NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY HISTORY
AND NATURE OF THE BUSINESS
Nukkleus Inc.
(f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed on July
29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.
The Company is
a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign
exchange (“FX”) trading industry. The Company primarily provides its software, technology, customer sales and marketing
and risk management technology hardware and software solutions package to FXDD Malta Limited (“FXDD Malta”). The FXDD
brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by FXDD Malta.
Nukkleus Limited,
a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management
technology hardware and software solutions package under a General Services Agreement (“GSA”) to FXDD Malta. FXDD
Malta is a private limited liability company formed under the laws of Malta. The GSA entered with FXDD Malta provides that FXDD
Malta will pay Nukkleus Limited at minimum $1,600,000 per month. Emil Assentato is also the majority member of Max Q Investments
LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato, who is
our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chairman, is the sole owner and
manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of FXDD Malta.
In addition,
in order to appropriately service FXDD Malta, Nukkleus Limited entered into a GSA with FXDirectDealer LLC (“FXDIRECT”),
which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,575,000 per month in consideration of providing personnel
engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing
and customer care and support. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. Currency Mountain
Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.
In July 2018,
the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding
Ltd. incorporated Nukkleus Exchange Malta Ltd. For Nukkleus Exchange Malta Ltd., the Company is currently exploring obtaining
a license to operate an electronic exchange whereby it facilitates the buying and selling of various digital assets as well as
traditional currency pairs used in FX Trading. The Company’s affiliates have created the electronic exchange that may be
used by Nukkleus Exchange Malta Ltd., however, as the Company does not believe obtaining a license to operate the exchange will
be feasible, the affiliates are searching for alternate uses for the exchange and as such have not sold or transferred the exchange
to the Company.
The unaudited
condensed financial statements have been prepared using accounting principles generally accepted in the United States of America
applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary
course of business. The Company incurred a net loss for the nine months ended June 30, 2020 of $97,659, and had an accumulated
deficit and a working capital deficit of $1,555,410 and $1,391,304, respectively, at June 30, 2020. The Company’s ability
to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet
its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.
In March 2020, the World Health Organization
declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic, which continues to spread throughout the
United States. The ultimate extent of the impact of COVID-19 on the financial performance of the Company will depend on
future developments, including the duration and spread of COVID-19, and the overall economy, all of which are highly uncertain
and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s
operating results may be materially and adversely affected.
We cannot be
certain that such necessary capital through equity or debt financings will be available to us or whether such capital will be
available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders
and could result in significant financial operating covenants that would negatively impact our business. In the event that there
are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, Currency Mountain Holdings
Bermuda, Limited (“CMH”), which is wholly-owned by an entity that is majority-owned by Mr. Assentato, has committed
to inject capital into the Company in order to maintain the ongoing operations of the business.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 2 – BASIS
OF PRESENTATION
These interim
condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all
adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed
consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements
for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements
in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
The Company’s
unaudited condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. These
accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Certain information
and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended September 30, 2019 filed with the Securities and Exchange Commission on January 14, 2020. The
consolidated balance sheet as of September 30, 2019 contained herein has been derived from the audited consolidated financial
statements as of September 30, 2019, but does not include all disclosures required by U.S. GAAP.
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation
of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. Significant estimates during the three and nine months ended June 30, 2020 and 2019
include valuation of deferred tax assets and the associated valuation allowances.
