March 31, 2017.

14

A summary of the status of the Company's nonvested shares as of March 31, 2018, is presented below:

Nonvested options
	Number of
	Nonvested Shares
Nonvested shares at September 30, 2017		2,884,000
Granted		-
Exercised		-
Forfeited		(100,000	)
Vested		(64,000	)
Nonvested shares at March 31, 2018		2,720,000

7.  SUBSEQUENT EVENTS

-Common Stock

During April to May 2018, the Company sold 25,000 shares of common stock of which were sold at $1.00 per share, for an aggregate purchase price of $25,000.

15

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.

Plan of Operations

NuZee will continue building the market in the US for the single serve pour over coffee and the co-packing portion of the business. NuZee will continue building on current relationships and form new business relationships to package other brands and retail chains private label coffee. Our US expansion efforts are to include a centrally located production facility that will have the space to handle our intended capacity and growth for the next three years.

Over the next 3 months, the Company's growth plans include continuing efforts to identify and secure a centrally located building that will be able to meet the demand of what we believe will continue to be the fastest growing segment of our business, our co-manufacturing for other brands and retail chains by building on our current customers and forging relationships with new customers.

▪ Based on the last 6 months of feedback and customer interest from all of the tradeshows we attended in quarter 1 we are confident that the current customers we currently package for will continue to expand their drip cup business in the US and introduce new line extensions in late 2018 and early 2019. The sell through from our current customers is increasing each quarter which aligns perfectly with the growth in popularity of pour-over style coffee in the US market. We have produced physical samples for many of the nation's largest brands and expect many of them to become customers in late 2018 and early 2019.

▪ We will continue to grow our single cup business in the next 3 months and have signed agreements with one of the nation's largest retailers to feature our brand in the next 3 months. We are building up our inventory in preparation for the launch and have a strong marketing plan in place to support the rollout.

▪As we continue to grow and scale both Coffee Blenders and Twin Peaks coffee we are always revisiting our cost of goods and connecting with new suppliers of our raw materials. We have been able to reduce our outer packaging by over 8% over the last 3 months and will continue looking for new paths to drive our cost of goods down.

▪ As we prepare for our Safe Quality Food audit and certification we are working closely with many large customers to ensure that our team is well prepared for what we believe to be our quickest path to growth. Our team is preparing for certification classes that will allow our food safety program to pass the audit and better prepare us for what is required in addition to our current operation to be considered SQF complaint.

▪As we roll out our cold brew coffee extraction capabilities to our current customers and new customers we will be also expanding our offerings from Glass to Aluminum and PET bottles within the next three months. We are currently in the final stages of our R&D and plan to have many offerings available to all of our customers by Q4 2018.

▪ Our broker network expanded last quarter with the addition of 3 Grams Foods out of Dallas, TX and we plan to bring on additional brokers to assist our sales team in NuZee's efforts to expand our Coffee Blenders and Twin Peaks brands as rapidly as possible throughout the US. We have hired additional staffing to help support our expanded network and will hire additional employees over the next 3 months.

16

▪ We will work to increase our online presence over the next 3 months and have commissioned a videographer and media company to curate new and fresh content for our brands websites as well as all of our social media platforms. We will also update our websites with fresh content.

Increase our sales team to meet the demand of our growing potential customers. Adding additional staffing will help us stay in closer contact with potential buyers and category managers. Each member added to our sales team will be versed on all NuZee, Inc. products and be trained on how to best sell our products.

We have entered into several different channels for distribution and are planning to expand into a few more channels in 2018.  Our current and forecasted company directed channels include;

Long Term Goals (Five Years)

The long-term goals for NuZee, Inc. are to position NuZee as the leader in the drip cup co-packing business and capture a large market share from the closest competing like product in the coffee segment, the single serve K-Cup. We will broaden our ability to bring on national customers by increasing our production capacity and adding a new production facility. We will expand our international presence throughout Asia-Pacific and work to have the most successful cold brew extraction & packaging plant in the US. Offering both the Drip Cup packing and cold brew extraction will help drive to increase our revenues.

The Company believes that our limited resources may pose a challenge to our expansion goals and therefore anticipates that it may require additional capital in future years to fund expansion. There can be no assurance that our expansion strategy will be accretive to our earnings within a reasonable period of time. However, the Company believes that it can improve its operational efficiencies and reduce the need for new capital by carefully managing the business based on the following economic fundamentals within accretive margin and cost contribution modeling.

Results of Operations

Three & Six months ended March 31, 2018 Compared to Three & Six months ended March 31, 2017

Revenue. For the three months ended March 31, 2018, our realized revenue increased by 4% compared with the same time period in 2017. The contributing factors for this increase was the volume of sales through our Direct Sales Distribution channel. For the six months ended March 31, 2018, our realized revenue decreased by 22% compared with the six months ended March 31, 2017.  The contributing factor for this decrease was the lower sales to our distributors.

Gross Profit. For the three months ended March 31, 2018, we earned a total gross profit of $103,254 from sales of our products.  The margin rate was 26% for the three months ended March 31, 2018, and 13% for the three months ended March 31, 2017. This increase in margin is driven by lower labor and amortization costs.  For the  six months ended March 31, 2018 the gross profit of $221,123 contributing factor was a lower Cost of sales driving a margin of 30% compared to the six months ended March 31, 2017 margin of 22%.

