UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 000-55922

 

Nukkleus Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   38-3912845
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

525 Washington Boulevard, Jersey City, New Jersey 07310

(Address of principal executive offices, including zip code)

 

212-791-4663

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer  Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

 

Class   Outstanding August 14, 2023
Common Stock, $0.0001 par value per share   367,175,886 shares

 

 

 

 

 

 

NUKKLEUS INC.

FORM 10-Q

June 30, 2023

 

TABLE OF CONTENTS

 

    Page No.
  PART I - FINANCIAL INFORMATION 1
Item 1. Interim Financial Statements 1
  Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and September 30, 2022 1
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended June 30, 2023 and 2022 (as restated) 2
  Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended June 30, 2023 and 2022 3
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2023 and 2022 (as restated) 5
  Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
Item 4. Controls and Procedures 35
Item 5. Other 35
     
  PART II - OTHER INFORMATION 36
Item 1. Legal Proceedings 36
Item 1A. Risk Factors 36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Mine Safety Disclosures 36
Item 5. Other Information 36
Item 6. Exhibits 39
Signatures 41

 

i

 

 

FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

Unless otherwise indicated, references in this report to the “Company”, “Nukkleus”, “we”, “us”, or “our” refer to Nukkleus Inc. and its consolidated subsidiaries.

 

ii

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Interim Financial Statements.

 

NUKKLEUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   September 30, 
   2023   2022 
   (Unaudited)     
ASSETS        
         
CURRENT ASSETS:        
Cash  $142,341   $364,023 
Customer custodial cash   1,712,095    2,020,394 
Customer digital currency assets   
-
    248,214 
Digital assets   1,107    73,415 
Due from affiliates   308,461    931,136 
Note receivable - related party   35,000    35,000 
Note receivable   154,150    
-
 
Other current assets   52,703    15,617 
           
TOTAL CURRENT ASSETS   2,405,857    3,687,799 
           
NON-CURRENT ASSETS:          
Cost method investment   6,602,000    6,602,000 
Intangible assets, net   6,339,021    8,075,105 
           
TOTAL NON-CURRENT ASSETS   12,941,021    14,677,105 
           
TOTAL ASSETS  $15,346,878   $18,364,904 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES:          
Accounts payable  $106,779   $51,712 
Customer custodial cash liabilities   1,703,893    2,020,717 
Customer digital currency liabilities   
-
    248,214 
Due to affiliates   5,100,131    4,514,063 
Accrued payroll liability and directors’ compensation   365,257    237,205 
Accrued professional fees   65,725    170,058 
Accrued liabilities and other payables   19,181    232,355 
           
TOTAL CURRENT LIABILITIES   7,360,966    7,474,324 
           
TOTAL LIABILITIES   7,360,966    7,474,324 
           
COMMITMENTS AND CONTINGENCIES - (Note 15)   
 
    
 
 
           
STOCKHOLDERS’ EQUITY:          
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at June 30, 2023 and September 30, 2022)   
-
    
-
 
Common stock ($0.0001 par value; 900,000,000 shares authorized; 367,175,886 shares issued and outstanding at June 30, 2023 and September 30, 2022)   36,718    36,718 
Additional paid-in capital   25,432,669    25,136,459 
Accumulated deficit   (17,490,131)   (14,340,816)
Accumulated other comprehensive income   6,656    58,219 
           
TOTAL STOCKHOLDERS’ EQUITY   7,985,912    10,890,580 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $15,346,878   $18,364,904 

 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

 

1

 

 

NUKKLEUS INC. AND SUBSIDIARIES

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   For the Three Months Ended
June 30,
   For the Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
       (as restated)       (as restated) 
REVENUES                
Revenue - general support services - related party  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Revenue - financial services   412,056    352,192    1,822,388    970,224 
Total revenues   5,212,056    5,152,192    16,222,388    15,370,224 
                     
COSTS OF REVENUES                    
Cost of revenue - general support services - related party   4,675,000    4,725,000    14,125,000    14,175,000 
Cost of revenue - financial services   695,074    565,633    2,162,317    1,987,557 
Total costs of revenues   5,370,074    5,290,633    16,287,317    16,162,557 
                     
GROSS PROFIT (LOSS)                    
Gross profit - general support services - related party   125,000    75,000    275,000    225,000 
Gross loss - financial services   (283,018)   (213,441)   (339,929)   (1,017,333)
Total gross loss   (158,018)   (138,441)   (64,929)   (792,333)
                     
OPERATING EXPENSES:                    
Advertising and marketing   1,670    147,177    51,087    345,826 
Professional fees   571,761    1,046,927    1,815,200    3,311,166 
Compensation and related benefits   233,569    90,614    591,361    345,858 
Amortization of intangible assets   66,291    66,291    198,871    197,935 
Other general and administrative   181,492    165,041    434,212    458,718 
Total operating expenses   1,054,783    1,516,050    3,090,731    4,659,503 
                     
LOSS FROM OPERATIONS   (1,212,801)   (1,654,491)   (3,155,660)   (5,451,836)
                     