Fair value of financial instruments
and fair value measurements
The Company adopted
the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition
of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used
in measuring fair value. Fair value is the price that would be received to sell an asset and paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The Company utilizes valuation techniques to maximize
the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities are recorded at fair value and
are categorized based upon the level of judgment associated with the inputs used to measure their value. Inputs are broadly defined
as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are
as follows:
|
●
|
Level 1-Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities available at the
measurement date.
|
|
●
|
Level 2-Inputs are unadjusted
quoted prices for similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in markets that are not active, inputs other
than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
|
|
●
|
Level 3-Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions
the market participants would use in pricing the asset or liability based on the best
available information.
|
The Company holds
investments in digital currency, consisting of Bitcoins and Ethereum. The Company initially records its investments at cost, and
then revalues such assets at every reporting period and recognizes gain or loss as unrealized gain (loss) on digital currency
that are attributable to the change in the fair value of the digital currency. Unrealized gains and losses and realized gains
and losses recognized upon the sale or transfer of the investments in digital currency are netted and recognized within gain on
digital currency on the unaudited condensed consolidated statements of operations. The fair value of the investment in digital
currency is determined using the equivalency rate of the digital currency to USD and is included in current assets. The equivalency
rates obtained represent a generally well recognized quoted price in active markets for Bitcoin and Ethereum. The current guidance
in U.S. GAAP does not directly address the accounting for cryptocurrencies.
NUKKLEUS INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments
and fair value measurements (continued)
The following
tables provide the financial assets measured on a recurring basis and reported at fair value on the balance sheets as of June
30, 2020 and September 30, 2019:
|
|
Fair value measurement using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total at
June 30,
2020
|
|
Investment - digital currency
|
|
$
|
703
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
703
|
|
|
|
Fair value measurement using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total at September 30,
2019
|
|
Investment - digital currency
|
|
$
|
168,943
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
168,943
|
|
The investment
in digital currency had a cost of $137,223 net of fees, and a fair value of $168,943 at September 30, 2019. The Company recognized
a gain of $224 and $94,297 for the three months ended June 30, 2020 and 2019, respectively. The Company recognized a gain
of $18,112 and $62,229 for the nine months ended June 30, 2020 and 2019, respectively. During the first quarter of fiscal 2020,
the Company transferred substantially all of its investment in digital currency to affiliates related through common ownership.
The carrying
values of cash, prepaid expense, due from affiliates, due to affiliates, and accrued liabilities in the Company’s condensed
consolidated balance sheets approximated their fair values as of June 30, 2020 and September 30, 2019 due to their short-term
nature.
Concentration
of credit risk
The Company maintains its cash in bank
and financial institution deposits that at times may exceed federally insured limits. At June 30, 2020 and September 30, 2019,
the Company’s cash balances accounts were not in excess of the federally-insured limits.
For all periods presented, the Company
earned 100% of its revenue from FXDD Malta and incurred 100% of its cost of revenue from FXDIRECT. Both FXDD Malta and FXDIRECT
are related parties.
Revenue recognition
The Company accounts
for revenue under the provisions of ASC Topic 606. The nature of the Company’s contract with its customer relates to the
Company’s services performed for a related party under a GSA.
The transaction
price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services
provided under the GSA and these performance obligations are combined into a single unit of accounting. Fees are recognized as
revenue over time as the services are rendered under the terms of the GSA.
Revenue is recorded
at gross as the Company is deemed to be a principal in the transactions.