Expenses. For the three months ended March 31, 2018, our Company's operating expenses totaled $838,125 which is a reflection of increase in travel expenses, professional fees and trade shows.  There was a 33% increase over the same period of the prior year in travel primarily due to meeting with current and new investors. The increase in professional fees was driven by temporary headcount support. For the six months ended March 31, 2018, our Company's operating expenses totaled $1,598,778 compared to the six months ended March 31, 2017 $922,208.  Contributing factor was a 47% increase in FTE headcount.

Net Loss.  For the three months ended March 31, 2018, we generated net losses of $737,263. This loss was attributed to operating expenses. Attributing factors were leasehold improvements for production retrofitting and fees associated with audit support and consulting services. For the six months ended March 31, 2018, we generated net losses of $1,380,819.  There was a 89% increase in losses from the six months ended March 31, 2017 to the six months ended March 31, 2018.  Contributing activity towards the $649,153 increase was in professional fees relating to consulting support in foreign investor relations, increased FTE headcount and new facility production buildout.

17

Liquidity and Capital Resources

As of September 30, 2017, we had a cash balance of $347,327 and $515,290 as of March 31, 2018; this increase was primarily due to the sale of common stock.

Accounts receivable increased about 23% and inventories increased about 13% since September 30, 2017 mainly in Direct Sales Distribution and co-packing services.

Our current ratio of 4.0 as of March 31, 2018 reflects an increase in working capital compared to 2.6 as of September 30, 2017.

Our auditor has indicated that there is substantial doubt about our ability to continue as a going concern due to our lack of significant revenues, and if we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our current cash balance as of March 31, 2018, is not sufficient to fund our operations for the next twelve months. Therefore, the Company intends to engage in additional financing through the sale of equity securities.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4.     Controls and Procedures.

As of the end of the period covered by this Report, the Company's President, and principal financial officer (the "Certifying Officer"), evaluated the effectiveness of the Company's "disclosure controls and procedures," as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the officer concluded that, as of the date of the evaluation, the Company's disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the Company's periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management to allow timely decisions regarding required disclosure.

Our management, including the Certifying Officer, does not expect that our disclosure controls or our internal controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

The Certifying Officer has also indicated that there were no changes in internal controls over financial reporting during the Company's last fiscal quarter, and no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.

18

PART II.

Item 1.     Legal Proceedings.

None.

Item 1A.   Risk Factors.

There have been no changes to our risk factors from those disclosed in our Form 10-K filed on February 21, 2018.

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

During the quarter ended March 31, 2018, we sold 1,103,529 shares of our common stock to several individual investors of which 43,529 shares were sold at $0.51 per share and 1,060,000 shares were sold at $1.00 per share, for an aggregate purchase price of $1,082,200. These proceeds will be used for general business operations.

All the investors were non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) who purchased in transactions outside of the United States.  In issuing shares to those investors, we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 3.     Defaults Upon Senior Securities.

None.

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
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
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. 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.

19

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:	May 15, 2018	NUZEE, INC.
		By:	/s/ Masateru Higashida
			Masateru Higashida, Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer)

20

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.;

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.     I am 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 my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, 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 my 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.     I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors 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:	May 15, 2018	NUZEE, INC.
		By:	/s/ Masateru Higashida
			Masateru Higashida, President, Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer), Secretary, Treasurer and Director (Sole Officer and Director)

EX-32.1

Exhibit 32.1

WRITTEN STATEMENT

PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of NuZee, Inc. and its subsidiaries (the "Company") on Form 10-Q for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the Company's Chief Executive Officer, Masateru Higashida, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 15, 2018	NUZEE, INC.
		By:	/s/ Masateru Higashida
			Masateru Higashida, President, Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer), Secretary, Treasurer and Director (Sole Officer and Director)

XML

Document and Entity Information	6 Months Ended
	Mar. 31, 2018 USD ($) shares
Document and Entity Information:
Entity Registrant Name	NuZee, Inc.
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Trading Symbol	nuze
Amendment Flag	false
Entity Central Index Key	0001527613
Current Fiscal Year End Date	--09-30
Entity Common Stock, Shares Outstanding | shares	37,122,321
Entity Public Float | $	$ 0
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

