The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of these statements.
The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of these statements.
The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of these statements.
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 Triton Capital Markets Ltd. (“TCM”), formerly known as FXDD Malta Limited (“FXDD Malta”).
The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by TCM.
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 TCM. TCM is a private limited liability company formed under the laws
of Malta. The GSA provides that TCM 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 TCM.
In addition, in order to appropriately service
TCM, 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 Markets Direct Technology
Group Ltd (“MDTG”), formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate
an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs
used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer
pursue the regulatory licensing necessary to operate an exchange in Malta.
On August 27, 2020, the Company renamed Nukkleus Exchange
Malta Ltd. to Markets Direct Technology Group Ltd (“MDTG”). MDTG will manage the technology and IP behind the Markets Direct
brand (which is operated by TCM). MDTG will hold all the IP addresses and all the software licenses in its name, and it will hold all
the IP rights to the brands such as Markets Direct and TCM. MDTG will then lease out the rights to use these names/brands licenses to
the appropriate entities. Management estimates that MDTG will become operational in the fourth quarter of fiscal 2021.
The unaudited condensed consolidated 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, 2021 of $53,546, and had a working capital deficit of $1,447,753 at March 31, 2021. 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.
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.
The ramifications of the outbreak of the novel
strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our
operations have continued during the COVID-19 pandemic and we have not had significant disruption.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – THE COMPANY HISTORY AND NATURE
OF THE BUSINESS (continued)
The Company is operating in a rapidly changing
environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend
on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of
the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;
and the development of widespread testing or a vaccine.
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, 2020 filed with the Securities
and Exchange Commission on December 28, 2020. The consolidated balance sheet as of September 30, 2020 contained herein has been derived
from the audited consolidated financial statements as of September 30, 2020, 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, 2021 and 2020 include valuation of deferred tax assets and the associated
valuation allowances.
Fair value of financial instruments and
fair value measurements
The investment in digital currency as of September
30, 2020 is recorded with prepaid expense and other current assets on the condensed consolidated balance sheet. The carrying values of
cash, prepaid expense, due from affiliates, due to affiliates, and accrued liabilities in the Company’s condensed consolidated balance
sheets approximated their fair values as of March 31, 2021 and September 30, 2020 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, 2021 and September 30, 2020, 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 TCM and incurred 100% of its cost of revenue from FXDIRECT. Both TCM and FXDIRECT are related parties.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition
The Company accounts for revenue under the provisions
of ASC Topic 606. The nature of the Company’s contract with its customer relates to the Company’s services performed for a
related party under a GSA.
The transaction price is determined in accordance
with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA and these performance
obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under
the terms of the GSA.
Revenue is recorded at gross as the Company is
deemed to be a principal in the transactions.
Per share data
ASC Topic 260, Earnings per Share, requires
presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net earnings per share are computed
by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during
the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average
number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted
earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other
contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject
to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the
computation of diluted shares outstanding as they would have an anti-dilutive impact. For the three and six months ended March 31, 2021
and 2020, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the
if-converted method).
The following is a reconciliation
of the basic and diluted net income (loss) per share computations for the three and six months ended March 31, 2021 and 2020:
Basic net income (loss)
per share
|
|
Three Months
Ended
March
31,
2021
|
|
|
Three Months
Ended
March
31,
2020
|
|
|
Six Months
Ended
March
31,
2021
|
|
|
Six Months
Ended
March
31,
2020
|
|
Net income (loss) available to common stockholders for basic net income (loss) per share of common stock
|
|
$
|
49
|
|
|
$
|
(63,850
|
)
|
|
$
|
(53,546
|
)
|
|
$
|
(109,151
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
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
March 31,
2021
|
|
|
Three Months
Ended
March 31,
2020
|
|
|
Six Months
Ended
March
31,
2021
|
|
|
Six Months
Ended
March
31,
2020
|
|
Net income (loss) available to common stockholders for basic net income (loss) per share of common stock
|
|
$
|
49
|
|
|
$
|
(63,850
|
)
|
|
$
|
(53,546
|
)
|
|
$
|
(109,151
|
)
|
Add: interest expense for redeemable preferred stock
|
|
|
937
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtract: unamortized debt discount for redeemable preferred stock
|
|
|
(401
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) available to common stockholders for diluted net income (loss) per share of common stock
|
|
$
|
585
|
|
|
$
|
(63,850
|
)
|
|
$
|
(53,546
|
)
|
|
$
|
(109,151
|
)
|
Weighted average common stock outstanding - basic
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock
|
|
|
1,250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock outstanding - diluted
|
|
|
231,735,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
|
|
230,485,100
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
For the six months ended March 31, 2021 and the
three and six months ended March 31, 2020, 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.
Reclassification
Certain prior period amounts have been reclassified
to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results
of operations and cash flows.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit
Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related
to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses
at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022,
including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material
impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair
Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU
2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs
to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal
years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures,
which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year
of adoption. The adoption of this guidance as of October 1, 2020 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 December 2019, the FASB issued ASU 2019-12, Simplifying
the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles
in the existing guidance for income taxes and making other minor improvements. The amendments in the ASU are effective for the Company
on October 1, 2021. The Company does not expect the adoption of ASU 2019-12 will have a material impact on its consolidated financial
statements and will adopt the standard effective October 1, 2021.
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 unaudited condensed
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 unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.