OTHER (EXPENSE) INCOME:                    
Loss from equity method investment   
-
    (330,680)   
-
    (401,299)
Other income (expense)   3,057    (1,116)   6,345    (4,605)
Total other income (expense), net   3,057    (331,796)   6,345    (405,904)
                     
LOSS BEFORE INCOME TAXES   (1,209,744)   (1,986,287)   (3,149,315)   (5,857,740)
                     
INCOME TAXES   
-
    
-
    
-
    
-
 
                     
NET LOSS  $(1,209,744)  $(1,986,287)  $(3,149,315)  $(5,857,740)
                     
COMPREHENSIVE LOSS:                    
NET LOSS  $(1,209,744)  $(1,986,287)  $(3,149,315)  $(5,857,740)
OTHER COMPREHENSIVE (LOSS) INCOME                    
Unrealized foreign currency translation (loss) gain   (20,859)   27,644    (51,563)   38,631 
COMPREHENSIVE LOSS  $(1,230,603)  $(1,958,643)  $(3,200,878)  $(5,819,109)
                     
NET LOSS PER COMMON SHARE:                    
Basic and diluted
  $(0.00)  $(0.01)  $(0.01)  $(0.02)
                     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                    
Basic and diluted
   367,175,886    367,175,886    367,175,886    352,412,872 

 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

 

2

 

 

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended June 30, 2023

 

                           Accumulated     
   Preferred Stock   Common Stock   Additional       Other   Total 
   Number of       Number of       Paid-in   Accumulated   Comprehensive   Stockholders’ 
   Shares   Amount   Shares   Amount    Capital   Deficit   Income   Equity 
                                 
Balance as of October 1, 2022   
-
   $
-
    367,175,886   $36,718   $25,136,459   $(14,340,816)  $58,219   $10,890,580 
                                         
Stock-based compensation   -    
-
    -    
-
    146,876    
-
    
-
    146,876 
                                         
Net loss for the three months ended December 31, 2022   -    
-
    -    
-
    
-
    (1,133,922)   
-
    (1,133,922)
                                         
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    (27,983)   (27,983)
                                         
Balance as of December 31, 2022   
-
    
-
    367,175,886    36,718    25,283,335    (15,474,738)   30,236    9,875,551 
                                         
Stock-based compensation   -    
-
    -    
-
    74,667    
-
    
-
    74,667 
                                         
Net loss for the three months ended March 31, 2023   -    
-
    -    
-
    
-
    (805,649)   
-
    (805,649)
                                         
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    (2,721)   (2,721)
                                         
Balance as of March 31, 2023   
-
    
-
    367,175,886    36,718    25,358,002    (16,280,387)   27,515    9,141,848 
                                         
Stock-based compensation   -    
-
    -    
-
    74,667    
-
    
-
    74,667 
                                         
Net loss for the three months ended June 30, 2023   -    
-
    -    
-
    
-
    (1,209,744)   
-
    (1,209,744)
                                         
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    (20,859)   (20,859)
                                         
Balance as of June 30, 2023   
-
   $
-
    367,175,886   $36,718   $25,432,669   $(17,490,131)  $6,656   $7,985,912 

 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

 

3

 

 

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended June 30, 2022

 

                           Accumulated     
   Preferred Stock   Common Stock   Additional       Other   Total 
   Number of       Number of       Paid-in   Accumulated   Comprehensive   Stockholders’ 
   Shares   Amount   Shares   Amount    Capital   Deficit   Income   Equity 
                                 
Balance as of October 1, 2021   
-
   $
-
    332,024,371   $33,203   $11,613,208   $(2,495,159)  $8,440   $9,159,692 
                                         
Common stock issued in connection with cost method investment   
-
    
-
    20,000,000    2,000    6,600,000    
-
    
-
    6,602,000 
                                         
Stock-based compensation   -    
-
    -    
-
    378,746    
-
    
-
    378,746 
                                         
Net loss for the three months ended December 31, 2021   -    
-
    -    
-
    
-
    (1,944,839)   
-
    (1,944,839)
                                         
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    (2,227)   (2,227)
                                         
Balance as of December 31, 2021   
-
    
-
    352,024,371    35,203    18,591,954    (4,439,998)   6,213    14,193,372 
                                         
Common stock issued in connection with equity method investment   
-
    
-
    15,151,515    1,515    4,998,485    
-
    
-
    5,000,000 
                                         
Stock options issued for the purchase of an intangible asset   -    
-
    -    
-
    11,237    
-
    
-
    11,237 
                                         
Stock-based compensation   -    
-
    -    
-
    525,622    
-
    
-
    525,622 
                                         
Net loss for the three months ended March 31, 2022   -    
-
    -    
-
    
-
    (1,926,614)   
-
    (1,926,614)
                                         
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    13,214    13,214 
                                         
Balance as of March 31, 2022   
-
    -    367,175,886    36,718    24,127,298    (6,366,612)   19,427    17,816,831 
                                         
Stock-based compensation   -    
-
    -    
-
    525,621    
-
    
-
    525,621 
                                         
Net loss for the three months ended June 30, 2022   -    
-
    -    
-
    
-
    (1,986,287)   
-
    (1,986,287)
                                         
