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 8-K filed on August 12, 2013 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.

The accompanying notes are an integralpart of these unaudited financial statements.
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The accompanying notes are an integral part of these unaudited financial statements.
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NuZee, Inc.Nuzee,Inc. 

 (A (ADevelopment Stage Company)

NOTES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited)

June 30,December 31, 2013

1. ORGANIZATION

NuZee, Inc. (the “Company”) was incorporated on November 9, 2011 in Nevada.   The Company is a start-up organization which markets and distributes consumer products primarily in the beverage segment.  Additionally, while the Company primarily intends to purchase its proprietary products and resell, the Company may also engage in contract manufacturing where the Company purchases raw materials and retains a contract converter to process the raw materials into finished products for resale. The Company is affiliated with international businesses that distribute the same products in Asia.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements of Nuzee, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America 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 initial period ended September 30, 2013 as filed with the SEC. In the opinion of management, all adjustments, consisting of normal 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 consolidated 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.

Going Concern

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include all the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the financial statements have been included.

The results of operations reported for interim periods are not necessarily indicative of the results for the entire year or any subsequent interim period. The unaudited consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements and footnoteswhich contemplates continuation of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report for the year ended September 30, 2012 as filed with the Securities and Exchange Commission on Form 8-K.

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.a going concern. The Company has had recurring losses, large accumulated deficits, is classified as a development stage enterprise under GAAPdependent on the shareholder to provide additional funding for operating expenses and has not generated significant revenues from its principal operations as of June 30, 2013.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred losses. In addition, the Company generated negative cash flow from operations.no recurring revenues. These factors, among others,items raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

If necessary, the Company will pursue additional equity and/or debt financing while managing cash flows from operations in an effort to provide funds to meet its obligations on a timely basis and to support future business development.

The financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Revenue RecognitionEquity based payments

The Company recognizes revenue only whenaccounts for equity instruments issued to employees in accordance with ASC 718 "Stock Compensation". Under this guidance, stock compensation expense is measured at the price is fixed and determinable, persuasive evidence of an arrangement exists,grant date, based on the products are delivered and collectabilityfair value of the resulting receivableaward, and is reasonably assured.

recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method.

Inventory

Inventory, consisting principally of products held for resale, is stated at the lower of cost, using the weighted average cost method or net realizable value.   The Company review inventory levels at least annually and records a valuation allowance when appropriate. 

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3. INTELLECTUAL PROPERTY

On September 17, 2012 the Company issued 3,040,000 shares at the estimated fair market value of $.014085 per share in exchange for an assignment of certain intellectual property rights to one of the Company’s principal product offerings. These shares were valued at $42,818.

The Company in July 2013 this amount hasdid not yet been received.receive the value represented to it in connection with the issuance of 3,040,000 of these shares, and as a result, revoked such issuance.

4. COMMON STOCK

During the nine monthsfiscal year ended JuneSeptember 30, 2012, the Company entered into subscription agreements with accredited investors and sold 27,360,00 shares at $0.0001 and $0.14085 per share, for an aggregate purchase price of $304,589.

During the fiscal year ended September 30, 2013, the Company received $540,000 in short term advances from related parties, including the Company’s majority shareholder. The advances bear no interestentered into subscription agreements with accredited investors and are due on demand.

sold 7,150,207 shares at $0.12, $0.22 and $0.48 per share, for an aggregate purchase price of $2,102,430.

4.5.  REVERSE MERGER

During April, the Company2013 Havana Furnishings Inc. consummated a share exchange with NuZee,Nuzee, Co., Ltd. Inin which the CompanyHavana Furnishings Inc. issued 33,733,333 common shares in exchange for 100% of the outstanding shares of NuZee,Nuzee, Co., Ltd. Also as part of this transaction, the Company changed its name from Havana Furnishings Inc. to NuZee,Nuzee, Inc.

Immediately prior to the closing, Havana Furnishings Inc. had 2,200,000 shares issued and outstanding.

For accounting purposes, this transaction is being accounted for as a reverse merger and has been treated as a recapitalization of Havana Furnishings Inc., with NuZee,Nuzee, Co., Ltd. is considered the accounting acquirer, and the financial statements of the accounting acquirer became the financial statements of the registrant. The Company did not recognize goodwill or any intangible assets in connection with the transaction. The 33,733,333 shares issued to the shareholder of NuZee,Nuzee, Co., Ltd. and its designees in conjunction with the share exchange transaction have been presented as outstanding for all periods. The historical consolidated financial statements include the operations of the accounting acquirer for all periods presented.