XML

CONSOLIDATED BALANCE SHEETS (UNAUDITED for March 31, 2018) - USD ($)		Mar. 31, 2018	Sep. 30, 2017
Current assets:
Cash		$ 515,290	$ 347,327
Accounts receivable, net		177,209	143,893
Accounts receivable - Related party		503	12,380
Inventories, net		301,977	266,620
Other current assets		172,726	102,926
Other current assets - Related party		35,800	29,378
Total current assets		1,203,505	902,524
Property and equipment, net		556,762	277,987
Other assets:
Goodwill		17,112	17,112
Customer List, net		40,162	45,899
Investment in unconsolidated affiliate		0	10,733
Total other assets		57,274	73,744
Total assets		1,817,541	1,254,255
Current liabilities:
Accounts payable		134,785	104,973
Loan payable - short term - Related party		0	200
Current portion of long-term loan payable		47,336	44,681
Other current liabilities		113,385	126,687
Other current liabilities - Related party		6,452	1,089
Deferred revenue		0	72,750
Total current liabilities		301,958	350,380
Non-current liabilities:
Loan payable - long term, net of current portion		117,916	133,644
Other noncurrent liabilities		10,181	9,610
Total non-current liabilities		128,097	143,254
Total liabilities		430,055	493,634
Stockholders' equity:
Common stock		371	347
Additional paid in capital		11,712,443	9,718,648
Accumulated deficit		(10,422,524)	(9,030,551)
Accumulated other comprehensive loss		(10,975)	(20,680)
Total shareholders' equity	[1]	1,279,315	667,764
Noncontrolling interest		108,171	92,857
Total stockholders' equity		1,387,486	760,621
Total liabilities and stockholders' equity		$ 1,817,541	$ 1,254,255

[1] NuZee, Inc.

XML

Statement of Financial Position - Parenthetical - $ / shares	Mar. 31, 2018	Sep. 30, 2017
Statement of Financial Position
Preferred Stock, Par Value	$ 0.00001	$ 0.00001
Preferred Stock, Shares Authorized	100,000,000	100,000,000
Preferred Stock, Shares Issued	0	0
Preferred Stock, Shares Outstanding	0	0
Common Stock, Par Value	$ 0.00001	$ 0.00001
Common Stock, Shares Authorized	100,000,000	100,000,000
Common Stock, Shares Issued	37,122,321	34,720,538
Common Stock, Shares Outstanding	37,122,321	34,720,538

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)		3 Months Ended		6 Months Ended
		Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Statement of Income
Revenues		$ 390,653	$ 376,327	$ 747,532	$ 953,834
Cost of sales		287,399	325,592	526,409	742,460
Gross Profit		103,254	50,735	221,123	211,374
Operating expenses		838,125	413,874	1,598,778	922,208
Loss from operations		(734,871)	(363,139)	(1,377,655)	(710,834)
Other income		8,544	13,113	9,051	30,960
Equity in loss of unconsolidated affiliate		(10,167)	(32,721)	(10,733)	(47,892)
Other expense		(3)	(2,545)	(3)	(3,900)
Interest expense		(766)	0	(1,479)	0
Net loss		(737,263)	(385,292)	(1,380,819)	(731,666)
Net income (loss) attributable to noncontrolling interest		17,210	(8,426)	11,154	(14,848)
Net loss attributable to shareholders	[1]	$ (754,473)	$ (376,866)	$ (1,391,973)	$ (716,818)
Basic and diluted loss per common share		$ (0.02)	$ (0.01)	$ (0.04)	$ (0.02)
Basic and diluted weighted average number of common stock outstanding		36,267,298	32,925,132	35,580,677	32,737,443

[1] NuZee, Inc.

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)		6 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
Operating activities:
Net loss		$ (1,380,819)	$ (731,666)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and Amortization		59,486	35,466
Option expense		249,509	12,200
Interest expenses		0	3,635
Inventory impairment		0	4,112
Equity in loss of unconsolidated affiliate		10,733	47,892
Change in operating assets and liabilities:
Accounts receivable (increase/decrease)		(25,847)	(95,681)
Accounts receivable - Related party (increase/decrease)		12,613	0
Inventories (increase/decrease)		(28,691)	79,496
Other current assets (increase/decrease)		(67,397)	(31,212)
Other current assets - Related party (increase/decrease)		(4,677)	0
Accounts payable (increase/decrease)		28,538	21,205
Other current liabilities (increase/decrease)		(15,028)	(25,783)
Other current liabilities - Related party (increase/decrease)		5,297	0
Deferred revenue (increase/decrease)		(72,750)	0
Net cash used by operating activities		(1,229,033)	(680,336)
Investing activities:
Purchase of equipment		(331,916)	(135,731)
Acquisition of investment in unconsolidated affiliate		0	(50,000)
Net cash acquired from business acquisition		0	201,676
Net cash provided (used) by investing activities		(331,916)	15,945
Financing activities:
Proceeds from issuance of Loan - short term - Related party		341,000	180,824
Repayment of loans - short term - Related party		(341,200)	(119,001)
Proceeds from issuance of Loan - short term		0	16,709
Repayment of loans - short term		(23,196)	(15,001)
Payments on capital lease		(1,800)	0
Proceeds from issuance of Loan - long term		0	73,171
Proceeds from issuance of common stock		1,744,310	680,510
Net cash provided by financing activities		1,719,114	817,212
Effect of foreign exchange on cash and cash equivalents		9,798	(41,394)
Net change in cash		167,963	111,427
Cash, beginning of period		347,327	40,613
Cash, end of period		515,290	152,040
Supplemental disclosure of cash flow information:
Cash paid for interest		1,082	1,131
Cash paid for taxes		800	800
Noncash investing and financing activities:
Acquisition through issuance of common shares	[1]	0	258,465
Software purchased with installment agreement		0	14,807
Conversion of note payable to common stock - Related party		$ 0	$ 606,000

[1] Of NuZee JAPAN Co., Ltd.

XML

1. Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2018

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 financial statements of NuZee, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended September 30, 2017 as filed with the SEC. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.

