|
Item
1.
|
Interim
Financial Statements.
|
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
As of
|
|
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
126,191
|
|
|
$
|
257,637
|
|
Prepaid expense
|
|
|
5,333
|
|
|
|
7,333
|
|
Deposit on software development
|
|
|
40,000
|
|
|
|
40,000
|
|
Due from affiliates
|
|
|
25,800
|
|
|
|
800
|
|
Investment - digital currency
|
|
|
56,252
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
253,576
|
|
|
|
305,770
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
253,576
|
|
|
$
|
305,770
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Due to affiliates
|
|
$
|
498,614
|
|
|
$
|
482,970
|
|
Accrued liabilities
|
|
|
193,949
|
|
|
|
142,457
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
692,563
|
|
|
|
625,427
|
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
Series A redeemable preferred stock liability at $10 stated value; 25,000 and 25,000 shares issued and outstanding ($250,000 and $250,000 less discount of $5,553 and $6,125, respectively) at December 31, 2018 and September 30, 2018, respectively
|
|
|
244,447
|
|
|
|
243,875
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
937,010
|
|
|
|
869,302
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at December 31, 2018 and September 30, 2018)
|
|
|
—
|
|
|
|
—
|
|
Common stock ($0.0001 par value; 900,000,000 shares authorized; 230,485,100 shares issued and outstanding at December 31, 2018 and September 30, 2018)
|
|
|
23,049
|
|
|
|
23,049
|
|
Additional paid-in capital
|
|
|
141,057
|
|
|
|
141,057
|
|
Accumulated deficit
|
|
|
(847,540
|
)
|
|
|
(727,638
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(683,434
|
)
|
|
|
(563,532
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
253,576
|
|
|
$
|
305,770
|
|
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
Revenue - related party
|
|
|
4,800,000
|
|
|
|
4,800,000
|
|
Total revenue
|
|
|
4,800,000
|
|
|
|
4,800,000
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
—
|
|
|
|
—
|
|
Cost of revenue - related party
|
|
|
4,725,000
|
|
|
|
4,725,000
|
|
Total cost of revenue
|
|
|
4,725,000
|
|
|
|
4,725,000
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
140,989
|
|
|
|
232,948
|
|
General and administrative - related party
|
|
|
15,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
155,989
|
|
|
|
238,948
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(80,989
|
)
|
|
|
(163,948
|
)
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE:
|
|
|
|
|
|
|
|
|
Interest expense on redeemable preferred stock
|
|
|
(938
|
)
|
|
|
(3,750
|
)
|
Amortization of debt discount
|
|
|
(572
|
)
|
|
|
(2,290
|
)
|
Unrealized loss on digital currency
|
|
|
(37,403
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(38,913
|
)
|
|
|
(6,040
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(119,902
|
)
|
|
|
(169,988
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(119,902
|
)
|
|
$
|
(169,988
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
230,485,100
|
|
|
|
242,037,970
|
|
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(119,902
|
)
|
|
$
|
(169,988
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
572
|
|
|
|
2,290
|
|
Unrealized loss on digital currency
|
|
|
37,403
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
2,000
|
|
|
|
—
|
|
Due from affiliates
|
|
|
(25,000
|
)
|
|
|
—
|
|
Due to affiliates
|
|
|
15,644
|
|
|
|
71,348
|
|
Accrued liabilities
|
|
|
51,492
|
|
|
|
74,819
|
|
Accrued liabilities - related party
|
|
|
—
|
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(37,791
|
)
|
|
|
(29,531
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of digital currency
|
|
|
(93,655
|
)
|
|
|
—
|
|
Proceeds received from termination of potential acquisition
|
|
|
—
|
|
|
|
1,000,000
|
|
Deposit made for software development
|
|
|
—
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(93,655
|
)
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(131,446
|
)
|
|
|
920,469
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of period
|
|
|
257,637
|
|
|
|
48,642
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
|
$
|
126,191
|
|
|
$
|
969,111
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cancellation of contingent common stock
|
|
$
|
—
|
|
|
$
|
55,559
|
|
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS
INC. AND SUBSIDIARIES
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.
