NuZee JAPAN Co., Ltd

Unaudited Financial Statement for the Period Ended July 31, 2016

---

---

---

NuZee JAPAN Co., Ltd

Notes to Financial Statements

July 31, 2016

 

 

1.  ORGANIZATION

NuZee Japan Co., Ltd. (the "Company", "we", "our") was incorporated on December 16, 2013 in Aichi, Japan. The Company's fiscal year end is January 31. The Company is a start-up organization which markets and distributes consumer products primarily in the beverage segment. The Company primarily intends to purchase and resell its proprietary products directly to consumers through its website portal as well as through online store such as Amazon Japan, Rakuten and Japan Post online shop.

 

2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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.

  

Use of Estimates

In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments include cash, accounts payable accrued liabilities and short-term debt. The estimated fair value of these instruments approximates its carrying amount due to the short maturity of these instruments.

 

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company had $165,831 cash and no cash equivalents at July 31, 2016.

   

Accounts Receivable

Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. There were no bad debt expenses recorded during the period reported on.

 

Major Customers

For the period ended July 31, 2016, revenue was from two major customers.

Revenue Recognition

The Company recognizes revenue only when all of the following criteria have been met:

Selling, General and Administrative Expense

Selling, general and administrative expense (SG&A) is primarily comprised of marketing expenses, administrative and other indirect overhead costs, depreciation expense and other miscellaneous operating items. The largest SG&A expense incurred was "Advertising" for the period ended July 31, 2016 and the amount was $27,928.

 

Cash Flow Presentation

The Statement of Cash Flows is prepared using the indirect method, which reconciles net loss to cash flow from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net loss. The adjustments also remove cash flows arising from investing and financing activities, which are presented separately from operating activities.

Inventory

Inventory, consisting principally of products held for sale is stated at the lower of cost or market or net realizable value, using the First-In, First-out method. The Company reviews inventory levels at least quarterly and records a valuation allowance when appropriate. At July 31, 2016, the Company concluded that a valuation allowance was not required.

Related Party Transactions

Eguchi Holdings Co., Ltd. ("EHCL") is the beneficial owner of Five Hundred Thousand (500,000) common shares of the Company, which represents eighty-eight percent (88%) of all the Company's common shares outstanding. Related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed by the related party.

The Company has a payable to EHCL when cost of goods is paid by them on behalf of the Company. Balance of this accounts payable was $0 as of July 31, 2016. Total purchases during the period ended July 31, 2016 amounted to $13,806. The Company has a payable to EHCL for operating expenses paid by them on behalf of the Company. Balance of this other payable was $17,634 as of July 31, 2016. Total operating expenses incurred from EHCL amounted to $29,351 for the period ended July 31, 2016.

 

During December 2014, the Company borrowed the sum of $171,072 from EHCL. The due date of this loan is August 31, 2016. The outstanding balance at July 31, 2016 was $9,577. Interest of these loans calculated at annual rate of 4.3 %. During the period ended July 31, 2016, the Company recognized interest expense of $1,834 relating to these related party loans.

During May 2014, the Company entered into a rental agreement of an office space and warehouse with EHCL. The Company agrees to pay $1,100 per month for the office and the warehouse on the last day of each month. The agreement expires on August 31, 2019.

 

Future payments due under this lease are as follows for the fiscal years ended January 31:

 

Property, Plant and Equipment

Equipment is stated at cost, net of depreciation. The Company depreciates equipment on a straight line basis. Leased asset is depreciated over a 6 year life. Depreciation expense for the period ended July 31, 2016 was $2,004. Repair and maintenance costs are expensed as incurred.

 

  

Long-Lived Assets

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicated that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

 

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. A loss of disposition of asset is recognized when the carrying amount is not recoverable and exceeds fair value. There was no impairment loss recognized for the years ended July 31, 2016.

 

Income Taxes

The provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

   

The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of July 31, 2016.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions.

 

 

Future payments dues under this loan are as follows:

3.  COMMON STOCK  

As of January 31, 2016, the authorized capital stock of the Company consists of 2,000,000 common shares, of which 567,800 shares of common stock are issued and outstanding.

 

4.  SUBSEQUENT EVENTS

On August 16, 2016, the Company entered into a Share Exchange Agreement with NuZee, Inc., a Nevada corporation ("NuZee US"), Eguchi Holdings Co., Ltd and the shareholders of the Company whereby the Company will exchange seventy percent (70%) of its issued and outstanding common stock for 1,148,734 shares of NuZee US's common stock, par value $0.00001 per share. The remaining thirty percent (30%) of the Company's issued and outstanding common stock is, and will be at the Closing, owned by the Company's current president and Chairman of its Board of Directors.

NuZee US's President and Director is the sole owner of From East Holdings Co., Ltd. ("From East"), a shareholder of the Company. From East owns 14,700 shares of the Company's common stock, or approximately 2.6% of the Company's current issued and outstanding shares. At the Closing, From East will exchange all of its shares of the Company for 42,492 shares of NuZee US's common stock.

Each issued and outstanding common share of the Company shall be converted into the right to receive NuZee US Shares pursuant to the Exchange Ratio at the Closing. Fractional shares shall be rounded up or down per the amount of the fraction. Upon the Closing (October 3, 2016), the Company shall become a majority owned subsidiary of the NuZee US.