The accompanying unaudited interim consolidated financial statements of NuZee, Inc. (the "Company"(together with its subsidiaries, referred to herein as the “Company”, “we” or “NuZee”) have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”), and rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's annual reportCompany’s Annual Report on Form 10-K for the year ended September 30, 20162021 as filed with the SEC.SEC on December 22, 2021. 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 reportAnnual Report on Form 10-K for the year ended September 30, 2021, have been omitted.

Reclassification

Certain amounts in the prior period financial statements have been prepared in accordance with accounting principles generally accepted inreclassified to conform to the United States of America, which contemplates continuationpresentation of the Company as a going concern. The Company has had recurring losses, large accumulated deficit, is dependent on the shareholders to provide additional funding forcurrent period financial statements. We reclassified lease expenses associated with subleased property from operating expenses and has limited revenues. These items raise substantial doubts about the Company's ability to continue as a going concern. The accompanying 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 expenses totaling $78,174 for the further development and marketing of the Company's products and business.

The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and majorityits wholly owned subsidiary which has a fiscal year end of January 31.subsidiaries. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.

The Company has two wholly owned international subsidiaries in NuZee KOREA Ltd. (“NuZee KR”) and NuZee Investment Co., Ltd. (“NuZee INV”).

On February 25, 2022 (the “Closing Date”), the Company acquired substantially all the assets and certain specified liabilities (the “Acquisition”) of Dripkit, Inc., a Delaware corporation (“Dripkit”), pursuant to the Asset Purchase Agreement, dated as of February 21, 2022 (the “Asset Purchase Agreement”), by and among the Company, Dripkit, and Dripkit’s existing investors (the “Stock Recipients”) 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, subject to certain adjustments and holdbacks as provided in the consolidation.

Earnings per Share

Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of March 31, 2022, and March 31, 2021, the total number of common stock equivalents was 8,741,993 and 7,435,702, respectively, comprised of stock options and warrants as of March 31, 2022 and March 31, 2021. The Company incurred a net loss for the three and six months ended March 31, 2022, and 2021, respectively, and therefore basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.

Capital Resources

Since its subsidiaryinception, the Company has devoted substantially all 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 generated limited revenues from its principal operations, and there is no assurance of future revenues.

As of March 31, 2022, the Company had cash of $8,211,703. However, the Company has not attained profitable operations since inception.

Major Customers

In the six months ended March 31, 2022 and 2021, revenue was primarily derived from major customers disclosed below.

SCHEDULE OF REVENUE BY MAJOR CUSTOMERS

Six months ended March 31, 2022:

Six months ended March 31, 2021:

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 accordancePlano, 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 ASC 810,a remaining lease term of 12 months or less.

During our analysis of leases in the six months ended March 31, 2022, we determined to renew the office and specifically ASC 810-10-15-8manufacturing space in Vista, California which states,was scheduled to expire on January 31, 2023, through March 31, 2025. The lease has a monthly base rent of $8,451, plus common area expenses. Along with the usual conditionextension, we leased an additional 1,796 square feet that will have 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 andhas been calculated as a ROU Asset co-terminus with the direct-leased property. The Seoul, Korea office and manufacturing space lease was extended through June 2022 and there is an apartment leased through June 2022. Additionally, 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, 2022.

As of March 31, 2022, our operating leases had a weighted average remaining lease term of 2.1 years and a weighted-average discount rate of 5%. Other information related to our operating leases is as follows:

SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE

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, 2022:

Amounts due within twelve months of March 31,

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES

On October 9, 2019, the Company entered into a lease agreement with Alliance Funding Group which provided for a controlling financial interest is ownershipsale lease back on certain packing equipment. The terms of a majority voting interest, and, therefore,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 financing lease. As of March 31, 2022, our financing lease had a remaining lease term of 2.2 years and a discount rate of 12.75%. The interest expense on finance lease liabilities for the six months ended March 31, 2022 was $4,686.

During the year ended September 30, 2021, we recorded an impairment to fully write off the related equipment as it was deemed no longer useful for our operations.

The table below summarizes future minimum finance lease payments at March 31, 2022 for the twelve months ended March 31:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS FOR FINANCE LEASES

Rent expense included in general rule ownership by one reporting entity, directly or indirectly, or over 50%and administrative expense for the six months ended March 31, 2022 and 2021 was $123,373 and $89,876 respectively. Rent expense included in other expense for the six months ended March 31, 2022 and 2021 was $99,209 and $78,174, respectively.