On
February 5, 2016, Charms Investments, Ltd (“Charms”), the former majority shareholder of the Company, sold 146,535,140
shares of common stock to Currency Mountain Holdings Bermuda, Limited (“CMH”), the parent of the Company. CMH is wholly-owned
by an entity that is owned by Emil Assentato, the Company’s Chief Executive Officer (“CEO”), Chief Financial
Officer (“CFO”) and Chairman. In addition, on the same date, CMH acquired 3,937,000 shares of common stock from another
non-affiliated company. The aggregate purchase price paid by CMH was $347,500.
On
May 24, 2016, Nukkleus, its wholly-owned subsidiary, Nukkleus Limited, a Bermuda limited company (“Nukkleus Limited”),
Charms, the former majority shareholder, and CMH entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”),
pursuant to which the Company purchased from CMH certain intellectual property, hardware, software and other assets (collectively,
the “Assets”) in consideration of 48,400,000 shares of common stock of the Company. The Asset Purchase Agreement closed
on May 24, 2016. As a result of such acquisition, the Company’s operations are now focused on the operation of a foreign
exchange trading business utilizing the assets acquired from CMH.
On
May 24, 2016, Nukkleus Limited entered into a General Service Agreement to provide its software, technology, customer sales and
marketing and risk management technology hardware and software solutions package to FML Malta Ltd. In December 2017, Nukkleus
Limited, FML Malta Ltd. and FXDD Malta Limited (“FXDD Malta”) entered into a letter agreement providing that there
was an error in drafting the General Service Agreement and acknowledging that the correct counter-party to Nukkleus Limited in
the General Service Agreement is FXDD Malta. Accordingly, all references to FML Malta Ltd. have been replaced with FXDD Malta.
FXDD Malta is a private limited liability company formed under the laws of Malta. The General Service Agreement entered with FXDD
Malta provides that FXDD Malta will pay Nukkleus Limited at minimum $2,000,000 per month. On October 17, 2017, Nukkleus Limited
entered into an amendment of the General Service Agreement with FXDD Malta. In accordance with the amendment, which was effective
as of October 1, 2017, the minimum amount payable by FXDD Malta to Nukkleus Limited for services was reduced from $2,000,000 per
month to $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 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, on May 24, 2016, in order to appropriately service FXDD Malta, Nukkleus Limited entered into a General Service Agreement
with FXDirectDealer LLC (“FXDIRECT”), which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,975,000
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. On October 17, 2017, Nukkleus Limited entered into an amendment of the General Service Agreement
with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, the minimum amount payable by Nukkleus Limited
to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Currency Mountain Holdings LLC is the
sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.
On
May 27, 2016, the Company entered into a Stock Purchase Agreement (“SPA”) to acquire, from IBIH Limited, a BVI corporation
(“IBIH”) 2,200 issued and outstanding common stock for $1,000,000, representing 9.9% of IBIH. In addition, the Company
acquired 100% of the issued and outstanding shares of GVS Limited (“Iron BVI”), which is the parent corporation of
GVS (AU) Pty Ltd. (“Iron Australia”) for 24,156,000 shares of common stock of the Company. On November 17, 2017, the
Company, IBIH, Terra (FX) Offshore Limited, Ludico Investments Limited, Currency Mountain Holdings LLC and the IBIH Shareholders
entered into a Settlement Agreement and Mutual Release (the “Iron Settlement Agreement”) pursuant to which the SPA
was terminated, all differences between the parties were resolved and settled and the parties fully released the other parties
from any liability. Pursuant to the Iron Settlement Agreement, the Company agreed to (i) have the registered office of Iron Australia
changed, (ii) have its director designees resign as directors of Iron Australia, (iii) appoint Markos Kashiouris, Petros Economides
and Yun Ma as directors of Iron Australia; (iv) and make all required changes with the Australian Securities and Investments Commission.