Per share
data
ASC Topic
260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Basic net
earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares
of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable
to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur if securities
were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock
that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has
a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would
have an anti-dilutive impact. For the three and nine months ended June 30, 2020 and 2019, potentially dilutive common shares consist
of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share
data (continued)
The following
is a reconciliation of the basic and diluted net income (loss) per share computations for the three and nine months ended June
30, 2020 and 2019:
Basic net
income (loss) per share
|
|
Three Months Ended
June 30,
2020
|
|
|
Three Months Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2020
|
|
|
Nine Months Ended
June 30,
2019
|
|
Net income (loss)
available to common stockholders for basic net income (loss) per share of common stock
|
|
$
|
11,492
|
|
|
$
|
(68,916
|
)
|
|
$
|
(97,659
|
)
|
|
$
|
(419,719
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Diluted net
income (loss) per share
|
|
Three Months Ended
June 30,
2020
|
|
|
Three Months Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2020
|
|
|
Nine Months Ended
June 30,
2019
|
|
Net income (loss) available to common
stockholders for basic net income (loss) per share of common stock
|
|
$
|
11,492
|
|
|
$
|
(68,916
|
)
|
|
$
|
(97,659
|
)
|
|
$
|
(419,719
|
)
|
Add: interest expense for redeemable preferred
stock
|
|
|
938
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtract: unamortized debt
discount for redeemable preferred stock
|
|
|
(2,118
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) available
to common stockholders for diluted net income (loss) per share of common stock
|
|
$
|
10,312
|
|
|
$
|
(68,916
|
)
|
|
$
|
(97,695
|
)
|
|
$
|
(419,719
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock
|
|
|
1,250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock
outstanding - diluted
|
|
|
231,735,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
For the
nine months ended June 30, 2020 and the three and nine months ended June 30, 2019, a total of 1,250,000 shares of common stock
from the assumed redemption of the Series A convertible redeemable preferred stock at the contractual floor of $0.20 per share
have been excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would
have had an anti-dilutive impact.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements
Effective October
1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share- Based Payment Accounting. ASU No. 2018-07 expands the scope of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The adoption of this guidance did not have a material impact on the Company’s consolidated financial
statements.
In June 2016,
the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces
a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition
of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss
measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13
is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting
periods. The Company expects that the adoption will not have a material impact on its consolidated financial statements.
Other accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that
are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash
flows or disclosures.
NOTE 4 – ACCRUED
LIABILITIES
At June 30, 2020 and September 30, 2019, accrued liabilities
consisted of the following:
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
Professional fees
|
|
$
|
48,641
|
|
|
$
|
73,478
|
|
Directors’ compensation
|
|
|
120,538
|
|
|
|
90,537
|
|
Interest payable
|
|
|
34,291
|
|
|
|
31,479
|
|
Other
|
|
|
2,000
|
|
|
|
2,000
|
|
Total
|
|
$
|
205,470
|
|
|
$
|
197,494
|
|
NOTE 5 – SHARE CAPITAL
Preferred stock
The Company’s
Board of Directors is authorized to issue, at any time, without further stockholder approval, up to 15,000,000 shares of preferred
stock. The Board of Directors has the authority to fix and determine the voting rights, rights of redemption and other rights
and preferences of preferred stock.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 – SHARE
CAPITAL (continued)
Common stock and Series A preferred
stock sold for cash
On June 7, 2016,
the Company sold to CMH 15,450,000 shares of common stock and 100,000 shares of Series A preferred stock for $1,000,000. The common
stock was recorded as equity and the Series A preferred stock was recorded as a liability.
The Series A
preferred stock has the following key terms:
|
1)
|
A stated value of $10 per share;
|
|
2)
|
The holder is entitled to receive
cumulative dividends at the annual rate of 1.5% of stated value payable semi-annually
on June 30 and December 31;
|
|
3)
|
The preferred stock must be redeemed
at the stated value plus any unpaid dividends in 5 years (on or before June 7, 2021);
|
|
4)
|
The Series A preferred stock is
non-voting. However, without the affirmative vote of the holders of the shares of the
Series A preferred stock then outstanding, the Company may not alter or change adversely
the powers, preferences or rights given to the Series A preferred stock or alter or amend
the Certificate of Designation except to the extent that such vote relates to the amendment
of the Certificate of Designation;
|
|
5)
|
The holders of the Series A preferred
stock are not entitled to receive any preference upon the liquidation, dissolution or
winding up of the business of the Company. Each holder of Series A preferred stock shall
share ratably with the holders of the common stock of the Company.
|
The $1,000,000
of proceeds received was allocated to the common stock and Series A preferred stock according to their relative fair values determined
at the time of issuance, and as a result, the Company recorded a total discount of $45,793 on the Series A preferred stock, which
is being amortized to interest expense to the date of redemption. For both the three months ended June 30, 2020 and 2019, amortization
of debt discount amounted to $572. For both the nine months ended June 30, 2020 and 2019, amortization of debt discount amounted
to $1,717.