Earnings per Share

Basic earnings per common share equal net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. The Company incurred a net loss for the six months ended March 31, 2018 and 2017, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had recurring losses, negative operating cash flows and is dependent on its shareholders to provide additional funding for operating expenses. These items raise substantial doubt as to the Company's ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon management's ability to develop profitable operations, continued contributions from the Company's executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company's products and business.

Major Customers

In the six months ended March 31, 2018 and 2017, revenue was primarily from major customers disclosed below. Besides those revenues, there were $94,332 and $5,000 account receivable owed by customer PO and customer B as of March 31, 2018, and $128,075 and $52,616 account receivable owed by customer PO and K as of March 31, 2017,

Six months ended March 31, 2018:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	432,176		58	%
Customer B	$	77,750		10	%
Six months ended March 31, 2017:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	462,006		48	%
Customer K	$	146,005		15	%

Lease

The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the Company as lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line basis over the lease term.

NuZee JAPAN Co., Ltd is the lessee of certain equipment under a capital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $10,281 as of March 31, 2018. The capital lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under capital lease as of March 31, 2018 for each of the remaining fiscal years are as follows:

2018	$	2,340
2019	$	4,679
2020	$	4,679
2021	$	1,170
Total Minimum Lease Payments	$	12,868

The Company leases office space under leases expiring on May 31, 2020. Rent expense included in general and administrative expense for six months ended March 31, 2018 and 2017 was $61,692 and $22,279 respectively.

Future minimum rents as of March 31, 2018 for each of the remaining fiscal years are as follows:

2018	$	28,674
2019	$	58,488
2020	$	39,760
Total Minimum Lease Payments	$	126,922

Loan

On June 30, 2016, NuZee JAPAN Co., Ltd entered into a loan agreement with Tono Shinyo Kinko Bank. The Company borrowed the sum of approximately $145,758 to be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The loan is unsecured and guaranteed by a director. The Company had $91,790 loan payable at March 31, 2018. On January 27, 2017, NuZee JAPAN Co., Ltd entered into a loan agreement with Nihon Seisaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The Company had $73,462 loan payable at March 31, 2018. During the six months ended March 31, 2018 and 2017, respectively, the Company paid back the principal amount of $23,196 and $15,001.

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

	Tono Shinyo Kinko Bank		Nihon Seisaku Kouko
2018	$	14,122	$	9,582
2019	$	28,243	$	19,164
2020	$	28,243	$	19,164
2021	$	21,182	$	19,164
2022	$	-	$	6,388
Total Loan Payment	$	91,790	$	73,462

Principles of Consolidation

The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and majority owned subsidiary which has a fiscal year end of September 30. All significant intercompany accounts, balances and transactions have been eliminated in the consolidation.

The Company consolidates its subsidiary in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation.

Foreign Currency Translation

The financial position and results of operations of the Company's foreign subsidiary is measured using the foreign subsidiary's local currency as the functional currency. Revenues and expenses of such subsidiary has been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders' equity unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustment recorded to other comprehensive loss amounted to $10,975 and $20,680 as of March 31, 2018 and September 30, 2017, respectively.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction gains included in the consolidated statements of operations totaled $3 and $890 for six months ended March 31, 2018 and 2017, respectively.

Inventories

Inventory, consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of cost or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at least quarterly and records a valuation allowance when appropriate. At March 31, 2018 and September 30 2017, the carrying value of inventory of $301,977 and $266,620 respectively, reflected on the consolidated balance sheets is net of this adjustment.

	March 31, 2018			September 30, 2017
Raw materials	$	158,376		$	111,043
Work in process		5,535			5,535
Finished goods		147,152			159,128
Less - Inventory reserve		(9,086	)		(9,086	)
Total (Inventories, net)	$	301,977		$	266,620

Recent Accounting Pronouncements

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations.  The collective guidance is effective for interim and annual periods in the first annual period beginning after December 15, 2017, with early adoption permitted.  The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  The Company has not selected a transition method and is currently evaluating the impact of the pending adoption of this ASU on its ongoing financial reporting.

Reclassifications have been made to conform with the current year presentation.

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2. Geographic Concentrations

6 Months Ended

Mar. 31, 2018

Notes

2. Geographic Concentrations

2.  GEOGRAPHIC CONCENTRATIONS

The Company is organized based on fundamentally one business segment although it does sell its products on a world-wide basis.

Information about the Company's geographic operations are as follows:

Geographic Concentrations
	Six Months Ended March 31, 2018		Six Months Ended March 31, 2017
Net Revenue:
North America	$	266,836	$	381,293
Japan		480,696		572,541
	$	747,532	$	953,834
Property and equipment, net:	March 31, 2018		September 30, 2017
North America	$	546,481	$	266,522
Japan		10,281		11,465
	$	556,762	$	277,987

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3. Related Party Transactions

6 Months Ended

Mar. 31, 2018

Notes

3. Related Party Transactions

3.  RELATED PARTY TRANSACTIONS

Loans

During February 2015, the Company issued a secured convertible promissory note in the sum of $600,000 to Masateru Higashida, the Company's major shareholder.  Interest was calculated at the annual rate of zero percent (0%) for the period until April 2016.  During March 2016, the Company and Masateru Higashida decided to extend the repayment date to March 31, 2017 so that the Company has more funds for production and marketing to fulfill customers' requirements, which is in the best interest of the Corporation and its shareholders. The annual rate of repayment is at an interest rate of one percent (1%) for the period until March 31, 2017. This promissory note will convert to 1,176,471 shares of NuZee, Inc common stock at $0.51 per share if Company is unable to pay back the note by then. During three months ended March 31, 2017, the Company accrued interest of $6,000 relating to this related party note.