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    27,644    27,644 
                                         
Balance as of June 30, 2022   
-
   $
-
    367,175,886   $36,718   $24,652,919   $(8,352,899)  $47,071   $16,383,809 

 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

 

4

 

 

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Nine Months Ended
June 30,
 
   2023   2022 
       (as restated) 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(3,149,315)  $(5,857,740)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of intangible assets   1,778,675    2,097,726 
Stock-based compensation and service expense   296,210    1,429,989 
Unrealized foreign currency exchange gain   (441)   
-
 
Loss on equity method investment   
-
    401,299 
Changes in operating assets and liabilities:          
Customer digital currency assets   270,421    1,139,351 
Accounts receivable   (298)   (17,311)
Digital assets   78,927    (20,769)
Due from affiliates   648,073    1,746,529 
Other current assets   (34,864)   2,936 
Accounts payable   45,496    33,649 
Customer custodial cash liabilities   (576,514)   262,180 
Customer digital currency liabilities   (270,421)   (1,139,351)
Due to affiliates   506,149    (315,817)
Accrued payroll liability and directors’ compensation   126,450    36,667 
Accrued professional fees   (111,362)   (18,650)
Accrued liabilities and other payables   (233,902)   162,478 
           
NET CASH USED IN OPERATING ACTIVITIES   (626,716)   (56,834)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Investment in note receivable   (154,150)   
-
 
Purchase of intangible asset   (41,706)   
-
 
           
NET CASH USED IN INVESTING ACTIVITIES   (195,856)   
-
 
           
EFFECT OF EXCHANGE RATE ON CASH   292,591    (104,494)
           
NET DECREASE IN CASH   (529,981)   (161,328)
           
Cash - beginning of period   2,384,417    1,203,073 
           
Cash - end of period  $1,854,436   $1,041,745 
           
Cash consisted of the following:          
Cash  $142,341   $75,827 
Customer custodial cash   1,712,095    965,918 
Total cash  $1,854,436   $1,041,745 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid for:          
Interest  $
-
   $
-
 
Income taxes  $
-
   $
-
 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued in connection with cost method investment  $
-
   $6,602,000 
Common stock issued in connection with equity method investment  $
-
   $5,000,000 
Stock options issued for the purchase of an intangible asset  $
-
   $11,237 

 

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

 

5

 

 

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.

 

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. Effective May 1, 2023, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month. 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 manages the technology and Internet Protocol (“IP”) behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the IP rights to the brands such as Markets Direct and TCM. MDTG then leases out the rights to use these names/brands licenses to the appropriate entities.

 

In fiscal year 2021, the Company completed its acquisition of Match Financial Limited, a private limited company formed in England and Wales (“Match”) and its subsidiaries. Match, through its Digital RFQ Limited (“Digital RFQ”) subsidiary, is engaged in providing payment services from one fiat currency to another or to digital assets.

 

On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 20,000,000 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin exchange-traded fund (“ETF”). Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s chief operating officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.

 

6

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS (continued)

 

On December 30, 2021, the Company and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which the Company agreed to acquire 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of 15,151,515 shares of common stock of the Company (valued at $5,000,000 based on the market price of the Company’s common stock on the acquisition date) (the “Digiclear Transaction”). In addition to, if and when the Company is acquired by a Special Purpose Acquisition Company (“SPAC”), the Company will fund and capitalize Digiclear with a minimum of $1,000,000 operating capital in exchange for 4.545% of additional shares of Digiclear’s capital stock. Digiclear shall retain the right to unwind the transaction and to have the Company return the 5,400,000 ordinary shares of Digiclear share in return for Digiclear returning to the Company the 15,151,515 of Company common shares. Digiclear can only unwind the transaction if the Company is no longer under contract to be acquired by a SPAC (See Note 15 – Merger). The Digiclear Transaction closed on March 17, 2022. Digiclear is a company developing a custody and settlement utility operating system.

 

Liquidity and capital resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2023 and September 30, 2022, the Company had cash of $142,341 and $364,023, respectively, exclusive of customer custodial cash.

 

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 had a working capital deficit of approximately $4,955,000 at June 30, 2023 and incurred a net loss and generated negative cash flow from operating activities of approximately $3,149,000 and $627,000 for the nine months ended June 30, 2023, respectively. These are indicators of substantial doubt as to the Company’s ability to continue as a going concern for at least one year from issuance of these financial statements. 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.

 

The Company cannot be certain that such necessary capital through equity or debt financings will be available to it or whether such capital will be available on terms that are acceptable to it. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact the Company business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, TCM, 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.

 

Based on the foregoing, management believes that its current financial resources, as of the date of the issuance of these financial statements, are sufficient to fund its current twelve-month operating budget, alleviating any concerns by its historical operating results and satisfying its estimated liquidity needs for the twelve months from the issuance of these financial statements.

 

NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

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, 2022 filed with the Securities and Exchange Commission on April 10, 2023. The consolidated balance sheet as of September 30, 2022 contained herein has been derived from the audited consolidated financial statements as of September 30, 2022, but does not include all disclosures required by U.S. GAAP.

