NUKKLEUS
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Three
Months
|
|
For the Three
Months
|
|
For the Nine
Months
|
|
For the Nine
Months
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Revenue - related party
|
|
|
4,800,000
|
|
|
|
4,800,000
|
|
|
|
14,400,000
|
|
|
|
14,400,000
|
|
Total revenue
|
|
|
4,800,000
|
|
|
|
4,800,000
|
|
|
|
14,400,000
|
|
|
|
14,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cost of revenue - related party
|
|
|
4,725,000
|
|
|
|
4,725,000
|
|
|
|
14,175,000
|
|
|
|
14,175,000
|
|
Total cost of revenue
|
|
|
4,725,000
|
|
|
|
4,725,000
|
|
|
|
14,175,000
|
|
|
|
14,175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
225,000
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and related benefits
|
|
|
108,751
|
|
|
|
15,000
|
|
|
|
235,104
|
|
|
|
55,000
|
|
Bad debt expense
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other general and administrative
|
|
|
97,953
|
|
|
|
54,175
|
|
|
|
303,815
|
|
|
|
322,967
|
|
Other general and administrative - related party
|
|
|
30,000
|
|
|
|
-
|
|
|
|
123,500
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
236,704
|
|
|
|
69,175
|
|
|
|
702,419
|
|
|
|
383,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME FROM OPERATIONS
|
|
|
(161,704
|
)
|
|
|
5,825
|
|
|
|
(477,419
|
)
|
|
|
(158,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on redeemable preferred stock
|
|
|
(937
|
)
|
|
|
(938
|
)
|
|
|
(2,812
|
)
|
|
|
(6,917
|
)
|
Amortization of debt discount
|
|
|
(572
|
)
|
|
|
(572
|
)
|
|
|
(1,717
|
)
|
|
|
(26,960
|
)
|
Unrealized gain on digital currency
|
|
|
94,297
|
|
|
|
-
|
|
|
|
62,229
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
92,788
|
|
|
|
(1,510
|
)
|
|
|
57,700
|
|
|
|
(33,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAXES
|
|
|
(68,916
|
)
|
|
|
4,315
|
|
|
|
(419,719
|
)
|
|
|
(192,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(68,916
|
)
|
|
$
|
4,315
|
|
|
$
|
(419,719
|
)
|
|
$
|
(192,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
234,732,309
|
|
Diluted
|
|
|
230,485,100
|
|
|
|
231,735,100
|
|
|
|
230,485,100
|
|
|
|
234,732,309
|
|
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 CHANGES IN STOCKHOLDERS’ DEFICIT
For the
Nine Months Ended June 30, 2019 and 2018
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(727,638
|
)
|
|
$
|
(563,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(119,902
|
)
|
|
|
(119,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(847,540
|
)
|
|
$
|
(683,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(230,901
|
)
|
|
|
(230,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(1,078,441
|
)
|
|
$
|
(914,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended June 30, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(68,916
|
)
|
|
|
(68,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(1,147,357
|
)
|
|
$
|
(983,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(515,451
|
)
|
|
$
|
(351,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(169,988
|
)
|
|
|
(169,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(685,439
|
)
|
|
$
|
(521,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,171
|
)
|
|
|
(27,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(712,610
|
)
|
|
$
|
(548,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the three months ended June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,315
|
|
|
|
4,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
230,485,100
|
|
|
$
|
23,049
|
|
|
$
|
141,057
|
|
|
$
|
(708,295
|
)
|
|
$
|
(544,189
|
)
|
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 Nine
Months
|
|
For the Nine
Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
2019
|
|
June 30,
2018
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net loss
|
|
$
|
(419,719
|
)
|
|
$
|
(192,844
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
1,717
|
|
|
|
26,960
|
|
Unrealized gain on digital currency
|
|
|
(62,229
|
)
|
|
|
-
|
|
Bad debt expense
|
|
|
40,000
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(1
|
)
|
|
|
(11,562
|
)
|
Due from affiliates
|
|
|
(150,360
|
)
|
|
|
-
|
|
Due to affiliates
|
|
|
414,392
|
|
|
|
76,525
|
|
Accrued liabilities
|
|
|
21,395
|
|
|
|
68,417
|
|
Accrued liabilities - related party
|
|
|
-
|
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(154,805
|
)
|
|
|
(40,504
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of digital currency
|
|
|
(94,000
|
)
|
|
|
-
|
|
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
|
|
|
(94,000
|
)
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(248,805
|
)
|
|
|
159,496
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of period
|
|
|
257,637
|
|
|
|
48,642
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
|
$
|
8,832
|
|
|
$
|
208,138
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Exchange investment - digital currency for due from affiliate
|
|
$
|
3,880
|
|
|
$
|
-
|
|
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 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, Nukkleus Exchange Malta Ltd. is
in the process of finalizing the exchange and such costs have been paid for by related parties. As of June 30, 2019, approximately
$1.1 million has been incurred by out 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.