On March 31, 2017, Masateru Higashida (Lender, a/k/a the "Seller") deemed it beneficial to engage in a private sale (the "Sale") and to sell the Amended Note to Kenichi Miura (the "Purchaser") upon the terms and conditions of the Convertible Note Purchase Agreement. The Amended Note shall continue to bear interest on the principal amount at the annual interest rate of one percent (1%) per year; and the Amended Note shall continue to be convertible in whole or in part to shares of the Corporation's common stock, at the election of the Lender (now at the election of Purchaser), at a price of $.51 per share, on or after March 31, 2017;

During February 2017, the Company borrowed the sum of approximately $4,000 short-term loan from Travis Gorney to be repaid on or before February 14, 2018 at an interest rate of one percent (1%). The Company paid back the full principal amount of the loan on March 31, 2017.

During March 2017, the Company borrowed the sum of $100,000 short-term loan from Takayuki Nagashima to be repaid on or before June 30, 2017 at an interest rate of one percent (1%).

During June 2017, the Company borrowed the sum of $1,200 unsecured short-term loan from Masateru Higashida to be repaid on or before June 14, 2018 at an interest rate of one percent (1%). During the six months ended March 31, 2018, the Company borrowed the sum of $2,000 unsecured short-term loan from Masateru Higashida to be repaid on or before December 31, 2018 at an interest rate of one percent (1%). The Company made principal payments of $2,000 during the six months ended March 31, 2018. The Company accrued interest of $1 and $341 for the six months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, the loan had principal and accrued interest balances of $200 and $559, respectively.

During December 2016, the Company borrowed the sum of $18,384 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before December 14, 2017 at an interest rate of one percent (1%). Between February and March 2017, the Company borrowed the sum of $ 14,440 short-term loan from NuZee Co., Ltd to be repaid on or before March 23, 2018 at an interest rate of one percent (1%). As of March 31, 2017, Company paid back $19,331 of this short-term loan. During the six months ended March 31, 2017, the Company accrued interest of $57.

During March 2017, the Company borrowed the sum of $44,000 short-term loan from Masateru Higashida to be repaid on or before March 14, 2018 at an interest rate of one percent (1%). During the six months ended March 31, 2017, the Company accrued interest of $341 and paid back the total principal amount of $75,670.

During the six months ended March 31, 2018, the Company borrowed the sum of $154,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before October 31, 2018 at an interest rate of one percent (1%) and the sum of $185,000 unsecured short-term loan from NuZee Co., Ltd to be repaid on or before January 31, 2019 at an interest rate of one percent (1%). The Company made principal payments of $339,200 during six month ended March 31, 2018.The Company accrued interest of $396 for six months ended March 31, 2018. As of March 31, 2018, the loans had overpaid principal and accrued interest balances of $200 and $668, respectively. The Company plans to take new loans from NuZee Co., Ltd after the balance sheet date in excess of the overpayment.

All short-term loans are related party transactions since Masateru Higashida is the Company's major shareholder and he holds 100% ownership of NuZee Co., Ltd.

Sales, Purchases and Operating Expenses

For six months ended March 31, 2018, NuZee JP sold their products to Eguchi Holdings Co.,Ltd ("EHCL") and the sales to them totaled approximately $2,805. The corresponding accounts receivable balance from them was $35 as of March 31, 2018. NuZee JP sold their products to NuZee Co., Ltd. during the 2017 fiscal year. The related accounts receivable outstanding was $468 as of March 31, 2018. EHCL is the Company's related party as they are controlled by Katsuyoshi Eguchi who is a director and the minority owner of NuZee JP.

NuZee JP leased an employee to NuZee Co., Ltd. for Contlus during October 2016 to January 2017 for $10,936 and sold greeting cards to NuZee Co., Ltd. for $7,418 during the year ended September 30, 2017. The related receivables outstanding was $0 as of March 31, 2018.

NuZee JP leased an employee to Contlus. For six months ended March 31, 2018, NuZee JP billed $20,456 for this arrangement and $35,800 remains outstanding as of March 31, 2018. Contlus is the Company's related party as the Company holds 50% of their issued shares.

Rent

During October 2016, NuZee JP entered into a rental agreement of an office space with NuZee Co., Ltd.   The Company agrees to pay $1,169 per month for the office on the last day of each month. There is no set expiration date on the agreement. The corresponding rent payable balance to them was $1,529 as of March 31, 2018.

During September 2016, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company agrees to pay $1,213 per month for the office and the warehouse on the last day of each month. The term of this agreement is 3 years and will be automatically renewed. The corresponding rent payable balance to them was $4,923 as of March 31, 2018.

