NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS
Nukkleus
Inc. (f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed
on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.
The
Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail
foreign exchange (“FX”) trading industry. The Company primarily provides its software, technology, customer sales
and marketing and risk management technology hardware and software solutions package to FXDD Malta Limited (“FXDD Malta”).
The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by FXDD Malta.
Nukkleus
Limited, a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management
technology hardware and software solutions package under a General Services Agreement (“GSA”) to FXDD Malta Limited
(“FXDD Malta”). FXDD Malta is a private limited liability company formed under the laws of Malta. The GSA entered
with FXDD Malta provides that FXDD Malta will pay Nukkleus Limited at minimum $1,600,000 per month. Emil Assentato is also the
majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”).
Mr. Assentato, who is our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chairman,
is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of
FXDD Malta.
In
addition, in order to appropriately service FXDD Malta, Nukkleus Limited entered into a GSA with FXDirectDealer LLC (“FXDIRECT”),
which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,575,000 per month in consideration of providing personnel
engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing
and customer care and support. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. Currency Mountain
Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.
In
July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta
Holding Ltd. incorporated Nukkleus Exchange Malta Ltd. For Nukkleus Exchange Malta Ltd., the Company is currently exploring obtaining
a license to operate an electronic exchange whereby it facilitates the buying and selling of various digital assets as well as
traditional currency pairs used in FX Trading. The Company’s affiliates have created the electronic exchange that may be
used by Nukkleus Exchange Malta Ltd., however, as the Company does not believe obtaining a license to operate the exchange will
be feasible, the affiliates are searching for alternate uses for the exchange and as such have not sold or transferred the exchange
to the Company.
On
October 29, 2019, the Company entered into a Non-Binding Letter of Intent (“LOI”) with XT Energy Group Inc. (OTCQB:
XTEG) (“XT”) and Stanley Hutton Rumbough. The purpose of the LOI was to outline a proposed transaction pursuant to
which XT, among other items, would acquire all intellectual properties of EF Hutton, including its trademark “EF Hutton,”
held by Mr. Hutton Rumbough and acquire all of the issued and outstanding shares of common stock of the Company in consideration
of 11 million shares of XT. The purpose of the transactions was to establish XT in two areas of activity of energy and energy
related services and financial services and financial technology. Following the closing of the transactions, the Company would
become a wholly-owned subsidiary of XT, and XT would change its name to “EF Hutton Group Inc.” The LOI expired
in January 2020 and no agreement was reached.
The
unaudited condensed financial statements have been prepared using accounting principles generally accepted in the United States
of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities
in the ordinary course of business. The Company incurred a net loss for the six months ended March 31, 2020 of $109,151,
and had an accumulated deficit and a working capital deficit of $1,566,902 and $1,155,487, respectively, at March 31, 2020. The
Company’s ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary
financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon
profitable operations.
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic,
which continues to spread throughout the United States. The ultimate extent of the impact of COVID-19 on the financial
performance of the Company will depend on future developments, including the duration and spread of COVID-19, and the overall
economy, all of which are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy
are impacted for an extended period, the Company’s operating results may be materially and adversely affected.
We
cannot be certain that such necessary capital through equity or debt financings will be available to us or whether such capital
will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing
stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event
that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, Currency Mountain
Holdings Bermuda, Limited (“CMH”), which is wholly-owned by an entity that is majority-owned by Mr. Assentato,
has committed to inject capital into the Company in order to maintain the ongoing operations of the business.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – BASIS OF PRESENTATION
These
interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed
consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements
for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements
in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
The
Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its consolidated
subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Certain
information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction
with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended September 30, 2019 filed with the Securities and Exchange Commission on January 14, 2020. The
consolidated balance sheet as of September 30, 2019 contained herein has been derived from the audited consolidated financial
statements as of September 30, 2019, but does not include all disclosures required by U.S. GAAP.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. Significant estimates during the three and six months ended March 31, 2020 and 2019
include valuation of deferred tax assets and the associated valuation allowances.
