2022 Reverse Stock Split

On December 28, 2022, we completed a l-for-35 reverse stock split, which became effective on December 28, 2022 upon acceptance of the Company’s filing of an amendment to the Company’s Articles of Incorporation, as amended, with the Secretary of State of Nevada (the “Reverse Stock Split”). Accordingly, each holder of common stock received one share of common stock for every 35 shares such stockholder held immediately prior to the effectiveness of the Reverse Stock Split.

All share and per share information included in these financial statements and notes thereto have been retroactively adjusted to give effect to the Reverse Stock Split.

Going Concern and Capital Resources

Going Concern and Capital Resources

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, raising capital and the commercialization and manufacture of its single serve coffee products. The Company has grown revenues from its principal operations; however, there is no assurance of future revenue growth similar to historical levels.

As of March 31, 2023, the Company had cash of $4,699,227 and working capital of $4,874,312. The Company has not attained profitable operations since inception.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP, which contemplates continuation of the Company as a going concern. The Company has had limited revenues, recurring losses and an accumulated deficit. These items raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying unaudited interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations and to raise additional capital for the further development and marketing of the Company’s products and business.

Lease

Lease

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The Company implemented ASU No. 2016-02 on October 1, 2019.

The Company performs a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. The Company has a long-term operating lease for office and manufacturing space in Plano, Texas. The leased property in Plano, Texas, has a remaining lease term through June 2024. The lease has an option to extend beyond the stated termination date, but exercise of this option is not probable. The Company did not apply the recognition requirements of ASC 842 to operating leases with a remaining lease term of 12 months or less.

In May 2022, the Company renewed the office and manufacturing space in Vista, California through March 31, 2025, which was scheduled to expire on January 31, 2023. The lease has a monthly base rent of $8,451, plus common area expenses. Along with the extension, we leased an additional 1,796 square feet that has a monthly base rent of $2,514 through March 31, 2025. We extended our sub-leased property in Vista, California through January 31, 2023. The lease has a monthly rent of $2,111 and has been calculated as a ROU Asset co-terminus with the direct leased property. The Company leased a new larger office and manufacturing space in Seoul, Korea beginning November 15, 2021, through November 15, 2023. The lease has a monthly expense of $7,040. Accordingly, we have added ROU Assets and Lease Liabilities related to those leases at March 31, 2023.

Effective December 1, 2022, we entered into a new operating lease for our principal executive office, which is located at 1350 East Arapaho Road, Suite #230, Richardson, Texas 75081. We lease the Richardson office on an annual basis, at a cost of $1,510 per month, through November 30, 2023.

As of March 31, 2023, our operating leases had a weighted average remaining lease term of 1.2 years and a weighted-average discount rate of 5.0%. Other information related to our operating leases is as follows:


ROU Asset – October 1, 2022	$	642,624
ROU Asset added during the period		-
Amortization during the period		(123,505	)
ROU Asset – March 31, 2023	$	519,119
Lease Liability – October 1, 2022	$	656,111
Lease Liability added during the period		-
Amortization during the period		(136,330	)
Lease Liability – March 31, 2023	$	519,781

Lease Liability – Short-Term	$	377,005
Lease Liability – Long-Term		142,776
Lease Liability – Total	$	519,781

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of March 31, 2023:

Amounts due within twelve months of March 31,


2024	$	392,186
2025		166,582
Total Minimum Lease Payments		558,768
Less Effect of Discounting		(38,987	)
Present Value of Future Minimum Lease Payments		519,781
Less Current Portion of Operating Lease Liabilities		377,005
Long-Term Operating Lease Liabilities	$	142,776

On October 9, 2019, the Company entered into a lease agreement with Alliance Funding Group which provided for a sale lease back on certain packing equipment. The terms of this agreement require us to pay $2,987 per month through July 2024. As part of this agreement, Alliance Funding Group provided our equipment supplier with $124,500 for the purchase of this equipment. This transaction was accounted for as a finance lease. As of March 31, 2023, our finance lease had a remaining lease term of 1.2 years and a discount rate of 12.75%. The interest expense on finance lease liabilities for the six months ended March 31, 2023 was $2,033.

The table below summarizes future minimum finance lease payments at March 31, 2023 for the twelve months ended March 31:


2023	$	33,113
2024		11,037
Total Minimum Lease Payments		44,150
Amount representing interest		(7,626	)
Present Value of Minimum Lease Payments		36,524
Current Portion of Finance Lease Obligations		29,665
Finance Lease Obligations, Less Current Portion	$	6,859

Lease expenses included in operating expense for the six months ended March 31, 2023 and 2022 was $129,292 and $123,373, respectively. Lease expense, which represents sublease expense included in Other expense for the six months ended March 31, 2023 and 2022 was $80,205 and $99,209, respectively.

Cash and non-cash activities associated with the leases for the six months ended March 31, 2023 are as follows:


Operating cash outflows from operating leases:	$	160,271
Operating cash outflows from finance lease:	$	2,033
Financing cash outflows from finance lease:	$	17,616

In September 2020, we subleased the space at 1700 Capital Avenue in Plano, Texas, effective October 1, 2020, under terms that are co-terminus with the original lease ending June 30, 2024. During the six months ended March 31, 2023, we recognized sublease income of $90,263 pursuant to the sublease included in Other income on our financial statements. Future minimum lease payments to be received under that sublease as of March 31, 2023, for each of the twelve months ended March 31 are as follows:


2024	$	128,881
2025		32,459
Total	$	161,340

Revenue Recognition

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of October 1, 2018, on a modified retrospective basis. The adoption of Topic 606 did not have a material impact on our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations.

Prepaid expenses and other current assets

Prepaid expenses and other current assets

Prepaid expenses and other current assets at March 31, 2023 and September 30, 2022, were as follows:

		March 31, 2023				September 30, 2022
Prepaid expenses and other current assets		$	301,380			$	547,773

The prepaid expenses and other current assets balance of $301,380 as of March 31, 2023 primarily consists of deposits on inventory purchases and facilities, prepaid insurance, and rent. The balance of $547,773 as of September 30, 2022 primarily consists of deposits on inventory and a retainer for professional services.

Equity Method Investment

Equity Method Investment

On January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (50%) and the Company (50%) forming NuZee LATIN AMERICA (NLA), S.A. de C.V. NLA was formed pursuant to the laws of Mexico, with corporate domicile in Mazatlán, Mexico. As part of the capitalization of NLA, the Company contributed two co-packing machines to the joint venture. These machines had an aggregate carrying cost of $313,012. The Company received $110,000 in cash for this contribution and recorded an investment in NLA of $160,000 and a loss of $43,012 on the contribution of the machines to NLA.

The Company accounts for NLA using the equity method of accounting since the management of day-to-day operations at NLA ultimately lies with the Company’s joint venture partner as the operations of NLA are based in its partners facilities and our partner appoints the Chairman of the joint board of directors of NLA. As of March 31, 2023, the only activities in NLA were the contribution of two machines, as described above, and start up and initial marketing and sales activities. $3,497 and $2,296 of losses were recognized under the equity method of accounting during the six months ended March 31, 2023 and March 31, 2022, respectively.