 

7

 

 

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. Changes in these estimates and assumptions may have a material impact on the unaudited condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and nine months ended June 30, 2023 and 2022 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances, valuation of stock-based compensation, and fair value of customer digital currency assets and liabilities.

 

Cash and cash equivalents

 

At June 30, 2023 and September 30, 2022, the Company’s cash balances by geographic area were as follows:

 

Country:  June 30, 2023   September 30, 2022 
United States  $74,396    52.3%  $47,860    13.1%
United Kingdom   65,636    46.1%   315,989    86.8%
Lithuania   2,135    1.5%   
-
    
-
 
Malta   174    0.1%   174    0.1%
Total cash  $142,341    100.0%  $364,023    100.0%

 

For purposes of the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at June 30, 2023 and September 30, 2022. Cash and cash equivalents excludes customer legal tender, which is reported separately as Customer custodial cash in the accompanying condensed consolidated balance sheets. Refer to “customer custodial cash and customer custodial cash liabilities” below for further details.

 

Customer custodial cash and customer custodial cash liabilities

 

Customer custodial cash represents cash and cash equivalents maintained in Company bank accounts that are controlled by the Company but held for the benefit of customers. Customer custodial cash liabilities represent these cash deposits to be utilized for its contractual obligations to its customers. The Company classifies the assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

 

Customer digital currency assets and liabilities

 

At certain times, Digital RFQ’s customers’ funds that Digital RFQ uses to make payments on behalf of its customers, remain in the form of digital assets in its customers’ wallets at its digital asset trading platforms awaiting final conversion and/or transfer to the customer’s payment final destination. These indirectly held digital assets, may consist of USDT (Stablecoin), Bitcoin, and Ethereum (collectively, “Customer digital currency assets”). Digital RFQ maintains the internal recordkeeping of its customer digital currency assets, including the amount and type of digital asset owned by each of its customers.

 

Digital RFQ has control of the private keys and knows the balances of all wallets with its digital asset trading platforms in order to be able to successfully carry out the movement of digital assets for its client payment instruction. As part of its customer payment instruction, Digital RFQ can execute withdrawals on the wallets in its digital asset trading platforms.

 

8

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Customer digital currency assets and liabilities (continued)

 

Management has determined that Digital RFQ has control of the customer digital currency assets and records these assets on its balance sheet with a corresponding liability. Digital RFQ recognizes customer digital currency liabilities and corresponding customer digital currency assets, on initial recognition and at each reporting date, at fair value of the customer digital currency assets. Subsequent changes in fair value are adjusted to the carrying amount of these customer digital currency assets, with changes in fair value recorded in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

Any loss, theft, or other misuse would impact the measurement of customer digital currency assets. The Company classifies the customer digital currency assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

 

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 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 fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying unaudited condensed consolidated financial statements, primarily due to their short-term nature.

 

Assets and liabilities measured at fair value on a recurring basis. Customer digital currency assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis.

 

As of June 30, 2023, the Company did not have any customer digital currency assets and liabilities.

 

The following table provides these assets and liabilities carried at fair value, measured as of September 30, 2022:

 

   Quoted
Price in
   Significant
Other
   Significant     
   Active
Markets
   Observable
Inputs
   Unobservable
Inputs
   Balance at
September 30,
 
   (Level 1)   (Level 2)   (Level 3)   2022 
Customer digital currency assets  $
     -
   $248,214   $
         -
   $248,214 
Customer digital currency liabilities  $
-
   $248,214   $
-
   $248,214 

 

Customer digital currency assets and liabilities represent the Company’s obligation to safeguard customers’ digital assets. Accordingly, the Company has valued the assets and liabilities using quoted market prices for the underlying digital assets which is based on Level 2 inputs.

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

9

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Credit risk and uncertainties

 

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.

 

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.

 

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances, including customer custodial cash, in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company may also hold cash at digital asset trading platforms and performs a regular assessment of these digital asset trading platforms as part of its risk management process. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2023, there were no balances in excess of the federally-insured limits.

 

We may maintain our cash assets at financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, in response to the rapidly declining financial condition of regional banks Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”), the California Department of Financial Protection and Innovation and the New York State Department of Financial Services closed SVB and Signature on March 10, 2023 and March 12, 2023, respectively, and the FDIC was appointed as receiver for SVB and Signature. In the event of a failure or liquidity issues of or at any of the financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations. Similarly, if our customers experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our results of operations, including the collection of accounts receivable and cash flows.

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

 

Digital assets

 

The digital assets held by the Company are accounted for as intangible assets with indefinite useful lives, and are initially measured at cost. Digital assets accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. The fair value is measured using the quoted price of the digital asset at the time its fair value is being measured. Impairment expense is reflected in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company assigns costs to transactions on a first-in, first-out basis.

 

Other current assets

 

Other current assets primarily consist of security deposit and prepaid listing fees. As of June 30, 2023 and September 30, 2022, other current assets amounted to $52,703 and $15,617, respectively.