Fair
value of financial instruments and fair value measurements
The Company adopted
the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition
of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used
in measuring fair value. Fair value is the price that would be received to sell an asset and paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The Company utilizes valuation techniques to maximize
the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities are recorded at fair value and
are categorized based upon the level of judgment associated with the inputs used to measure their value. Inputs are broadly defined
as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are
as follows:
|
●
|
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities
available at the measurement date.
|
|
●
|
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that are not
active, inputs other than quoted prices that are observable, and inputs derived from
or corroborated by observable market data.
|
|
●
|
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions
on what assumptions the market participants would use in pricing the asset or liability
based on the best available information.
|
The
Company holds investments in digital currency, consisting of Bitcoins and Ethereum. The Company initially records its investments
at cost, and then revalues such assets at every reporting period and recognizes gain or loss as unrealized gain (loss) on digital
currency that are attributable to the change in the fair value of the digital currency. Unrealized gains and losses and realized
gains and losses recognized upon the sale or transfer of the investments in digital currency are netted and recognized within
gain (loss) on digital currency on the unaudited condensed consolidated statements of operations. The fair value of the investment
in digital currency is determined using the equivalency rate of the digital currency to USD and is included in current assets.
The equivalency rates obtained represent a generally well recognized quoted price in active markets for Bitcoin and Ethereum.
The current guidance in U.S. GAAP does not directly address the accounting for cryptocurrencies.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
value of financial instruments and fair value measurements (continued)
The
following tables provide the financial assets measured on a recurring basis and reported at fair value on the balance sheets as
of March 31, 2020 and September 30, 2019:
|
|
Fair value measurement using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total at March 31,
2020
|
|
Investment - digital currency
|
|
$
|
479
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total at September 30,
2019
|
|
Investment - digital currency
|
|
$
|
168,943
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
168,943
|
|
The investment
in digital currency had a cost of $137,223 net of fees, and a fair value of $168,943 at September 30, 2019. The Company recognized
a gain of $0 and $5,335 for the three months ended March 31, 2020 and 2019, respectively. The Company recognized a gain of
$17,888 and a loss of $32,068 for the six months ended March 31, 2020 and 2019, respectively. During the first quarter of fiscal
2020, the Company transferred substantially all of its investment in digital currency to affiliates related through common ownership.
The
carrying values of cash, prepaid expense, due from affiliate, due to affiliates, and accrued liabilities in the Company’s
condensed consolidated balance sheets approximated their fair values as of March 31, 2020 and September 30, 2019 due to their
short-term nature.
Concentration
of credit risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At March
31, 2020 and September 30, 2019, the Company’s cash balances accounts were not in excess of the federally-insured limits.
For
all periods presented, the Company earned 100% of its revenue from FXDD Malta and incurred 100% of its cost of revenue from
FXDIRECT. Both FXDD Malta and FXDIRECT are related parties.
Revenue
recognition
The
Company accounts for revenue under the provisions of ASC Topic 606. The nature of the Company’s contract with its customer
relates to the Company’s services performed for a related party under a GSA.
The
transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple
services provided under the GSA and these performance obligations are combined into a single unit of accounting. Fees are recognized
as revenue over time as the services are rendered under the terms of the GSA.
Revenue
is recorded at gross as the Company is deemed to be a principal in the transactions.
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 and six months ended March 31, 2020 and 2019, potentially dilutive common shares consist
of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).
The
following table presents a reconciliation of basic and diluted net loss per share:
|
|
Three Months Ended
March 31,
2020
|
|
|
Three Months Ended
March 31,
2019
|
|
|
Six Months Ended
March 31,
2020
|
|
|
Six Months Ended
March 31,
2019
|
|
Net loss available to common stockholders for basic and diluted
net loss per share of common stock
|
|
$
|
(63,850
|
)
|
|
$
|
(230,901
|
)
|
|
$
|
(109,151
|
)
|
|
$
|
(350,803
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock outstanding - diluted
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
For the
three and six months ended March 31, 2020 and 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.
Recently
issued accounting pronouncements
Effective
October 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The adoption of this guidance did not have a material impact on the Company’s consolidated financial
statements.
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.
