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BUSINESS COMBINATIONS

6 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

BUSINESS COMBINATIONS

4. BUSINESS COMBINATIONS

As described in Note 1, on February 25, 2022, the Company acquired substantially all the assets and certain specified liabilities of Dripkit pursuant to the Asset Purchase Agreement, dated as of February 21, 2022, by and among the Company, Dripkit, and Dripkit’s existing investors who executed joinders to the Asset Purchase Agreement as of the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, the aggregate purchase price paid by the Company for the Acquisition was $860,000, plus the assumption of certain assumed liabilities, including a $13,000 bridge loan and approximately $3,176 of payables, subject to certain adjustments and holdbacks as provided in the Asset Purchase Agreement resulting in an acquisition accounting purchase price of $876,176. The Company analyzed the Acquisition under ASC 805 and concluded that it should be accounted for as a business combination.

Pursuant to the terms of the Asset Purchase Agreement, on the Closing Date, the cash portion of the purchase price was reduced by the following amounts: (a) $22,000, in satisfaction of a bridge loan made from the Company to Dripkit in February 2022 to provide Dripkit with operational financing prior to the Closing Date, (b) $35,500, as an indemnity holdback for the purpose of satisfying any indemnification claims made by the Company pursuant to the Asset Purchase Agreement, and (c) $40,000, as a cash bulk sales holdback (the “Cash Bulk Sales Holdback Amount”). In addition, on the Closing Date, the Company held back $40,000 worth of stock consideration as the Stock Bulk Sales Holdback Amount (together with the Cash Bulk Sales Holdback Amount, the “Bulk Sales Holdback Amount”). The Bulk Sales Holdback Amount was used to satisfy sales and use taxes owed by Dripkit to the State of New York as of the Closing Date, and amounts remaining after offsetting the cost of such sales and use taxes were distributed to Dripkit (in the case of the Cash Bulk Sales Holdback Amount) and delivered to the Stock Recipients (in the case of the Stock Bulk Sales Holdback Amount) in the third quarter of fiscal year 2022 pursuant to the terms of the Asset Purchase Agreement, as further described in Note 8-Subsequent Events.

On the Closing Date, after adjustments and holdbacks under the Asset Purchase Agreement, the Company paid the aggregate purchase price as follows: (i) cash paid by the Company to Dripkit was $257,000, and (ii) the Company issued to the Stock Recipients an aggregate of 178,681 shares of the Company’s common stock. The Company repaid the entire outstanding principal amount of Dripkit’s Small Business Association Economic Injury Disaster Loan in the amount of $78,656. In addition, the Company recorded a liability on its balance sheet in Accounts Payable of $115,500 related to potential future amounts due related to the Bulk Sales Holdback of $80,000 and the indemnity holdback of $35,500.

The assets of Dripkit were acquired for purposes of supplementing our current product offerings and Dripkit will operate as a new Dripkit Coffee business division that is wholly-owned by NuZee, Inc.

The following table presents the allocation of the aggregate purchase price paid by the Company for the Acquisition of $860,000, plus the assumption of certain assumed liabilities, including a $13,000 bridge loan and approximately $3,176 of payables, resulting in an acquisition accounting purchase price of $876,176, to the assets acquired for the acquisition of Dripkit:

		March 31, 2022
Total purchase price		$	876,176
Assets acquired:
Inventory		$	9,664
Property and equipment			5,100
Identifiable intangible assets			330,000
Total assets acquired		$	344,764

Estimated fair value of net assets acquired		$	344,764
Goodwill		$	531,412

Identified Intangibles and Goodwill

The Company identified tradename and customer relationships intangible assets. The tradename and customer relationships intangible assets will be amortized on a straight-line basis over their respective estimated useful lives. The goodwill recognized results from such factors as an assembled workforce and management’s industry know-how. See Note 5-Goodwill and Intangible Assets for additional information on identified intangible assets and goodwill.

The six months ended March 31, 2022 includes the operations of Dripkit for the period from February 25, 2022, the date of acquisition, to March 31, 2022. The consolidated statement of operations for the three and six months ended March 31, 2022 includes revenue of approximately $2,481, respectively, and a net loss of $13,121, including amortization expense, of approximately $6,611 in both periods contributed by Dripkit.

In the six months ended March 31, 2022, the Company incurred $261,561 of transaction costs related to the Acquisition.

Unaudited Pro forma Financial Information

The following unaudited proforma financial information presents the combined results of operations of the Company and gives effect to the Dripkit Acquisition for the three and six months ended March 31, 2022 and 2021, as if the Acquisition had occurred as of the beginning of the first period presented instead of on February 25, 2022.

The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Acquisition had been completed on October 1, 2021, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.

The proforma financial information for the Company and Dripkit is as follows:

Three and six months ended March 31, 2022:

Description		2022				2021				2022				2021
		For the three months ended March 31,								For the six months ended March 31,
Description		2022				2021				2022				2021
Revenues		$	772,165			$	511,591			$	1,811,693			$	1,155,526
Net loss		$	3,025,896			$	6,159,019			$	5,866,279			$	12,132,852

For purposes of the pro forma disclosures above, the primary adjustments for the three months and six months ended March 31, 2022 include the elimination of transaction costs of approximately $244,622 and $261,561, respectively.