With respect to Iron BVI, pursuant to the Iron Settlement Agreement, the Company agreed to (i) have the registered office of Iron
BVI changed, (ii) have its director designee resign as a director of Iron BVI, (iii) appoint Cymora Limited as director of Iron
BVI; (iv) and make all required changes with the BVI Registrar of Companies. Further, the Company agreed to return the 2,200 shares
of capital stock of IBIH to the IBIH Shareholders and return 100% of its interest in Iron BVI to IBIH. IBIH agreed to return the
24,156,000 shares of common stock of the Company to the Company for cancellation and to pay the Company $1,000,000. Further, Markos
Kashiouris, Petros Economides and Efstathios Christophi resigned as directors of the Company and waived any directorship fees
payable to them under their letter of appointment dated August 1, 2016. The $1,000,000 has been paid to the Company, net of approximately
$70,000 of legal expenses, in the first fiscal quarter of 2018 and IBIH has returned the certificate representing the 24,156,000
shares of common stock of the Company and the shares have been cancelled by the Company.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 –
THE COMPANY HISTORY AND NATURE OF THE BUSINESS (continued)
On
June 3, 2016, the Company agreed to sell to Currency Mountain Holdings Bermuda, Limited (“CMH”) 30,900,000 shares
of common stock and 200,000 shares of Series A preferred stock for $2,000,000 in two equal installments. The first closing occurred
on June 7, 2016. The second closing was to occur with the closing of the Company’s acquisition of IBIH. As the IBIH transaction
has been terminated, the second transaction with CMH will not proceed.
In
July 2018, the Company incorporated Nukkleus Malta Holding Ltd., a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding
Ltd. incorporated Nukkleus Exchange Malta Ltd. and is in the processes of incorporating Nukkleus Payments Malta Ltd. For Nukkleus
Payments Malta Ltd., management is currently exploring obtaining an Electronic Money Institution license to facilitate customer
payment transactions. For Nukkleus Exchange Malta Ltd., the Company seeks to create an electronic exchange whereby it facilitates
the buying and selling of various digital assets as well as traditional currency pairs used in FX trading. Currently, Nukkleus
Exchange Malta Ltd., is in the process of finalizing the exchange and such costs have been paid for by related parties. Projected
costs of this exchange are approximately $900,000. As of December 31, 2018, approximately $811,000 has been incurred by our affiliates
and ownership of the exchange will be transferred to the Company upon completion. Both entities would be regulated by the Malta
Financial Services Authority.
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 (“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, 2018 filed with the Securities and Exchange Commission on December 20, 2018. The
consolidated balance sheet as of September 30, 2018 contained herein has been derived from the audited consolidated financial
statements as of September 30, 2018, 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 months ended December 31, 2018 and 2017 include
the fair value of the investment in digital currency, 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 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.
|
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)
|
●
|
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
carrying amounts reported in the condensed consolidated balance sheets for cash, prepaid expense, deposit on software development,
due from affiliates, due to affiliates, and accrued liabilities approximate their fair market value based on the short-term nature
of these assets and liabilities.
The fair value of the investment in digital currency is determined using the equivalency rate of bitcoin
to USD. Digital currency consists of cryptocurrency denominated assets and are included in current assets. The Company revalues
such asset at every reporting period and recognizes gain or loss as other income (expense) in the consolidated statements of operations
that are attributable to the change in the fair value of the digital currency.
The
following table provides the financial assets measured on a recurring basis and reported at fair value on the balance sheet as
of December 31, 2018:
|
|
|
|
|
Fair
value measurement using
|
|
|
|
Carrying
value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Investment
- digital currency
|
|
$
|
56,252
|
|
|
$
|
56,252
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,252
|
|
The investment
in digital currency has a cost of $93,655 net of fees, unrealized loss of $37,403 for the three months ended December 31, 2018,
and a fair value of $56,252 at December 31, 2018. The Company did not have any financial asset measured at fair value on a recurring
basis on the balance sheet as of September 30, 2018.