The 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
net loss for the nine months ended June 30, 2019 of $419,719 and had a working capital deficit of $737,659 at June 30, 2019. Our
ability to continue as a going concern is dependent upon the management of expenses and ability of the Company to obtain the necessary
financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon
profitable operations.
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 shareholders
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.
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.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2019 and 2018
include the fair value of the investment in digital currency, bad debt expense, 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.
|
|
·
|
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,
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 the digital currency to USD. Digital currency
consists of cryptocurrency denominated assets and are included in current assets. The Company revalues such assets at every reporting
period and recognizes gain or loss as unrealized gain on digital currency, net, on 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 June 30,
2019:
|
|
|
|
|
Fair value measurement using
|
|
|
|
Carrying value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment - digital currency
|
|
$
|
152,349
|
|
|
$
|
152,349
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
152,349
|
|
The investment
in digital currency has a cost of $90,120 net of fee, unrealized gain of $62,229 for the nine months ended June 30, 2019, and a
fair value of $152,349 at June 30, 2019. There is an unrealized gain of $94,297 for the three months ended June 30, 2019. During
the nine months ended June 30, 2019, the Company transferred $3,880 of its investment in digital currency to a related party. 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 June 30, 2019 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.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Concentration
of credit risk (continued)
The following
table summarizes customer revenue concentrations:
|
|
Three Months
Ended
June 30,
2019
|
|
|
Three Months
Ended
June 30,
2018
|
|
|
Nine Months
Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2018
|
|
FXDD Malta - related party
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
The following
table summarizes vendor expense concentrations:
|
|
Three Months
Ended
June 30,
2019
|
|
|
Three Months
Ended
June 30,
2018
|
|
|
Nine Months
Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2018
|
|
FXDIRECT - related party
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
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.
During the second
quarter of fiscal 2019, the Company evaluated the collectability. In evaluating the collectability, the Company considers many
factors, including the age of the balance, payment history and the third party’s current credit-worthiness. The balance
of $40,000 was written off after exhaustive efforts at collection.
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.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company
recorded no income tax expense for the three and nine months ended June 30, 2019 and 2018 because the estimated annual effective
tax rate was zero. As of June 30, 2019, 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.
Reclassifications
The Company has
reclassified certain prior period amounts in the accompanying unaudited condensed consolidated statements of operations in order
to be consistent with the current period presentation. These reclassifications had no effect on the previously reported results
of operations.
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, 2019 and 2018, potentially dilutive common shares consist
of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method) and the exercise of common
stock options (using the treasury stock method).
The following
is a reconciliation of the basic and diluted net (loss) income per share computations for the three and nine months ended June
30, 2019 and 2018:
Basic net
(loss) income per share
|
|
Three Months
Ended
June 30,
2019
|
|
Three Months
Ended
June 30,
2018
|
|
Nine Months
Ended
June 30,
2019
|
|
Nine Months
Ended
June 30,
2018
|
Net (loss) income available to common stockholders for basic net (loss) income per share of common stock
|
|
$
|
(68,916
|
)
|
|
$
|
4,315
|
|
|
$
|
(419,719
|
)
|
|
$
|
(192,844
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
234,732,309
|
|
Net (loss) income per common share – basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share
data (continued)
Diluted net
income (loss) per share
|
|
Three Months
Ended
June 30,
2019
|
|
Three Months
Ended
June 30,
2018
|
|
Nine Months
Ended
June 30,
2019
|
|
Nine Months
Ended
June 30,
2018
|
Net (loss) income available to common stockholders for basic net (loss) income per share of common stock
|
|
$
|
(68,916
|
)
|
|
$
|
4,315
|
|
|
$
|
(419,719
|
)
|
|
$
|
(192,844
|
)
|
Add: interest expense for redeemable preferred stock
|
|
|
-
|
|
|
|
938
|
|
|
|
-
|
|
|
|
-
|
|
Subtract: unamortized debt discount for redeemable preferred stock
|
|
|
-
|
|
|
|
(6,697
|
)
|
|
|
-
|
|
|
|
-
|
|
Net loss available to common stockholders for diluted net loss per share of common stock
|
|
|
(68,916
|
)
|
|
|
(1,444
|
)
|
|
|
(419,719
|
)
|
|
|
(192,844
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
234,732,309
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock
|
|
|
-
|
|
|
|
1,250,000
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock outstanding - diluted
|
|
|
230,485,100
|
|
|
|
231,735,100
|
|
|
|
230,485,100
|
|
|
|
234,732,309
|
|
Net loss per common share – diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
For 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.