5. INTELLECTUAL PROPERTY6.  STOCK OPTIONS

On September 17, 2012 the Company issued 3,040,000 shares at the estimated fair market value of $.014085 per share in exchange for an assignment of certain intellectual property rights to one of the Company’s principal product offerings. These shares were valued at $42,818. The Company in June 2013 determined that it would not move forward with the products associated with the intellectual property and has subsequently written the amounts off to reflect the impairment of the asset previously acquired

6. COMMON STOCK

On September 7, 2012, the Company issued 4,560,000 shares in total to three subscribers for cash at $.0001 per share for total proceeds of $456.

Also, on September 7, 2012 the Company issued 1,216,000 shares to a subscriber for cash at $.0001 per share for total proceeds of $122.

Also, on September 17, 2012 the Company issued 21,584,000 shares to a subscriber for cash at $.014085 per share for total proceeds of $304,011.

During December 2012, the Company issued 3,333,333 shares to its majority shareholder for $249,390 in cash and $150,610 to repay an amount due to the shareholder. The shares were issued at the estimated fair market value of $.12 per share for a total of $400,000.

During MayOctober 2013 the Company issued 2,226,665 shares in settlement of $490,000 of amounts due to shareholders for advances made to the Company.

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The Black-Scholes option pricing model was used with the following weighted average assumptions for options granted during the three months ended  December 31, 2013:

Risk-free interest rate 1% - 2%

Expected option life 5 – 6 years

Expected volatility 300%

Expected dividend yield 0.0 & 0.0%

At December 31, 2013, 1,657,778 options are exercisable and the Company recognized $1,053,755 of stock options expenses during the three months ended December 31, 2013

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

WeThe 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 a development stage companyoften identified by words like believe, expect, estimate, anticipate, intend, project and havesimilar 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 have generated only nominal revenuesuncertainties that could cause actual results to differ materially from our business operations.  There is no historical financial information about us upon which to base an evaluation of our performance.   We cannot guarantee we will be successful in our business operations.  Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and raw materials.      

Our auditors have issued a going concern opinion.  We have generated only nominal revenues and only little revenues are anticipated until we complete the development of our products and distribution networks.   We have raised enough cash through the sale of our equities to support our operations for the next twelve months.  If we are unsuccessful in implementing our business plan, we cannot guarantee that we can continue as an on-going business after that.predictions.

Plan of Operations

Short Term Goals (12 Months)

Over the next 12 months, the Company’s growth plans include continuing efforts to:

·        Build a targeted distribution network for our productsCoffee Blenders functional beverages by signing the top 3-5 distributors serving our retail segments;retailers that serve the K-cup and Coffee replenishment channels;

·        Increase points of retail product availability to number in the thousands of locations;awareness for Coffee Blenders through communications and sampling programs;

·        Establish the NuZee brand as a leaderNuzee brands top 3 in their product categories consistent with our mission of providing natural and organic Performance, Protective and Pristine products and supplements.that work.

We alsohave retained and plan to hire seasonedexpend our sales and marketing professionals with working knowledgeteam who can immediately contribute to our network of the US and international channels that we wish to distribute and marketas such seeding our product within.becomes a near term priority.  We have already started developing working relationships with key globalonline and national brands indistributors who serve the coffee and single-serve pod consumers.  We plan to accelerate our traction by using manufacturer representatives with food and beverage industry who would are interested in partnering on both a product and distribution level.  While these discussions are preliminary they provide alternate methods to launch products in the US.  experience.

In order to build distribution the Company is first determining the total distribution launch cost among the potential channels as each has their own upfront and recurring cost structure.  Under investigation are the following company directed channels:

·        Mass/Drugdirect – coffeeblenders.com shopping via search and digital marketing e-commerce affiliates (such as Amazon)
  

·        Grocery 

·Convenience 

·Sports/Specialty 

·Military 

·e-commerce 

·select health and wellness retailers key mass/grocery retailers Club/Other

·Discount/Liquidation 

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1.       Retail ChainsMulti-Level Marketing (MLM) Firms – for example manufacturer on behalf of Wal-Mart“Amway” for product extensions of their Great Value and Equate private brands.