NUKKLEUS
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – ACCRUED LIABILITIES
At
March 31, 2020 and September 30, 2019, accrued liabilities consisted of the following:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
Professional fees
|
|
$
|
15,641
|
|
|
$
|
73,478
|
|
Directors’ compensation
|
|
|
110,537
|
|
|
|
90,537
|
|
Interest payable
|
|
|
33,354
|
|
|
|
31,479
|
|
Other
|
|
|
19,500
|
|
|
|
2,000
|
|
Total
|
|
$
|
179,032
|
|
|
$
|
197,494
|
|
NOTE
5 – SHARE CAPITAL
Preferred
stock
The
Company’s Board of Directors is authorized to issue, at any time, without further stockholder approval, up to 15,000,000
shares of preferred stock. The Board of Directors has the authority to fix and determine the voting rights, rights of redemption
and other rights and preferences of preferred stock.
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;
|
|
4)
|
The
Series A preferred stock is non-voting. However, without the affirmative vote of the
holders of the shares of the Series A preferred stock then outstanding, the Company may
not alter or change adversely the powers, preferences or rights given to the Series A
preferred stock or alter or amend the Certificate of Designation except to the extent
that such vote relates to the amendment of the Certificate of Designation;
|
|
5)
|
The
holders of the Series A preferred stock are not entitled to receive any preference upon
the liquidation, dissolution or winding up of the business of the Company. Each holder
of Series A preferred stock shall share ratably with the holders of the common stock
of the Company.
|
The
$1,000,000 of proceeds received was allocated to the common stock and Series A preferred stock according to their relative fair
values determined at the time of issuance, and as a result, the Company recorded a total discount of $45,793 on the Series A preferred
stock, which is being amortized to interest expense to the date of redemption. For both the three months ended March 31,
2020 and 2019, amortization of debt discount amounted to $573. For both the six months ended March 31, 2020 and 2019, amortization
of debt discount amounted to $1,145.
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 both the three months ended March 31, 2020 and 2019,
dividends on redeemable preferred stock amounted to $937. For both the six months ended March 31, 2020 and 2019, dividends
on redeemable preferred stock amounted to $1,875.
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)
At
March 31, 2020 and September 30, 2019, Series A redeemable preferred stock consisted of the following:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
Redeemable preferred stock (stated value)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: unamortized debt discount
|
|
|
(2,691
|
)
|
|
|
(3,835
|
)
|
Redeemable preferred stock, net
|
|
$
|
247,309
|
|
|
$
|
246,165
|
|
NOTE
6 – RELATED PARTY TRANSACTIONS
Services
provided by related parties
From time
to time, Craig Marshak, a director of the Company, provides consulting services to the Company. Mr. Craig Marshak is a principal
of Triple Eight Markets, Inc. All professional services fee payable to Craig Marshak are paid to Triple Eight Markets, Inc. As
compensation for professional services provided, the Company recognized consulting expenses of $0 and $78,500 for the three
months ended March 31, 2020 and 2019, respectively, which have been included in general and administrative expense –
related party on the accompanying unaudited condensed consolidated statements of operations. The Company recognized consulting
expenses of $0 and $93,500 for the six months ended March 31, 2020 and 2019, respectively, which have been included in general
and administrative expense – related party on the accompanying unaudited condensed consolidated statements of operations.
As
of March 31, 2020 and September 30, 2019, the accrued and unpaid services charge related to Craig Marshak amounted to $0
and $10,000, respectively, which have been included in accrued liabilities – related party on the accompanying condensed
consolidated balance sheets.
The
Company uses affiliate employees for various services such as the use of accountants to record the books and accounts of the Company
at no charge to those affiliates, which are considered immaterial.
Office
space from related parties
The Company
uses office space of affiliate companies, free of rent, which is considered immaterial.
Revenue
from related party and cost of revenue from related party
The
Company operates under a GSA with FXDD Malta providing personnel and technical support, marketing, accounting, risk monitoring,
documentation processing and customer care and support. The minimum monthly amount received is $1,600,000.
The
Company operates under a GSA with FXDIRECT receiving personnel and technical support, marketing, accounting, risk monitoring,
documentation processing and customer care and support. The minimum monthly amount payable is $1,575,000.
Both
of the above entities are affiliates through common ownership.