NOTE 4 – ACCRUED LIABILITIES
At March 31, 2021 and September 30, 2020, accrued liabilities consisted
of the following:
|
|
March 31,
2021
|
|
|
September 30,
2020
|
|
Directors’ compensation
|
|
$
|
150,537
|
|
|
$
|
130,537
|
|
Professional fees
|
|
|
71,641
|
|
|
|
46,640
|
|
Interest payable
|
|
|
37,104
|
|
|
|
35,229
|
|
Other
|
|
|
1,326
|
|
|
|
-
|
|
Total
|
|
$
|
260,608
|
|
|
$
|
212,406
|
|
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 liability. On February 13, 2018, 75,000 of the preferred shares
were redeemed and cancelled.
The Series A preferred
stock has the following key terms:
|
1)
|
A stated value of $10 per share;
|
|
2)
|
The holder is entitled to receive cumulative dividends at the annual rate of 1.5% of stated value payable
semi-annually on June 30 and December 31;
|
|
3)
|
The preferred stock must be redeemed at the stated value plus any unpaid dividends in 5 years (on or before
June 7, 2021);
|
|
4)
|
The Series A preferred stock is non-voting. However, without the affirmative vote of the holders of the
shares of the Series A preferred stock then outstanding, the Company may not alter or change adversely the powers, preferences or rights
given to the Series A preferred stock or alter or amend the Certificate of Designation except to the extent that such vote relates to
the amendment of the Certificate of Designation;
|
|
5)
|
The holders of the Series A preferred stock are not entitled to receive any preference upon the liquidation,
dissolution or winding up of the business of the Company. Each holder of Series A preferred stock shall share ratably with the holders
of the common stock of the Company.
|
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 $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, 2021 and 2020, amortization of debt discount amounted to $573. For
both the six months ended March 31, 2021 and 2020, 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, 2021 and 2020, dividends on redeemable preferred stock amounted to $937. For both the
six months ended March 31, 2021 and 2020, dividends on redeemable preferred stock amounted to $1,875.
At March 31, 2021 and September 30, 2020, Series
A redeemable preferred stock consisted of the following:
|
|
March 31,
2021
|
|
|
September 30,
2020
|
|
Redeemable preferred stock (stated value)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: unamortized debt discount
|
|
|
(401
|
)
|
|
|
(1,545
|
)
|
Redeemable preferred stock, net
|
|
$
|
249,599
|
|
|
$
|
248,455
|
|
NOTE 6 – RELATED PARTY TRANSACTIONS
Services provided
by related parties
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 the Company, 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 TCM 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,
2021 and 2020, 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,
2021
|
|
|
Three Months
Ended
March 31,
2020
|
|
|
Six Months
Ended
March 31,
2021
|
|
|
Six Months
Ended
March 31,
2020
|
|
Service provided to:
|
|
|
|
|
|
|
|
|
|
|
|
|
TCM
|
|
$
|
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, 2021 and 2020, 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,
2021
|
|
|
Three Months
Ended
March 31,
2020
|
|
|
Six Months
Ended
March 31,
2021
|
|
|
Six Months
Ended
March 31,
2020
|
|
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 affiliates
At March 31, 2021 and
September 30, 2020, due from related parties consisted of the following:
|
|
March 31,
2021
|
|
|
September 30,
2020
|
|
NUKK Capital (*)
|
|
$
|
144,696
|
|
|
$
|
144,696
|
|
TCM
|
|
|
2,773,177
|
|
|
|
3,565,076
|
|
Total
|
|
$
|
2,917,873
|
|
|
$
|
3,709,772
|
|
|
(*)
|
An entity controlled by
Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
|
The balances of due from NUKK Capital represent the
Company’s prior investment in digital currency that was transferred to NUKK Capital in March 2019. The balance of due from TCM represent
unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.
Management believes that the related parties’
receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from related parties
at March 31, 2021 and September 30, 2020. The Company historically has not experienced uncollectible receivable from the related parties.
Due to affiliates
At March 31, 2021 and
September 30, 2020, due to related parties consisted of the following:
|
|
March 31,
2021
|
|
|
September 30,
2020
|
|
Forexware LLC (*)
|
|
$
|
579,229
|
|
|
$
|
579,229
|
|
FXDIRECT
|
|
|
3,340,547
|
|
|
|
4,111,277
|
|
CMH
|
|
|
42,000
|
|
|
|
42,000
|
|
FXDD Trading (*)
|
|
|
471
|
|
|
|
471
|
|
Total
|
|
$
|
3,962,247
|
|
|
$
|
4,732,977
|
|
|
(*)
|
Forexware LLC and FXDD
Trading 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, and FXDD Trading on behalf of the Company and advances from CMH. The balance 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.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 7 – INCOME TAXES
The Company recorded no income tax expense for
the three and six months ended March 31, 2021 and 2020 because the estimated annual effective tax rate was zero. As of March 31, 2021,
the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely
than not that its deferred tax assets will not be realized.
NOTE 8 – CONTINGENCY
On April 16, 2020, the
Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court for the District of Massachusetts
(Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). The Adversary Proceeding
is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain
Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus Inc.,
Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. In the Amended Complaint, BT Prime is seeking, amongst other relief,
a determination that the Company and the other defendants are liable for all of the debts of BT Prime stemming from its bankruptcy proceedings,
and is seeking to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the
sole claim asserted against the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence
outside of its collective business relationship with certain of the other Defendants, is a continuation of the business of Forexware and
is a successor-in-interest to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable
for any liability attributable to Forexware or the other Defendants, should the Court eventually find any such liability. The Company
maintains that there is no basis for BT Prime’s claim against it and intends to vigorously defend against the claim. The Company,
joined by certain other defendants, filed a summary judgment motion seeking, among other things, dismissal of the sole claim against
it. That motion was fully submitted on December 4, 2020, and the Court held an oral argument on February 2, 2021. No decision has been
issued as of the date of this report.
NOTE 9 – SUBSEQUENT
EVENTS
Management has evaluated subsequent events through
the date of the filing.