2.Product Brands – for example license to Maxwell House“Maxwell House” the Coffee Blender product as a new product line served throughextension to expand their existing and established distribution. single-serve business.

The Company plans going forward include the following milestones:

If we are unable to receive funding our plans will be dramatically and negatively impacted such that we will prioritize go to market strategies based on reduced operations and available capital.

Long Term Goals (Five Years)

The Company believes that there will be significant expansion opportunities in existing markets through new products as well as in new regions outside of the United States in a combination of market development and product licensing.

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

From inception on November 9, 2011 through December 31, 2013, we have accumulated losses of $2,785,775. We attribute this loss to the discontinued business operations related to the sale of skin care products, Torque energy drinks and New Zealand bottled water. 

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ResultsWe are presently in the development phase of Operations

Revenuesour new product platform for functional beverages and we can provide no assurance that we will be able to attain profitability.

From our inception on November 9, 2011 through June 30,December 31, 2013, we earned gross revenues of $105,419$122,232 from sales of our products and incurred total operating expenses in the amount of $922,529, giving us a net loss since inception of $1,027,635.

Expenses

During the three and nine months ended June 30, 2013 we incurred total$2,664,114. These operating expenses of $299,684 and $727,022 respectively. Comparatively, duringincluded the three months ended June 30, 2012research and the period from November 9, 2011 (inception) through June 30, 2012, we incurred totalpreparation of our business plan in addition to general and administrative expenses. We anticipate our operating expenses will increase as we further undertake our plan of $44,039 and $53,418, respectively.operations. The increase in operating expenses iswill be attributed to new staffcosts associated with production, storage and management salaries, professional services, product developmentdelivery of our products as well as legalresearch and accounting fees related to the merger and to becoming a reporting company.  development of new products.

Going Concern

NuZee isWe expect sales in 2014 from our new products through a development stage companycombination of direct to consumer through our website portal, product awareness as well as through affiliate online stores and currently has no operations.  Our independent auditor has issued an audit opinion for NuZee which includes a statement raising substantial doubt as to our ability to continue as a going concern for the year ended September 30, 2012.retailers.

Liquidity and Capital Resources

Our

As of December 31, 2013 we had cash balance at June 30, 2013 was $74,910 with $120,148(operating capital) of $686,946  and we have no long-term debt. We have not attained profitable operations since inception.   We expect to spend between $2 million - $4 million in outstanding (accrued) current liabilities.  Total expendituresexpenses over the next 12 months are expected to be approximately $850,000.months.  Our current cash balance is as of June 30,December 31, 2013 is not sufficient to fund our operations for the next twelve months.  Therefore, the Company has engagedintends to engage in additional financing to through the sale of equity securities.

Off-Balance Sheet Arrangements

As of June 30, 2013, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company and therefore are not required to provide the information for this item for Form 10-Q.

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.

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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.

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 8-K/A210-K filed on August 12, 2013.January 14, 2014.

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

On April 22, 2013, pursuant toThere were no unregistered Sales of Equity Securities during the Share Exchange Agreement between the Company (fka Havana Furnishings, Inc.) and NuZee Co., Ltd., we issued 33,733,333 shares of restricted common stock to the existing shareholders of NuZee Co., Ltd.  The shares of common stock referenced herein were issued in reliance upon an exemption from registration afforded under Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering, or Regulation D promulgated thereunder, or Regulation S for offers and sales of securities outside the United States.  The Share Exchange Agreement is an exempt transaction pursuant to Section 4(2) of the Securities Act as the share exchange was a private transaction by the Company and did not involve any public offering.  Additionally, we relied upon the exemption afforded by Rule 506 of Regulation D of the Securities Act which is a safe harbor for the private offering exemption of Section 4(2) of the Securities Act whereby an issuer may sell its securities to an unlimited number of accredited investors, as that term is defined in Rule 501 of Regulation D.  Further, we relied upon the safe harbor provision of Rule 903 of Regulation S of the Securities Act which permits offers or sales of securities by the Company outside of the United States that are not made to “U.S. persons” or for the account or benefit of a “U.S. person”, as that term is defined in Rule 902 of Regulation S.quarter ending December 31, 2013.

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Item 6.  Exhibits

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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.