 

10

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue recognition

 

The Company determines revenue recognition from contracts with customers through the following steps:

 

Step 1: Identify the contract with the customer

 

Step 2: Identify the performance obligations in the contract

 

Step 3: Determine the transaction price

 

Step 4: Allocate the transaction price to the performance obligations in the contract

 

Step 5: Recognize revenue when the company satisfies a performance obligation

 

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s revenues are derived from providing:

 

General support services under a GSA to a related party. 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 (including operational reporting and technical support infrastructure, website hosting and marketing solutions, accounting maintenance, risk monitoring services, new account processing and customer care and continued support) 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. The Company recognizes the full contracted amount each period with no deferred revenue. The nature of the performance obligation is to provide the specified goods or services directly to the customer. The Company engages another party to satisfy the performance obligation on its behalf. The Company’s performance obligation is not to arrange for the provision of the specified good or service by another party. The Company is primarily responsible for fulfilling the promise to provide the specified good or service. Therefore, the Company is deemed to be a principal in the transaction and recognizes revenue for that performance obligation. 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. Under a GSA, the Company is contractually obligated to provide for the fulfillment software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company’s 1.6% mark-up to the costs of the services being provided by FXDirect Dealer, LLC.

 

Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. Prepayments, if any, received from customers prior to the services being performed are recorded as advances from customers. In these cases, when the services are performed, the appropriate portion of the amount recorded as advance from customers is recognized as revenue.  There are 4 distinct stages that each trade must go through to be completed and must be converted from one currency into another. Where possible, fees are taken in United States dollar (“USD”) and therefore if there is an agreed fee with the client then this will be taken on the USD leg of the transaction regardless of whether it is pre-conversion or post-conversion.  The first stage is notification and there is no real opportunity for us to realize revenue at this stage.  The second stage is the funding stage and it allows us to charge the agreed fee before any currency conversion, we call this pre-trade revenue. The third stage of the transaction is conversion and we are able to realize revenue in the spread between the price we pay for the conversion and the price we charge the client for the conversion. The fourth opportunity for us to realize revenue (charge our fee) is after the conversion has taken place (post-trade).

 

11

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Disaggregation of revenues

 

The Company’s revenues stream detail are as follows:

 

Revenue Stream   Revenue Stream Detail
General support services   Providing software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party
Financial services   Providing payment services from one fiat currency to another or to digital assets

 

In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2023 and 2022:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Revenue Stream  2023   2022   2023   2022 
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total revenues  $5,212,056   $5,152,192   $16,222,388   $15,370,224 

 

Cost method investment

 

Investment in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other (expense) income” in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss, and a new basis in the investment is established. No impairment expense was recorded for the three and nine months ended June 30, 2023 and 2022.

 

Intangible assets

 

Intangible assets consist of trade names, regulatory licenses, technology and software, which are being amortized on a straight-line method over the estimated useful life of 3 - 5 years.

 

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of June 30, 2023. For the three and nine months ended June 30, 2023 and 2022, no impairment of long-lived assets was recognized.

 

Advertising and marketing costs

 

All costs related to advertising and marketing are expensed as incurred. For the three months ended June 30, 2023 and 2022, advertising and marketing costs amounted to $1,670 and $147,177, respectively, which was included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2023 and 2022, advertising and marketing costs amounted to $51,087 and $345,826, respectively, which is included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

Stock-based compensation

 

The Company measures and recognizes compensation expense for all stock-based awards granted to non-employees, including stock options, based on the grant date fair value of the award. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.

 

12

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Stock-based compensation (continued)

 

For non-employee stock-based awards, fair value is measured based on the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is calculated and then recognized as compensation expense over the requisite performance period.

 

Income taxes

 

The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

 

The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal and foreign tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the period of the change in estimate.

 

The Company follows the provisions of FASB ASC 740-10 Uncertainty in Income Taxes (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. 

 

Foreign currency translation

 

The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange prevailing at the balance sheet date. Revenue and expenses are translated using average rates during each reporting period, and stockholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss.

 

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Most of the Company’s revenue transactions are transacted in the functional currency of the Company. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.7867 GBP and 0.8987 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.9162 EUR and 1.0221 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 were translated at 1.3235 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 and 2022 was 0.8249 GBP and 0.7615 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 was 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the period from February 18, 2023 through June 30, 2023 was 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

 

13

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Comprehensive loss

 

Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2023 and 2022 consisted of net loss and unrealized loss/gain from foreign currency translation adjustment.

 

Segment reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

 

The Company has determined that it has two reportable business segments: general support services segment and financial services segment. These reportable segments offer different types of services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. 

 

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. For the three and nine months ended June 30, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. 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 had an anti-dilutive impact.

 

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Stock options   4,350,000    5,850,000    5,850,000    5,850,000 
Potentially dilutive security   4,350,000    5,850,000    5,850,000    5,850,000 

 

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 unaudited condensed consolidated financialss statements.

 

14

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recently issued accounting pronouncements (continued)

 

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 consolidated financial condition, results of operations, cash flows or disclosures.