During February 2015, the Company entered into a rental agreement of a warehouse with Eguchi Steel Co.,Ltd ("ESCL"). The Company agrees to pay $449 per month for the warehouse on the last day of each month. There is no set expiration date on the agreement. ESCL is the Company's related party as they are controlled by Katsuyoshi Eguchi who is a director and the minority owner of NuZee JP.

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4. Investment in Unconsolidated Affiliate

6 Months Ended

Mar. 31, 2018

Notes

4. Investment in Unconsolidated Affiliate

4.  INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company has an investment in an equity method affiliate which has main businesses related to the production, sale, import and export of coffee & beans, tea & tea leaf, healthy foods and drinks. The investment of $50,000 was made during the three months ended December 31, 2016.

The following table is a reconciliation of the Company's investment in equity affiliate as presented on the consolidated balance sheet as of March 31, 2018:

INVESTMENT IN AFFILIATE
	March 31, 2018
Beginning of period	$	10,733
Additional investments in unconsolidated affiliate	$	-
Distributions received	$	-
Sale of investment in unconsolidated affiliate	$	-
Equity in net income (loss) of unconsolidated affiliate	$	(10,733	)
End of period	$	-

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5. Common Stock

6 Months Ended

Mar. 31, 2018

Notes

5. Common Stock

5.  COMMON STOCK

On October 3rd, 2016, the "Company" exchanged 1,148,734 shares of its common stock, par value $0.00001 per share, for seventy percent (70%) of the issued and outstanding common stock of NuZee JP.

During six months ended March 31, 2017, the Company sold 680,510 shares of common stock at $1.00 per share, for an aggregate purchase price of $680,510.

On March 31, 2017, Kenichi Miura exercised his right to convert the Amended Note to shares of the Corporation's common stock (the "Conversion"), at the price of $.51 per share, in accordance with the terms and conditions of the Convertible Note Purchase Agreement, thus equating to a conversion of $606,000 [i.e., $600,000 principal, plus $6,000 in accrued interest] to the equivalent 1,188,236 shares of the Corporation's common stock.

During six months ended March 31, 2018, the Company sold 1,341,783 shares of common stock at $0.51 per share, for an aggregate purchase price of $684,310 and 1,060,000 shares of common stock at $1.00 per share, for an aggregate purchase price of $1,060,000.

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6. Stock Options

6 Months Ended

Mar. 31, 2018

Notes

6. Stock Options

6.  STOCK OPTIONS

The following table summarizes stock option activity for six months ended March 31, 2018:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of Shares			Exercise Price		Contractual Life (years)		Intrinsic Value
Outstanding at September 30, 2017		3,064,500		$	0.58		9.6		17,425
Granted		-			-
Exercised		-			-
Expired		-			-
Forfeited		(100,000	)		0.51
Outstanding at March 31, 2018		2,964,500		$	0.58		9.1		1,809,165
Exercisable at March 31, 2018		244,500		$	0.48		8.1		173,965

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 $249,509 for the six months ended March 31, 2018. Unamortized option expense as of March 31, 2018, for all options outstanding amounted to approximately $702,746. These costs are expected to be recognized over a weighted-average period of 2.8 years. The Company recognized stock option expenses of $12,200 for the six months ended March 31, 2017.

A summary of the status of the Company's nonvested shares as of March 31, 2018, is presented below:

Nonvested options
	Number of
	Nonvested Shares
Nonvested shares at September 30, 2017		2,884,000
Granted		-
Exercised		-
Forfeited		(100,000	)
Vested		(64,000	)
Nonvested shares at March 31, 2018		2,720,000

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7. Subsequent Events

6 Months Ended

Mar. 31, 2018

Notes

7. Subsequent Events

7.  SUBSEQUENT EVENTS

-Common Stock

During April to May 2018, the Company sold 25,000 shares of common stock of which were sold at $1.00 per share, for an aggregate purchase price of $25,000.

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1. Basis of Presentation and Summary of Significant Accounting Policies: Earnings Per Share (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Earnings Per Share

Earnings per Share

Basic earnings per common share equal net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. The Company incurred a net loss for the six months ended March 31, 2018 and 2017, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

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1. Basis of Presentation and Summary of Significant Accounting Policies: Going Concern (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Going Concern

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had recurring losses, negative operating cash flows and is dependent on its shareholders to provide additional funding for operating expenses. These items raise substantial doubt as to the Company's ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continued existence is dependent upon management's ability to develop profitable operations, continued contributions from the Company's executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company's products and business.

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1. Basis of Presentation and Summary of Significant Accounting Policies: Major Customers (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Major Customers

Major Customers

In the six months ended March 31, 2018 and 2017, revenue was primarily from major customers disclosed below. Besides those revenues, there were $94,332 and $5,000 account receivable owed by customer PO and customer B as of March 31, 2018, and $128,075 and $52,616 account receivable owed by customer PO and K as of March 31, 2017,

Six months ended March 31, 2018:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	432,176		58	%
Customer B	$	77,750		10	%
Six months ended March 31, 2017:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	462,006		48	%
Customer K	$	146,005		15	%

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1. Basis of Presentation and Summary of Significant Accounting Policies: Lease (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Lease

Lease

The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the Company as lessee, the Company records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line basis over the lease term.