Concentration
of credit risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At December
31, 2018 and September 30, 2018, the Company’s cash balances accounts had approximately $0 and $8,000 in excess of the federally-insured
limits, respectively. The Company has not experienced any losses in such accounts through and as of the date of this report.
The
following table summarizes customer revenue concentrations:
|
|
Three
Months Ended December 31, 2018
|
|
|
Three
Months Ended December 31, 2017
|
|
FXDD
Malta - related party
|
|
|
100
|
%
|
|
|
100
|
%
|
The
following table summarizes vendor expense concentrations:
|
|
Three
Months Ended December 31, 2018
|
|
|
Three
Months Ended December 31, 2017
|
|
FXDIRECT
- related party
|
|
|
100
|
%
|
|
|
100
|
%
|
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deposit
on software development
In
the first quarter of fiscal 2018, the Company signed an agreement with a third-party for the customization and development of
a trading platform to be used by it. In accordance with the signed agreement, the Company made a deposit on software development
of $50,000. The project was cancelled in the third quarter of fiscal 2018 and the Company received a subsequent reimbursement
of $10,000 of the deposit. As of December 31, 2018 and September 30, 2018, the remaining deposit of $40,000 was due from the third-party.
Revenue
recognition
Effective
October 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") and other
associated standards. Under the new standard, the Company recognizes revenue when a customer obtains control of promised services
or goods in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.
In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising
from customer contracts. The Company evaluated the new guidance and its adoption did not have a significant impact on the Company’s
financial statements and a cumulative effect adjustment under the modified retrospective method of adoption was not necessary.
There is no change to the Company’s accounting policies. Prior to the adoption of ASU 2014-09, the Company recognized revenue
when persuasive evidence of an arrangement existed, delivery occurred, the fee was fixed or determinable, and collectability was
reasonably assured.
In general, the Company applies the following steps when recognizing revenue from contracts with customers:
(i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the
transaction price to the performance obligations and (v) recognize revenue when a performance obligation is satisfied. The nature
of the Company's contracts with customers relates to the Company's services performed for a related party under a General Service
Agreement ("GSA"). 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 when the services are completed under the terms of the GSA. Revenue
is recorded at gross as the Company is deemed to be a principal in the transactions.
Income
taxes
The
Company recorded no income tax expense for the three months ended December 31, 2018 and 2017 because the estimated annual effective
tax rate was zero. As of December 31, 2018, 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.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 months ended December 31, 2018 and 2017, potentially
dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the if-converted
method).
The
following table presents a reconciliation of basic and diluted net loss per share
:
|
|
Three
Months Ended
December 31, 2018
|
|
|
Three
Months
Ended
December 31, 2017
|
|
Net
loss available to common stockholders for basic and diluted net loss per share of common stock
|
|
$
|
(119,902
|
)
|
|
$
|
(169,988
|
)
|
Weighted
average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
242,037,970
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Series
A preferred stock
|
|
|
—
|
|
|
|
—
|
|
Weighted
average common stock outstanding - diluted
|
|
|
230,485,100
|
|
|
|
242,037,970
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
For
the three months ended December 31, 2018 and 2017, a total of 1,250,000 and 5,000,000 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, respectively, 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, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment
costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from
the settlement of certain insurance claims and distributions received from equity method investees. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial statements
.
Effective
October 1, 2018, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.
The ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for acquisitions (or disposals) of assets or business. The definition of a business affects many
areas of accounting including acquisitions, disposals, goodwill, and consolidation.
The
adoption of this guidance did not have a material impact on the Company’s consolidated financial statements
.
Effective
October 1, 2018, the Company adopted ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting.
The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications.
Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes.
The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements
.
In
June 2018, the FASB issued 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. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years (quarter ending September 30, 2019 for the Company). Early adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606. The Company will evaluate the effects of adopting ASU 2018-07 if and when it is deemed to be applicable.