Cash and non-cash activities associated with the leases for the six months ended March 31, 2022 are as follows:

SCHEDULE OF CASH AND NON-CASH ACTIVITIES OF LEASES

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, 2022, we recognized sublease income of $85,062 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, 2022, for each of the twelve months ended March 31 are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS OF SUBLEASE

Advances Received on Sale of Equity Securities

As of March 31, 2022, the Company recorded advances received from investors on sales of equity securities of $300,000 as a current liability. See Note 8—Subsequent Events, Exempt Offering Pursuant to Regulation S—Sales of Equity Securities, to the Unaudited Consolidated Financial Statements.

Loans

On April 1, 2019, we purchased a delivery van from Ford Motor Credit for $41,627. The Company paid $3,500 as a down payment and financed $38,127 for 60 months at a rate of 2.9%. The loan is secured by the van. The outstanding voting sharesbalance on the loan at March 31, 2022 and September 30, 2021 amounted to $16,581 and $20,146, respectively.

On February 15, 2019, NuZee KR entered into equipment financing for production equipment with Shin Han Bank for $60,563. In June 2019, NuZee KR purchased additional equipment and increased the loan with Shin Han Bank by $86,518. The financing has a term of another36 months at a rate of 4.33%. Principal payments began in July 2019. The outstanding balance on this loan at March 31, 2022 and September 30, 2021 amounted to $11,686 and $35,898, respectively.

The remaining loan payments are as follows:

SCHEDULE OF LOAN PAYMENTS

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 iswill 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 condition pointing toward consolidation.

The financial position and results of operations of each of the Company'sCompany’s foreign subsidiaries are measured using the foreign subsidiary'ssubsidiary’s local currency as the functional currency. Revenues and expenses of each such subsidiariessubsidiary have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders'stockholders’ equity unless there is a sale or complete liquidation of the underlying foreign investments.investment. Foreign currency translation adjustments resulted in loss of $28,445recorded to other comprehensive gain amounted to $25,593 and $0$5,480 for ninethe six months ended June 30, 2017March 31, 2022 and 2016,2021, 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 operations totaled $896 for nine months ended June 30, 2017 and losses totaled $2,918 for nine months ended June 30, 2016.

Inventories

Inventory, consisting principally of productsraw materials, work in process and finished goods held for production and sale, is stated at the lower of cost or market or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at least quarterly and records a valuation allowance when appropriate. At June 30, 2017March 31, 2022 and September 30, 2016, the Company concluded2021, the carrying value of inventory was $631,284 and $573,464, respectively.

SCHEDULE OF INVENTORY

Joint Venture

On January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (50%) and the inventoryCompany (50%) forming NuZee LATIN AMERICA (NLA), S.A. de C.V. NLA was formed pursuant to the laws of $380,508Mexico, with corporate domicile in Mazatlan, 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 $206,356 respectively, the amounts reflectedrecorded an investment in NLA of $160,000 and a loss of $43,012 on the consolidated balance sheets are net of this adjustment.

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 outstanding common stock of NuZee JP.  The Company's issued shares had an acquisition date fair value of $258,465. The remaining thirty percent (30%) of NuZee JP's issued and outstanding common stock is, and will be atour partner appoints the closing, owned by NuZee JP's current President and Chairman of the joint board of directors of NLA. As of March 31, 2022, the only activity in NLA was the contribution of two machines as described above and other start up related activities. $2,296 and $3,975 of a loss was recognized under the equity method of accounting during the six months ended March 31, 2022 and March 31, 2021, respectively.

2. GEOGRAPHIC CONCENTRATION

The Company is organized based on fundamentally one business segment although it does sell its Boardproducts on a world-wide basis. The Company is organized in three geographical segments. The Company co-packs product for customers and produces and sells its products directly in North America and Korea. The Company has a minimally staffed office in Japan that provides support for import and export of Directors.  The reason for this acquisition is to extend our market sharesproduct and materials between the U.S. and Japan, as well as obtain more business opportunitiesinvestor relations support to our shareholders based in both USAJapan. Information about the Company’s geographic operations for the six months ended March 31, 2022 and Japan market. This transaction closed2021 are as follows:

Geographic Concentration

SCHEDULE OF GEOGRAPHIC OPERATIONS

3. RELATED PARTY TRANSACTIONS

For the six months ended March 31, 2022 and March 31, 2021, respectively, the Company had sales of $0 and $15,998 of materials to NLA.

4. BUSINESS COMBINATIONS

As described in Note 1, on October 3rd, 2016.

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 showspresents the estimated fair valueallocation 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:

SCHEDULE OF ALLOCATION OF AGGREGATE PURCHASE PRICE