NuZee JAPAN Co., Ltd is the lessee of certain equipment under a capital lease extending through 2020. The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments, or the fair value of the asset. Leased equipment is depreciated over a 6-year life. The leased equipment is reported in the accompanying consolidated balance sheets in property and equipment of $10,281 as of March 31, 2018. The capital lease liability is included in other current liabilities on the consolidated balance sheets.

Future minimum lease payments under capital lease as of March 31, 2018 for each of the remaining fiscal years are as follows:

2018	$	2,340
2019	$	4,679
2020	$	4,679
2021	$	1,170
Total Minimum Lease Payments	$	12,868

The Company leases office space under leases expiring on May 31, 2020. Rent expense included in general and administrative expense for six months ended March 31, 2018 and 2017 was $61,692 and $22,279 respectively.

Future minimum rents as of March 31, 2018 for each of the remaining fiscal years are as follows:

2018	$	28,674
2019	$	58,488
2020	$	39,760
Total Minimum Lease Payments	$	126,922

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1. Basis of Presentation and Summary of Significant Accounting Policies: Loan (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Loan

Loan

On June 30, 2016, NuZee JAPAN Co., Ltd entered into a loan agreement with Tono Shinyo Kinko Bank. The Company borrowed the sum of approximately $145,758 to be repaid on or before June 5, 2021 at an annual interest rate of 1.2%. The loan is unsecured and guaranteed by a director. The Company had $91,790 loan payable at March 31, 2018. On January 27, 2017, NuZee JAPAN Co., Ltd entered into a loan agreement with Nihon Seisaku Kouko. The Company borrowed the sum of approximately $87,268 to be repaid on or before January 20, 2022 at an interest rate of 0.16%. The loan is unsecured and not guaranteed by a director. The Company had $73,462 loan payable at March 31, 2018. During the six months ended March 31, 2018 and 2017, respectively, the Company paid back the principal amount of $23,196 and $15,001.

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

	Tono Shinyo Kinko Bank		Nihon Seisaku Kouko
2018	$	14,122	$	9,582
2019	$	28,243	$	19,164
2020	$	28,243	$	19,164
2021	$	21,182	$	19,164
2022	$	-	$	6,388
Total Loan Payment	$	91,790	$	73,462

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1. Basis of Presentation and Summary of Significant Accounting Policies: Principles of Consolidation (Policies)

6 Months Ended

Mar. 31, 2018

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

The Company consolidates its subsidiary in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation.

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1. Basis of Presentation and Summary of Significant Accounting Policies: Foreign Currency Translation (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Foreign Currency Translation

Foreign Currency Translation

The financial position and results of operations of the Company's foreign subsidiary is measured using the foreign subsidiary's local currency as the functional currency. Revenues and expenses of such subsidiary has been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders' equity unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustment recorded to other comprehensive loss amounted to $10,975 and $20,680 as of March 31, 2018 and September 30, 2017, respectively.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction gains included in the consolidated statements of operations totaled $3 and $890 for six months ended March 31, 2018 and 2017, respectively.

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1. Basis of Presentation and Summary of Significant Accounting Policies: Inventories (Policies)

6 Months Ended

Mar. 31, 2018

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 March 31, 2018 and September 30 2017, the carrying value of inventory of $301,977 and $266,620 respectively, reflected on the consolidated balance sheets is net of this adjustment.

	March 31, 2018			September 30, 2017
Raw materials	$	158,376		$	111,043
Work in process		5,535			5,535
Finished goods		147,152			159,128
Less - Inventory reserve		(9,086	)		(9,086	)
Total (Inventories, net)	$	301,977		$	266,620

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1. Basis of Presentation and Summary of Significant Accounting Policies: Recent Accounting Pronouncements (Policies)

6 Months Ended

Mar. 31, 2018

Policies

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations.  The collective guidance is effective for interim and annual periods in the first annual period beginning after December 15, 2017, with early adoption permitted.  The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  The Company has not selected a transition method and is currently evaluating the impact of the pending adoption of this ASU on its ongoing financial reporting.

Reclassifications have been made to conform with the current year presentation.

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1. Basis of Presentation and Summary of Significant Accounting Policies: Major Customers: Schedule of Revenue by Major Customers by Reporting Segments (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedule of Revenue by Major Customers by Reporting Segments

Six months ended March 31, 2018:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	432,176		58	%
Customer B	$	77,750		10	%
Six months ended March 31, 2017:
	Sales Amount		% of Total Revenue
Customer Name
Customer PO	$	462,006		48	%
Customer K	$	146,005		15	%

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1. Basis of Presentation and Summary of Significant Accounting Policies: Lease: Schedule of Future Minimum Lease Payments for Capital Leases (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedule of Future Minimum Lease Payments for Capital Leases

2018	$	2,340
2019	$	4,679
2020	$	4,679
2021	$	1,170
Total Minimum Lease Payments	$	12,868

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1. Basis of Presentation and Summary of Significant Accounting Policies: Lease: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedule of Future Minimum Rental Payments for Operating Leases