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
December 31, 2018 and September 30, 2018, accrued liabilities consisted of the following:
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
Professional fees
|
|
$
|
80,282
|
|
|
$
|
44,728
|
|
Directors’ compensation
|
|
|
85,000
|
|
|
|
70,000
|
|
Interest payable
|
|
|
28,667
|
|
|
|
27,729
|
|
|
|
$
|
193,949
|
|
|
$
|
142,457
|
|
NOTE
5 –
SHARE CAPITAL
Authorized
shares
The
Company is authorized to issue 900,000,000 shares of common stock at par value of $0.0001
and 15,000,000 shares of Series A preferred stock at par value of $0.0001
.
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
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
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 long-term liability. 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 the three months ended December 31, 2018 and 2017, amortization
of debt discount amounted to $572 and $2,290, respectively.
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 December 31, 2018 and 2017, dividends on redeemable preferred stock amounted to $938 and $3,750, respectively
.
As
a result of the termination of the IBIH transaction, the Company and CMH have agreed to
enter into that certain Stock Redemption Agreement dated February 13, 2018 providing that 75,000 CMH Preferred Shares were redeemed
and cancelled in consideration of $750,000 which occurred on February 13, 2018
.
At
December 31, 2018 and September 30, 2018, Series A redeemable preferred stock consisted of the following:
|
|
December
31, 2018
|
|
|
September
30, 2018
|
|
Redeemable
preferred stock (stated value)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less:
unamortized debt discount
|
|
|
(5,553
|
)
|
|
|
(6,125
|
)
|
Redeemable
preferred stock, net
|
|
$
|
244,447
|
|
|
$
|
243,875
|
|
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. All professional services fee payable to Craig Marshak
are paid to Triple Eight Markets. As compensation for professional services provided, the Company recognized consulting
expenses of $15,000 and $6,000 for the three months ended December 31, 2018 and 2017, respectively, which have been included in
general and administrative expense – related party on the accompanying consolidated statements of operations.
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.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 –
RELATED PARTY TRANSACTIONS (continued)
Revenue
from related party and cost of revenue from related party
On
May 24, 2016, the Company entered into a General Service Agreement with FXDD Malta, a related
party. The Company is to invoice FXDD Malta a minimum of $2,000,000 per month in consideration for providing personnel and technical
support, marketing, accounting, risk monitoring, documentation processing and customer care and support. On October 17, 2017,
the Company entered into an amendment of the General Service Agreement with FXDD Malta. In accordance with the amendment, which
was effective as of October 1, 2017, the minimum amount payable by FXDD Malta to the Company for services was reduced from $2,000,000
per month to $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 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, on May 24, 2016, the Company entered into a General Service Agreement with FXDIRECT
to pay a minimum of $1,975,000 per month for receiving personnel and technical support, marketing, accounting, risk monitoring,
documentation processing and customer care and support. On October 17, 2017, the Company entered into an amendment of the
General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, the minimum amount
payable by the Company to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Currency Mountain
Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.
Both
of the above entities are affiliates through common ownership.
During
the three months ended December 31, 2018 and 2017, service provided to related party which was recorded as revenue - related party
on the accompanying consolidated statements of operations was as follows
:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Service provided to:
|
|
|
|
|
|
|
|
|
FXDD Malta
|
|
$
|
4,800,000
|
|
|
$
|
4,800,000
|
|
|
|
$
|
4,800,000
|
|
|
$
|
4,800,000
|
|
During the
three months ended December 31, 2018 and 2017, service received from related party which was recorded as cost of revenue - related
party on the accompanying consolidated statements of operations was as follows:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Service received from:
|
|
|
|
|
|
|
|
|
FXDIRECT
|
|
$
|
4,725,000
|
|
|
$
|
4,725,000
|
|
|
|
$
|
4,725,000
|
|
|
$
|
4,725,000
|
|
Due
from affiliates
At
December 31, 2018 and September 30, 2018, due from related parties consisted of the following:
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
FXDD Malta
|
|
$
|
800
|
|
|
$
|
800
|
|
FXDIRECT
|
|
|
25,000
|
|
|
|
—
|
|
|
|
$
|
25,800
|
|
|
$
|
800
|
|
The
balances of due from related parties represent monies that the Company paid on behalf of FXDD Malta and FXDIRECT. Management believes
that the related parties’ receivables are fully collectable. Therefore, no allowance for doubtful accounts is deemed to
be required on its due from related parties at December 31, 2018 and September 30, 2018. The Company historically has not experienced
uncollectible receivables from related parties.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 –
RELATED PARTY TRANSACTIONS (continued)
Due
to affiliates
At
December 31, 2018 and September 30, 2018, due to related parties consisted of the following:
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
Forexware LLC
|
|
$
|
334,034
|
|
|
$
|
300,700
|
|
FXDIRECT
|
|
|
162,420
|
|
|
|
182,270
|
|
FXDD Malta
|
|
|
2,160
|
|
|
|
—
|
|
|
|
$
|
498,614
|
|
|
$
|
482,970
|
|
The
balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT and FXDD Malta on behalf of the Company.