The terms
of the Series A preferred stock issued represent mandatory redeemable shares, with a fixed redemption date (in 5 years) and the
Company has a choice of redeeming the instrument either in cash or a variable number of shares of common stock based on a formula
in the certificate of designation. The conversion price has a floor of $0.20 per share. As such, all dividends accrued and/or
paid and any accretions are classified as part of interest expense. For the three months ended June 30, 2020 and 2019, dividends
on redeemable preferred stock amounted to $938 and $937, respectively. For the nine months ended June 30, 2020 and 2019, dividends
on redeemable preferred stock amounted to $2,813 and $2,812, respectively.
At June 30, 2020
and September 30, 2019, Series A redeemable preferred stock consisted of the following:
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
Redeemable preferred stock (stated value)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: unamortized debt discount
|
|
|
(2,118
|
)
|
|
|
(3,835
|
)
|
Redeemable preferred stock, net
|
|
$
|
247,882
|
|
|
$
|
246,165
|
|
NOTE 6 – RELATED
PARTY TRANSACTIONS
Services provided
by related parties
From time
to time, Craig Marshak, a director of the Company, provides consulting services to the Company. Mr. Craig Marshak is a principal
of Triple Eight Markets, Inc. All professional services fee payable to Craig Marshak are paid to Triple Eight Markets, Inc. As
compensation for professional services provided, the Company recognized consulting expenses of $0 and $30,000 for the three
months ended June 30, 2020 and 2019, respectively, which have been included in general and administrative expense – related
party on the accompanying unaudited condensed consolidated statements of operations. The Company recognized consulting expenses
of $0 and $123,500 for the nine months ended June 30, 2020 and 2019, respectively, which have been included in general and administrative
expense – related party on the accompanying unaudited condensed consolidated statements of operations.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 6 – RELATED
PARTY TRANSACTIONS (continued)
Services provided
by related parties (continued)
As of June 30,
2020 and September 30, 2019, the accrued and unpaid services charge related to Craig Marshak amounted to $0 and $10,000, respectively,
which have been included in accrued liabilities – related party on the accompanying condensed consolidated balance sheets.
The Company uses
affiliate employees for various services such as the use of accountants to record the books and accounts of the Company at no
charge to those affiliates, which are considered immaterial.
Office space
from related parties
The Company
uses office space of affiliate companies, free of rent, which is considered immaterial.
Revenue from related party and
cost of revenue from related party
The Company operates
under a GSA with FXDD Malta providing personnel and technical support, marketing, accounting, risk monitoring, documentation processing
and customer care and support. The minimum monthly amount received is $1,600,000.
The Company operates
under a GSA with FXDIRECT receiving personnel and technical support, marketing, accounting, risk monitoring, documentation processing
and customer care and support. The minimum monthly amount payable is $1,575,000.
Both of the above
entities are affiliates through common ownership.