2018	$	28,674
2019	$	58,488
2020	$	39,760
Total Minimum Lease Payments	$	126,922

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1. Basis of Presentation and Summary of Significant Accounting Policies: Loan: Schedule of Maturities of Long-Term Debt (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedule of Maturities of Long-Term Debt

	Tono Shinyo Kinko Bank		Nihon Seisaku Kouko
2018	$	14,122	$	9,582
2019	$	28,243	$	19,164
2020	$	28,243	$	19,164
2021	$	21,182	$	19,164
2022	$	-	$	6,388
Total Loan Payment	$	91,790	$	73,462

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1. Basis of Presentation and Summary of Significant Accounting Policies: Inventories: Schedule of Inventory, Current (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedule of Inventory, Current

	March 31, 2018			September 30, 2017
Raw materials	$	158,376		$	111,043
Work in process		5,535			5,535
Finished goods		147,152			159,128
Less - Inventory reserve		(9,086	)		(9,086	)
Total (Inventories, net)	$	301,977		$	266,620

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2. Geographic Concentrations: Schedules of Concentration of Risk, by Risk Factor (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedules of Concentration of Risk, by Risk Factor

Geographic Concentrations
	Six Months Ended March 31, 2018		Six Months Ended March 31, 2017
Net Revenue:
North America	$	266,836	$	381,293
Japan		480,696		572,541
	$	747,532	$	953,834
Property and equipment, net:	March 31, 2018		September 30, 2017
North America	$	546,481	$	266,522
Japan		10,281		11,465
	$	556,762	$	277,987

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4. Investment in Unconsolidated Affiliate: Equity Method Investments (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Equity Method Investments

INVESTMENT IN AFFILIATE
	March 31, 2018
Beginning of period	$	10,733
Additional investments in unconsolidated affiliate	$	-
Distributions received	$	-
Sale of investment in unconsolidated affiliate	$	-
Equity in net income (loss) of unconsolidated affiliate	$	(10,733	)
End of period	$	-

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6. Stock Options: Share-Based Compensation, Stock Options, Activity (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Share-Based Compensation, Stock Options, Activity

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of Shares			Exercise Price		Contractual Life (years)		Intrinsic Value
Outstanding at September 30, 2017		3,064,500		$	0.58		9.6		17,425
Granted		-			-
Exercised		-			-
Expired		-			-
Forfeited		(100,000	)		0.51
Outstanding at March 31, 2018		2,964,500		$	0.58		9.1		1,809,165
Exercisable at March 31, 2018		244,500		$	0.48		8.1		173,965

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6. Stock Options: Schedule of Nonvested Share Activity (Tables)

6 Months Ended

Mar. 31, 2018

Tables/Schedules

Schedule of Nonvested Share Activity

Nonvested options
	Number of
	Nonvested Shares
Nonvested shares at September 30, 2017		2,884,000
Granted		-
Exercised		-
Forfeited		(100,000	)
Vested		(64,000	)
Nonvested shares at March 31, 2018		2,720,000

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1. Basis of Presentation and Summary of Significant Accounting Policies: Lease (Details)	Mar. 31, 2018 USD ($)
Details
Capital Leases, Balance Sheet, Assets by Major Class, Net	$ 10,281

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1. Basis of Presentation and Summary of Significant Accounting Policies: Loan (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Details
Notes and Loans Payable, Current	$ 91,790
Other Loans Payable, Current	73,462
Repayment of loans - short term	$ 23,196	$ 15,001

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1. Basis of Presentation and Summary of Significant Accounting Policies: Foreign Currency Translation (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Sep. 30, 2017
Details
Accumulated other comprehensive loss	$ 10,975		$ 20,680
Conversion Gains and Losses on Foreign Investments	$ 3	$ 890

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1. Basis of Presentation and Summary of Significant Accounting Policies: Inventories (Details) - USD ($)	Mar. 31, 2018	Sep. 30, 2017
Details
Inventories, net	$ 301,977	$ 266,620

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1. Basis of Presentation and Summary of Significant Accounting Policies: Inventories: Schedule of Inventory, Current (Details) - USD ($)	Mar. 31, 2018	Sep. 30, 2017
Details
Inventory, Raw Materials, Gross	$ 158,376	$ 111,043
Inventory, Work in Process, Gross	5,535	5,535
Inventory, Finished Goods, Gross	147,152	159,128
Inventory, Finished Goods and Work in Process, Net of Reserves	(9,086)	(9,086)
Inventories, net	$ 301,977	$ 266,620

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3. Related Party Transactions (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Details
Interest Expense, Related Party		$ 6,000
Proceeds from Short-term Debt	$ 2,000
Repayments of Other Short-term Debt	2,000
Repayments of Unsecured Debt	339,200	$ 75,670
Proceeds from Issuance of Unsecured Debt	154,000
Proceeds from Unsecured Notes Payable	185,000
Revenue from Related Parties	2,805
Due from Related Parties, Current	468
Due from Affiliates	0
Due from Other Related Parties, Current	35,800
Operating Lease, Liability	$ 4,923

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5. Common Stock (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Details
Proceeds from Issuance or Sale of Equity	$ 684,310	$ 680,510

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6. Stock Options (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Details
Option expense	$ 249,509	$ 12,200