The balances due to FXDIRECT may also include unsettled funds due related to the General Service Agreement. The related parties’
payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.
Costs for creation an electronic exchange
paid by related parties
The
Company is creating an electronic exchange whereby it facilitates the buying and selling of various digital assets as well as
traditional currency pairs used in FX trading. Currently, the Company is in the process of finalizing the exchange and such
costs have been paid for by Forexware LLC and FXDIRECT. Projected costs of this exchange are approximately $900,000. As of
December 31, 2018, approximately $811,000 has been incurred by our related parties and ownership of the exchange will be
transferred to the Company upon completion.
NOTE
7 –
SUBSEQUENT EVENTS
Management
has evaluated subsequent events through the date of the filing.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis of our financial condition and results of operations for
the three months ended December 31, 2018 and 2017 should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes to those unaudited condensed consolidated financial statements that are included elsewhere in this
report
.
Certain
matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks
and uncertainties, including statements as to:
|
●
|
our
future operating results;
|
|
●
|
our
business prospects;
|
|
●
|
any
contractual arrangements and relationships with third parties;
|
|
●
|
the
dependence of our future success on the general economy;
|
|
●
|
any
possible financings; and
|
|
●
|
the
adequacy of our cash resources and working capital.
|
These
forward-looking statements can generally be identified as such because the context of the
statement will include words such as we “believe,” “anticipate,” “expect,” “estimate”
or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking
statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity
to such statements and which could cause actual results to differ materially from those anticipated as of the date of filing of
this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included
herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances
.
This
discussion contains forward-looking statements that reflect our plans, estimates and beliefs.
Our actual results may differ materially from those anticipated in these forward-looking statements
.
Unless
otherwise indicated, references to the “Company”, “us”, or “we” refer to Nukkleus Inc. and
its consolidated subsidiaries.
Overview
We
are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign
exchange (“FX”) trading industry. We primarily provide our 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
.
As
part of the Assets acquired, we acquired ownership of FOREXWARE, the primary software suite
and technology solution which powers the FXDD brand globally today. We also have ownership of the FOREXWARE brand name. We have
also acquired ownership of the customer interface and other software trading solutions being used by FXDD.com. By virtue of our
relationship with FXDD Malta and FXDirectDealer LLC (“FXDIRECT”), we provide turnkey software and technology solutions
for FXDD.com. We offer the customers of FXDD 24 hour, five days a week direct access to the global over the counter (“OTC”)
FX market, which is a decentralized market in which participants trade directly with one another, rather than through a central
exchange
.
In
an FX trade, participants effectively buy one currency and simultaneously sell another currency,
with the two currencies that make up the trade being referred to as a “currency pair”. Our software and technology
solutions enable FXDD to present its customers with price quotations on over the counter tradeable instruments, including over
the counter currency pairs, and also provide our customers the ability to trade FX derivative contracts on currency pairs through
a product referred to as Contracts for Difference (“CFD”). Our software solutions also offer other CFD products, including
CFDs on metals, such as gold, and on futures linked to other products
.