 

NOTE 4 - CUSTOMER ASSETS AND LIABILITIES

 

The Company includes customer funds in the condensed consolidated balance sheets as customer custodial cash and also includes such a corresponding liability reflected as customer custodial cash liabilities in the condensed consolidated balance sheets.

 

The following table presents customers’ cash and digital positions:

 

   June 30,
2023
   September 30,
2022
 
Customer custodial cash  $1,712,095   $2,020,394 
Customer digital currency assets   
-
    248,214 
Total customer assets  $1,712,095   $2,268,608 
           
Customer custodial cash liabilities  $1,703,893   $2,020,717 
Customer digital currency liabilities   
-
    248,214 
Total customer liabilities  $1,703,893   $2,268,931 

 

The Company controls digital assets for its customers in digital wallets and digital token identifiers necessary to access digital assets on digital asset trading platforms. The Company maintains a record of all assets in digital wallets held on digital asset trading platforms as well as the private keys, which are maintained on behalf of customers. The Company records the assets and liabilities, on the initial recognition and at each reporting date, at the fair value of the digital assets which it controls for its customers. Any loss or theft would impact the measurement of the customer digital currency assets. During the three and nine months ended June 30, 2023 and 2022, no losses have been incurred in connection with customer digital currency assets. The Company also controls the bank accounts holding the customer custodial cash, as reflected on the accompanying condensed consolidated balance sheets.

 

The following table sets forth the fair market value of customer digital currency assets, as shown in the condensed consolidated balance sheets, as customer digital currency assets and customer digital currency liabilities, as of June 30, 2023 and September 30, 2022:

 

   June 30, 2023   September 30, 2022 
   Fair value   Percentage of total   Fair value   Percentage of total 
Bitcoin  $
        -
    
         -
   $162,294    65.4%
Stablecoin/USD Coin   
-
    
-
    85,897    34.6%
Ethereum   
-
    
-
    23    0.0%
Others   
-
    
-
    
-
    
-
 
Total customer digital currency assets  $
-
    
-
   $248,214    100.0%

 

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NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – DIGITAL ASSETS

 

The following table summarizes the Company’s digital asset holdings as of June 30, 2023:

 

Asset  Estimated
useful life
  Cost   Impairment   Digital assets 
Bitcoin  Indefinite  $218   $
            -
   $218 
Ethereum  Indefinite   487    
-
    487 
Stablecoin/USD Coin  Indefinite   308    
-
    308 
Other  Indefinite   94    
-
    94 
Total 
 
  $1,107   $
-
   $1,107 

 

The following table summarizes the Company’s digital asset holdings as of September 30, 2022:

 

Asset  Estimated
useful life
  Cost   Impairment   Digital assets 
Bitcoin  Indefinite  $63,377   $774   $62,603 
Ethereum  Indefinite   1,289    
-
    1,289 
Stablecoin/USD Coin  Indefinite   9,417    
-
    9,417 
Other  Indefinite   106    
-
    106 
Total 
 
  $74,189   $774   $73,415 

 

The Company recorded impairment expense of $122 and $0 for the three months ended June 30, 2023 and 2022, respectively. The Company recorded impairment expense of $7,865 and $0 for the nine months ended June 30, 2023 and 2022, respectively.

 

NOTE 6 – NOTE RECEIVABLE

 

As of June 30, 2023, the Company made loans with an aggregate principal of $154,150 to Brilliant. The principal shall be payable promptly after the date on which Brilliant consummates an initial business combination with a target business. The principal may be prepaid at any time. These loans bear a fixed interest rate of 0% per annum. These loans shall not be convertible into any securities of Brilliant, and the Company shall have no recourse with respect to Brilliant’s ability to convert these loans into any securities of Brilliant (See Note 15 – Merger).

 

NOTE 7 – COST METHOD INVESTMENT 

 

At June 30, 2023, cost method investment amounted to $6,602,000. The investment represents the Company’s minority interest in Jacobi, a private company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF.

 

On December 15, 2021, the Company issued 20,000,000 shares of its common stock to Jacobi’s shareholders for acquisition of 5.0% equity interest of Jacobi. These shares were valued at $6,602,000 ($0.3301 per share), the fair market value on the grant date using the reported closing share price of the Company on the date of grant.

 

In accordance with ASC Topic 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company monitors its investment in the non-marketable security and will recognize, if ever existing, a loss in value which is deemed to be other than temporary. The Company determined that there was no impairment of this investment as of June 30, 2023. 

 

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NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – EQUITY METHOD INVESTMENT

 

As of both June 30, 2023 and September 30, 2022, the equity method investment amounted to $0. The investment represents the Company’s interest in Digiclear. Digiclear was incorporated on July 13, 2021 in United Kingdom. The company and the other unrelated party accounted for 50% and 50% of the total ownership, respectively. Digiclear is a company developing a custody and settlement utility operating system.