During the three
and nine months ended June 30, 2020 and 2019, services provided to the related party, which was recorded as revenue - related
party on the accompanying unaudited condensed consolidated statements of operations were as follows:
|
|
Three Months Ended
June 30,
2020
|
|
|
Three Months Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2020
|
|
|
Nine Months Ended
June 30,
2019
|
|
Service provided to:
|
|
|
|
|
|
|
|
|
|
|
|
|
FXDD Malta
|
|
$
|
4,800,000
|
|
|
$
|
4,800,000
|
|
|
$
|
14,400,000
|
|
|
$
|
14,400,000
|
|
|
|
$
|
4,800,000
|
|
|
$
|
4,800,000
|
|
|
$
|
14,400,000
|
|
|
$
|
14,400,000
|
|
During the
three and nine months ended June 30, 2020 and 2019, services received from the related party, which was recorded as cost of revenue
- related party on the accompanying unaudited condensed consolidated statements of operations were as follows:
|
|
Three Months Ended
June 30,
2020
|
|
|
Three Months Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2020
|
|
|
Nine Months Ended
June 30,
2019
|
|
Service received from:
|
|
|
|
|
|
|
|
|
|
|
|
|
FXDIRECT
|
|
$
|
4,725,000
|
|
|
$
|
4,725,000
|
|
|
$
|
14,175,000
|
|
|
$
|
14,175,000
|
|
|
|
$
|
4,725,000
|
|
|
$
|
4,725,000
|
|
|
$
|
14,175,000
|
|
|
$
|
14,175,000
|
|
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 6 – RELATED
PARTY TRANSACTIONS (continued)
Due from affiliates
At June 30, 2020
and September 30, 2019, due from related parties consisted of the following:
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
NUKK Capital (*)
|
|
$
|
143,776
|
|
|
$
|
3,880
|
|
FXDD Malta
|
|
|
778,216
|
|
|
|
-
|
|
|
|
$
|
921,992
|
|
|
$
|
3,880
|
|
|
(*)
|
An entity controlled by Emil Assentato, the Company’s
chief executive officer, chief financial officer and chairman.
|
The balances of due from NUKK Capital represent investment in digital currency transferred to NUKK Capital. The balance of due from FXDD
Malta represent unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of FXDD Malta.
Management believes
that the related parties’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be
required on its due from related parties at June 30, 2020 and September 30, 2019. The Company historically has not experienced
uncollectible receivable from the related parties.
Due to affiliates
At June 30, 2020
and September 30, 2019, due to related parties consisted of the following:
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
Forexware LLC
|
|
$
|
570,271
|
|
|
$
|
570,271
|
|
FXDIRECT
|
|
|
1,320,177
|
|
|
|
67,056
|
|
CMH
|
|
|
42,000
|
|
|
|
42,000
|
|
FXDD Malta
|
|
|
-
|
|
|
|
320,129
|
|
FXDD Trading (*)
|
|
|
471
|
|
|
|
43,185
|
|
FXMarkets (*)
|
|
|
-
|
|
|
|
346
|
|
Total
|
|
$
|
1,932,919
|
|
|
$
|
1,042,987
|
|
|
(*)
|
FXDD Trading and FXMarkets are both controlled by Emil
Assentato, the Company’s chief executive officer, chief financial officer and chairman.
|
The balances
of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, FXDD Malta, FXDD Trading, and FXMarkets on behalf
of the Company and advances from CMH. The balances due to FXDIRECT and FXDD Malta may also include unsettled funds due related
to the General Service Agreement. The balances due to FXDD Malta and FXDD Trading also include the value of transferred digital
assets.
The related parties’
payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 7 – INCOME TAXES
The Company recorded
no income tax expense for the three and nine months ended June 30, 2020 and 2019 because the estimated annual effective tax rate
was zero. As of June 30, 2020, the Company continues to provide a valuation allowance against its net deferred tax assets since
the Company believes it is more likely than not that its deferred tax assets will not be realized.
NOTE 8 – CONTINGENCY
On April 16,
2020, the Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court for the District
of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”).
The Adversary Proceeding is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”),
Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC,
FXDD Malta Ltd., Nukkleus Inc., Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. In the Amended
Complaint, BT Prime is seeking, amongst other relief, a determination that the Company and the other defendants
are liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and is seeking to recover certain amounts
transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against
the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence outside of its collective
business relationship with certain of the other Defendants, is a continuation of the business of Forexware and is a successor-in-interest
to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable for any liability
attributable to Forexware or the other Defendants, should the Court eventually find any such liability. The Company
maintains that there is no basis for BT Prime’s claim against it and intends to vigorously defend against the claim.
NOTE 9 – SUBSEQUENT
EVENTS
Management has evaluated subsequent events
through the date of the filing.