We
currently plan to seek for acquisitions that bring shareholder value both in the short term
and long term. Our goal is to create an industry leading sector consolidated platform, combining strong global retail and institutional
trading flows covering FX, commodities, futures, CFD and equities, with a cutting edge technological product suite, turnkey software
and technological development capabilities
.
In July 2018,
we incorporated Nukkleus Malta Holding Ltd. In July 2018, Nukkleus Malta Holding Ltd. incorporated
Nukkleus Exchange Malta Ltd. and is in the processes of incorporating Nukkleus Payments Malta Ltd. For Nukkleus Payments
Malta Ltd., management is currently exploring obtaining an Electronic Money Institution license to facilitate customer payment
transactions. For Nukkleus Exchange Malta Ltd., we seek to create an electronic exchange whereby it facilitates the buying
and selling of various digital assets as well as traditional currency pairs used in FX trading. Currently, Nukkleus Exchange
Malta Ltd., is in the process of finalizing the exchange, which has been paid for by related parties. Both entities would be regulated
by the Malta Financial Services Authority. For a further discussion, see Liquidity and Capital Resources.
Critical
Accounting Policies and Estimates
The
preparation of our unaudited condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making
these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various
other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and
assumptions.
Critical accounting policies are those that require application of management’s most subjective
or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. There have
been no material changes to the critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the
year ended September 30, 2018, except as discussed below.
Investment
– digital currency
Digital
currency consists of cryptocurrency denominated assets and are included in current assets. Investment in digital currency is carried
at fair market value. Unrealized gain or loss resulting from change the value of the digital currency is recorded in other income
(expense) in the consolidated statements of operations. Gain and loss realized upon sale of the investment in digital currency
are also recorded in other income (expense) in the consolidated statement of operations.
The
fair value of the investment in digital currency is determined using the equivalency rate of bitcoin to USD. The Company revalues
such asset at every reporting period and recognizes gain or loss as other income (expense) in the consolidated statements of operations
that are attributable to the change in the fair value of the digital currency.
Results
of Operations
Summary
of Key Results
For
the three ended December 31, 2018 versus the three months ended December 31, 2017
Revenue
and Cost of Revenue
Total
revenue for the three months ended December 31, 2018 versus the three months ended December 31, 2017 was $4,800,000 and $4,800,000,
respectively. Revenue for the three months ended December 31, 2018 and 2017 was from general support services rendered to a related
party.
Cost
of revenue for the three months ended December 31, 2018 versus the three months ended December 31, 2017 was $4,725,000 and $4,725,000,
respectively. Cost of revenue represents amount incurred for general support services rendered by a related party.
Operating
Expenses
Operating
expenses were mainly third-party and related party professional fees and directors’ compensation.
Total operating expenses for the three months ended December 31, 2018 versus the three months ended December
31, 2017, were $155,989 versus $238,948, respectively. The decrease in operating expenses for the three months ended December 31,
2018 as compared to the three months ended December 31, 2017 was mainly due to the decrease in use of professional services providers,
offset by an increase in salary incurred for our newly hired employee
.
Other
Expense
Other
expense includes interest expense on redeemable preferred stock, amortization of debt discount, and unrealized loss recognized
from investment - digital currency. Total other expense for the three months ended December 31, 2018 versus the three months ended
December 31, 2017, was $38,913 versus $6,040, respectively. The increase in total other expense for the three months ended December
31, 2018 as compared to the three months ended December 31, 2017 was primarily due to the increase in unrealized loss recognized
from digital currency asset, offset by the decrease in interest expense on redeemable preferred stock and the decrease in amortization
of debt discount.
As
a result of the termination of the IBIH transaction, we and CMH have agreed to enter into that certain Stock Redemption Agreement
dated February 13, 2018 providing that 75,000 CMH Preferred Shares were redeemed and cancelled in consideration of $750,000 which
occurred on February 13, 2018. Therefore, our interest expense on redeemable preferred stock for the three months ended December
31, 2018 decreased as compared to the three months ended December 31, 2017, and our amount from amortization of debt discount
for the three months ended December 31, 2018 decreased as compared to the three months ended December 31, 2017.