 

The Company accounts for the investment in Digiclear under the equity method of accounting. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

 

In September 2022, the Company assessed its equity method investment for any impairment and concluded that there were indicators of impairment as of September 30, 2022. The impairment is due to the Company’s conclusion that it will be unable to recover the carrying amount of the investment due to the investee’s a series of operating losses and global economic environment. The Company calculated that the estimated undiscounted cash flows were less than the carrying amount related to the equity method investment. The Company has recognized an impairment loss of $4,310,745 related to the equity method investment for the year ended September 30, 2022, which reduced the investment value to zero.

 

NOTE 9 – INTANGIBLE ASSETS

 

Intangible assets primarily consist of the valuation of identifiable intangible assets acquired, representing trade names, regulatory licenses, and technology. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

 

At June 30, 2023 and September 30, 2022, intangible assets consisted of the following:

 

   Useful Life  June 30,
2023
   September 30,
2022
 
Trade names  3 Years  $784,246   $784,246 
Regulatory licenses  3 Years   181,342    138,751 
Technology  5 Years   10,300,774    10,300,774 
Software  3 Years   11,237    11,237 
       11,277,599    11,235,008 
Less: accumulated amortization      (4,938,578)   (3,159,903)
      $6,339,021   $8,075,105 

 

For the three months ended June 30, 2023 and 2022, amortization expense amounted to $592,892 and $592,892, respectively, of which, $526,602 and $526,601 was included in cost of revenue – financial services, and $66,290 and $66,291 was included in operating expenses, respectively.

 

For the nine months ended June 30, 2023 and 2022, amortization expense amounted to $1,778,675 and $2,097,726, respectively, of which, $1,579,804 and $1,899,791 was included in cost of revenue – financial services, and $198,871 and $197,935 was included in operating expenses, respectively.

 

Amortization of intangible assets attributable to future periods is as follows:

 

For the Twelve-month Period Ending June 30:  Amortization amount 
2024  $2,360,124 
2025   2,076,224 
2026   1,902,673 
2027 and thereafter   
-
 
   $6,339,021 

 

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NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 – ACCRUED LIABILITIES AND OTHER PAYABLES

 

At June 30, 2023 and September 30, 2022, accrued liabilities and other payables consisted of the following:

 

   June 30,
2023
   September 30,
2022
 
Unearned revenue  $
-
   $203,222 
Others   19,181    29,133 
Total  $19,181   $232,355 

 

NOTE 11 – 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.  

 

Options

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2023:

 

  Options Outstanding   Options Exercisable 
  Range of
Exercise Price
   Number
Outstanding at
June 30,
2023
   Weighted Average
Remaining
Contractual Life
(Years)
   Weighted Average
Exercise Price
   Number
Exercisable at
June 30,
2023
   Weighted Average
Exercise Price
 
$ 0.090.45    3,350,000    3.51   $0.13    1,150,000   $0.13 
  2.50    1,000,000    3.22    2.50    1,000,000    2.50 
$ 0.092.50    4,350,000    3.44   $0.67    2,150,000   $1.23 

 

Stock option activities for the nine months ended June 30, 2023 were as follows:

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Outstanding at October 1, 2022   5,850,000   $0.67 
Granted   
-
    
-
 
Expired   (1,500,000)   (0.67)
Outstanding at June 30, 2023   4,350,000   $0.67 
Options exercisable at June 30, 2023   2,150,000   $1.23 
Options expected to vest   2,200,000   $0.12 

 

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at June 30, 2023 was $0.

 

For the three months ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $74,667 and $525,621, respectively, which was recorded as professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

For the nine months ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $296,210 and $1,429,989, respectively, which was recorded as professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

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NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – SHARE CAPITAL (continued)

 

A summary of the status of the Company’s nonvested stock options granted as of June 30, 2023 and changes during the nine months ended June 30, 2023 is presented below:

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Nonvested at October 1, 2022   3,800,000   $0.35 
Granted   
-
    
-
 
Vested   (1,600,000)   (0.65)
Nonvested at June 30, 2023   2,200,000   $0.12 

 

NOTE 12 – RELATED PARTY TRANSACTIONS

 

Services provided by related parties

 

From time to time, Oliver Worsley, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $14,942 and $7,879 for the three months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $40,005 and $7,879 for the nine months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As of June 30, 2023 and September 30, 2022, the accrued and unpaid services charge related to Oliver Worsley amounted to $0 and $16,691, respectively, which have been included in accrued professional fees on the accompanying condensed consolidated balance sheets.

 

From time to time, Craig Vallis, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $26,017 and $23,991 for the three months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $100,012 and $65,529 for the nine months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

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’s general support services operate 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’s general support services operate 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. Effective May 1, 2023, the minimum amount payable by the Company to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month.

 

Both of the above entities are affiliates through common ownership.