For the
nine months ended June 30, 2018, a total of 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 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.
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.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 –
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued
accounting pronouncements (continued)
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 June 30, 2019 and September 30, 2018, accrued liabilities
consisted of the following:
|
|
June 30,
2019
|
|
|
September 30,
2018
|
|
Professional fees
|
|
$
|
52,478
|
|
|
$
|
44,728
|
|
Directors’ compensation
|
|
|
80,537
|
|
|
|
70,000
|
|
Interest payable
|
|
|
30,542
|
|
|
|
27,729
|
|
Other
|
|
|
295
|
|
|
|
-
|
|
|
|
$
|
163,852
|
|
|
$
|
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.
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 long-term 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.
|
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 June 30, 2019 and 2018, amortization
of debt discount amounted to $572 and $572, respectively. For the nine months ended June 30, 2019 and 2018, amortization of debt
discount amounted to $1,717 and $26,960, respectively.
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 (continued)
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, 2019 and 2018, dividends
on redeemable preferred stock amounted to $937 and $938, respectively. For the nine months ended June 30, 2019 and 2018,
dividends on redeemable preferred stock amounted to $2,812 and $6,917, 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 June 30, 2019
and September 30, 2018, Series A redeemable preferred stock consisted of the following:
|
|
June 30,
2019
|
|
|
September 30,
2018
|
|
Redeemable preferred stock (stated value)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: unamortized debt discount
|
|
|
(4,408
|
)
|
|
|
(6,125
|
)
|
Redeemable preferred stock, net
|
|
$
|
245,592
|
|
|
$
|
243,875
|
|
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
$30,000 and $0 for the three months ended June 30, 2019 and 2018, respectively, which have been included in general
and administrative expense – related party on the accompanying consolidated statements of operations. The
Company recognized consulting expenses of $123,500 and $6,000 for the nine months ended June 30, 2019 and 2018, 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.
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
and nine months ended June 30, 2019 and 2018, 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
June 30,
2019
|
|
|
Three Months
Ended
June 30,
2018
|
|
|
Nine Months
Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2018
|
|
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, 2019 and 2018, service received from related party which was recorded as cost of revenue
- related party on the accompanying consolidated statements of operations was as follows:
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 (continued)
|
|
Three Months
Ended
June 30,
2019
|
|
|
Three Months
Ended
June 30,
2018
|
|
|
Nine Months
Ended
June 30,
2019
|
|
|
Nine Months
Ended
June 30,
2018
|
|
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
|
|
Due from affiliates
At June 30, 2019
and September 30, 2018, due from related parties consisted of the following:
|
|
June 30,
2019
|
|
|
September 30,
2018
|
|
FXDD Malta
|
|
$
|
-
|
|
|
$
|
800
|
|
NUKK Capital (1)
|
|
|
3,880
|
|
|
|
-
|
|
FXDIRECT
|
|
|
151,160
|
|
|
|
-
|
|
|
|
$
|
155,040
|
|
|
$
|
800
|
|
|
(1)
|
An entity controlled by Emil Assentato, the Company’s
chief executive officer and chief financial officer.
|
The balance of due
from related parties at June 30, 2019 amounted to $155,040, which represents investment – digital currency transferred to
NUKK Capital and monies that the Company paid on behalf of FXDIRECT. The balance of due from related parties at September 30, 2018
amounted to $800 and represents 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 accounts is deemed to
be required on its due from related parties at June 30, 2019 and September 30, 2018. The Company historically has not experienced
uncollectible receivables from related parties.
Due to affiliates
At June 30, 2019
and September 30, 2018, due to related parties consisted of the following:
|
|
June 30,
2019
|
|
September 30,
2018
|
Forexware LLC
|
|
$
|
550,816
|
|
|
$
|
300,700
|
|
FXDIRECT
|
|
|
-
|
|
|
|
182,270
|
|
CMH
|
|
|
47,000
|
|
|
|
-
|
|
FXDD Malta
|
|
|
299,546
|
|
|
|
-
|
|
|
|
$
|
897,362
|
|
|
$
|
482,970
|
|
The balances of due
to related parties represent expenses paid by Forexware LLC, FXDD Malta, and FXDIRECT on behalf of the Company and advances from
CMH. The balances due to FXDIRECT may also include unsettled funds due related to the General Service Agreement. The balances due to Forexware LLC also include costs for creation an electronic exchange paid by
it.
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 by
Forexware LLC and FXDIRECT. As of June 30, 2019, approximately $1.1 million 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.
Management
is not aware of any significant events that occurred subsequent to the balance sheet date that would have a material effect on
the financial statements and would require adjustment or disclosure thereto.