Net
Loss
As
a result of the factors described above, our net loss was $119,902, or $(0.00) per common share (basic and diluted), for the three
months ended December 31, 2018. Our net loss was $169,988, or $(0.00) per common share (basic and diluted), for the three months
ended December 31, 2017.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise
operate on an ongoing basis. At December 31, 2018 and September 30, 2018, we had cash balances of $126,191 and $257,637, respectively.
For
the three months ended December 31, 2018, although we incurred a net loss of $119,902, we had a net cash flow used in operating
activities of $37,791.
Our
ability to continue as a going concern is dependent upon the management of expenses and our ability to obtain the necessary financing
to meet our obligations and pay our liabilities arising from normal business operations when they come due, and upon profitable
operations.
Currently, we are in the process of finalizing
the creation an electronic exchange whereby it facilitates the buying and selling of various digital assets as well as traditional
currency pairs used in FX trading, which has been paid by related parties. Projected costs of this exchange is approximately $900,000.
As of December 31, 2018, approximately $811,000 has already been spent by our affiliates and ownership of the exchange will be
transferred to us upon completion.
We
need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain
that such capital (from our stockholders or third parties) 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. If we are unable to raise sufficient
additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
Cash
Flow for the Three Months Ended December 31, 2018 Compared to the Three Months Ended December 31, 2017
Net
cash
flow used in operating activities was $37,791 for the three months ended December 31, 2018.
These included $119,902
in net loss. Cash flows used in operating activities included changes in operating assets and liabilities totaling $44,136 for
the three months ended December 31, 2018.
Net cash
flow used in operating activities was $29,531 for the three months ended December 31, 2017. These include $169,988 in net
loss. Cash flows used in operating activities included changes in operating assets and liabilities totaling $138,167 for the three
months ended December 31, 2017.
Net
cash flow used in investing activities was $93,655 for the three months ended December 31, 2018. During the three months ended
December 31, 2018, we purchased digital currency of $93,655.
Net
cash flow provided by investing activities was $950,000 for the three months ended December 31, 2017. During the three months
ended December 31, 2017, we received proceeds of $1,000,000 from termination of potential acquisition in accordance with a Settlement
Agreement and Mutual Release signed on November 17, 2017 as described elsewhere in this report, and we made a payment for software
development costs of $50,000.
We
did not incur any financing activity during the three months ended December 31, 2018 and 2017.
Our capital requirements for the next twelve
months primarily relate to mergers, acquisitions and the development of business opportunities. In addition, we expect to use cash
to pay fees related to professional services. Currently, we are in the process of finalizing the creation an electronic exchange
whereby it facilitates the buying and selling of various digital assets as well as traditional currency pairs used in FX trading,
which has been paid by related parties. Projected costs of this exchange is approximately $900,000. As of December 31, 2018, approximately
$811,000 has already been spent by our affiliates and ownership of the exchange will be transferred to us upon completion. The
following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:
|
●
|
The
working capital requirements to finance our current business;
|
|
●
|
The
use of capital for mergers, acquisitions and the development of business opportunities;
|
|
●
|
Addition
of personnel as the business grows; and
|
|
●
|
The
cost of being a public company.
|
We
need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain
that such capital (from our stockholders or third parties) 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. If we are unable to raise sufficient
additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
Consistent
with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between us and our officers,
directors and their affiliates will be entered into only if such transactions are approved by a majority of the disinterested
directors, are approved by vote of the stockholders, or are fair to us as a corporation as of the time it is authorized, approved
or ratified by the board. We will conduct an appropriate review of all related party transactions on an ongoing basis.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
At
December 31, 2018, there have been no material changes to the contractual obligations as set forth in our Annual Report on Form
10-K for the year ended September 30, 2018.
Off-Balance
Sheet Arrangements
We
had no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign
currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently
Issued Accounting Pronouncements
For
information about recently issued accounting standards, refer to Note 3 to our Unaudited Condensed Consolidated Financial Statements
appearing elsewhere in this report.