During
the three and six months ended March 31, 2020 and 2019, services provided to the related party, which was recorded as revenue
- related party on the accompanying unaudited condensed consolidated statements of operations were as follows:
|
|
Three Months Ended
March 31,
2020
|
|
|
Three Months Ended
March 31,
2019
|
|
|
Six Months Ended
March 31,
2020
|
|
|
Six Months Ended
March 31,
2019
|
|
Service provided to:
|
|
|
|
|
|
|
|
|
|
|
|
|
FXDD Malta
|
|
$
|
4,800,000
|
|
|
$
|
4,800,000
|
|
|
$
|
9,600,000
|
|
|
$
|
9,600,000
|
|
|
|
$
|
4,800,000
|
|
|
$
|
4,800,000
|
|
|
$
|
9,600,000
|
|
|
$
|
9,600,000
|
|
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)
During the
three and six months ended March 31, 2020 and 2019, services received from the related party, which was recorded as cost
of revenue - related party on the accompanying unaudited condensed consolidated statements of operations were as follows:
|
|
Three Months Ended
March 31,
2020
|
|
|
Three Months Ended
March 31,
2019
|
|
|
Six Months Ended
March 31,
2020
|
|
|
Six Months Ended
March 31,
2019
|
|
Service received from:
|
|
|
|
|
|
|
|
|
|
|
|
|
FXDIRECT
|
|
$
|
4,725,000
|
|
|
$
|
4,725,000
|
|
|
$
|
9,450,000
|
|
|
$
|
9,450,000
|
|
|
|
$
|
4,725,000
|
|
|
$
|
4,725,000
|
|
|
$
|
9,450,000
|
|
|
$
|
9,450,000
|
|
Due
from affiliate
At
March 31, 2020 and September 30, 2019, due from related party consisted of the following:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
NUKK Capital (*)
|
|
$
|
143,776
|
|
|
$
|
3,880
|
|
|
(*)
|
An
entity controlled by Emil Assentato, the Company’s chief executive officer, chief
financial officer and chairman.
|
The
balance of due from related party represents investment – digital currency transferred to NUKK Capital.
Management
believes that the related party receivable is fully collectable. Therefore, no allowance for doubtful account is deemed to be
required on its due from related party at March 31, 2020 and September 30, 2019. The Company historically has not experienced
uncollectible receivable from the related party.
Due
to affiliates
At
March 31, 2020 and September 30, 2019, due to related parties consisted of the following:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
Forexware LLC
|
|
$
|
570,271
|
|
|
$
|
570,271
|
|
FXDIRECT
|
|
|
216,176
|
|
|
|
67,056
|
|
CMH
|
|
|
42,000
|
|
|
|
42,000
|
|
FXDD Malta
|
|
|
321,784
|
|
|
|
320,129
|
|
FXDD Trading (*)
|
|
|
471
|
|
|
|
43,185
|
|
FXMarkets (*)
|
|
|
-
|
|
|
|
346
|
|
Total
|
|
$
|
1,150,702
|
|
|
$
|
1,042,987
|
|
|
(*)
|
FXDD
Trading and FXMarkets are both controlled by Emil Assentato, the Company’s chief
executive officer, chief financial officer and chairman.
|
The
balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, FXDD Malta, FXDD Trading, and FXMarkets
on behalf of the Company and advances from CMH. The balances due to FXDIRECT and FXDD Malta may also include unsettled funds due
related to the General Service Agreement. The balances due to FXDD Malta and FXDD Trading also include the value of transferred
digital assets.
The
related parties’ payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.
NOTE
7 – INCOME TAXES
The
Company recorded no income tax expense for the three and six months ended March 31, 2020 and 2019 because the estimated annual
effective tax rate was zero. As of March 31, 2020, the Company continues to provide a valuation allowance against its net
deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
NOTE 8 – CONTINGENCY
On April 16, 2020,
the Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court District Of Massachusetts
(Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). The Adversary Proceeding
is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency
Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDIRECT, FXDD Malta, Nukkleus Inc.,
Nukkleus Bermuda Limited and CMH. In the Amended Complaint, BT Prime is seeking a determination that the Company and the defendants
are liable for all of the debts and liabilities of BT Prime stemming from its bankruptcy proceedings. Further, in the sole claim
against the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence outside
of their collective business relationship with other Defendants, is a continuation of the business of Forexware and is successors-in-interest
to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable for any liability
attributable to other Defendants, should the Court eventually find any such liability. The Company maintains that there is no basis
in BT Prime’s claims against it and intends to vigorously defend against it, including by moving to dismiss it.
NOTE
9 – SUBSEQUENT EVENTS
Management
has evaluated subsequent events through the date of the filing.