 

19

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 – RELATED PARTY TRANSACTIONS (continued)

 

Revenue from related party and cost of revenue from related party (continued)

 

During the three and nine months ended June 30, 2023 and 2022, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Service provided to:                
TCM  $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, 2023 and 2022, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Service received from:                
FXDIRECT  $4,675,000   $4,725,000   $14,125,000   $14,175,000 
   $4,675,000   $4,725,000   $14,125,000   $14,175,000 

 

During the three months ended June 30, 2023 and 2022, Digital RFQ earned revenue from related parties in the amount of $29,343 and $17,974, respectively, which was included in revenue – financial services on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

During the nine months ended June 30, 2023 and 2022, Digital RFQ earned revenue from related parties in the amount of $107,859 and $28,239, respectively, which was included in revenue – financial services on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

Due from affiliates

 

At June 30, 2023 and September 30, 2022, due from affiliates consisted of the following:

 

   June 30,
2023
   September 30,
2022
 
Digiclear  $229,837   $35,762 
Jacobi   24,422    
-
 
FXDD Mauritius (1)   3,012    
-
 
TCM   51,190    895,374 
Total  $308,461   $931,136 

 

(1)FXDD Mauritius is controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.

 

The balance due from Digiclear represents advances made to Digiclear and monies that the Company paid on behalf of Digiclear. The balances due from Jacobi and FXDD Mauritius represent monies that the Company paid on behalf of Jacobi and FXDD Mauritius. The balance due from TCM represents 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 June 30, 2023 and September 30, 2022. The Company historically has not experienced uncollectible receivable from the related parties.

 

20

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 – RELATED PARTY TRANSACTIONS (continued)

 

Due to affiliates

 

At June 30, 2023 and September 30, 2022, due to affiliates consisted of the following:

 

   June 30,
2023
   September 30,
2022
 
Forexware LLC (1)  $1,211,665   $1,079,229 
FXDIRECT   3,289,537    3,042,101 
Currency Mountain Holdings Bermuda, Limited (“CMH”)   42,000    42,000 
FXDD Trading (1)   498,963    242,113 
Markets Direct Payments (1)   2,415    2,114 
Match Fintech Limited (2)   55,551    106,506 
Total  $5,100,131   $4,514,063 

 

(1)Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.

 

(2)Match Fintech Limited is controlled by affiliates of the Company.

 

The balances due to affiliates represents expenses paid by Forexware LLC, FXDIRECT, FXDD Trading, Markets Direct Payments, and Match Fintech Limited 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.

 

Amounts due to affiliates are short-term in nature, non-interest bearing, unsecured and repayable on demand.

 

Customer digital currency assets and liabilities – related parties

 

At June 30, 2023 and September 30, 2022, related parties’ digital currency, which was controlled by Digital RFQ, amounted to $0 and $248,214, respectively, which was included in customer digital currency assets and liabilities on the accompanying condensed consolidated balance sheets.

 

Note receivable – related party

 

The Company originated a note receivable to a shareholder in the principal amount of $35,000 on September 1, 2022. The note shall mature with respect to $17,500 on March 1, 2023 and with respect to $17,500 on September 1, 2023. The note bears a fixed interest rate of 5.0% per annum. Currently, this loan is in default.

 

For the three months ended June 30, 2023, the interest income related to this note amounted to $468 and has been included in other income on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2023, the interest income related to this note amounted to $1,362 and has been included in other income on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

As of June 30, 2023 and September 30, 2022, the outstanding interest balance related to this note was $1,587 and $159, respectively, and was included in other current assets on the accompanying condensed consolidated balance sheets.

 

Letter agreement with ClearThink

 

Nukkleus is party to a letter agreement with ClearThink dated as of November 22, 2021, pursuant to which ClearThink was engaged by Nukkleus in connection with the Business Combination (See Note 15 - White lion stock purchase agreement).

 

Craig Marshak, a member of the Board of Directors of the Company, is a managing director of ClearThink, a transaction advisory firm. ClearThink has been engaged by the Company to serve as the exclusive transactional financial advisor, and finder with respect to the Business Combination, to advise the Company with respect to the Business Combination. As of June 30, 2023, the Company has paid ClearThink $140,000, and upon closing of the Business Combination the Company is obligated to pay ClearThink 1.2% of the total transaction value plus reimbursable expenses less the $140,000 paid to ClearThink as of June 30, 2023.

 

21

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 13 – CONCENTRATIONS

 

Customers

 

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended June 30, 2023 and 2022.

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Customer  2023   2022   2023   2022 
A – related party   92.1%   93.2%   88.8%   93.7%

 

Two related party customers, whose outstanding receivables accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2023, accounted for 91.0% of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2023.

 

One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding due from affiliates at September 30, 2022, accounted for 96.2% of the Company’s total outstanding due from affiliates at September 30, 2022.

 

Suppliers

 

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s costs of revenues for the three and nine months ended June 30, 2023 and 2022.

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Supplier  2023   2022   2023   2022 
A – related party   87.1%   89.3%   86.7%   87.7%

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable and due to affiliates at June 30, 2023, accounted for 79.5% of the Company’s total outstanding accounts payable and due to affiliates at June 30, 2023.

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable and due to affiliates at September 30, 2022, accounted for 79.2% of the Company’s total outstanding accounts payable and due to affiliates at September 30, 2022.

 

22

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14 – SEGMENT INFORMATION

 

For the three and nine months ended June 30, 2023 and 2022, the Company operated in two reportable business segments - (1) the general support services segment, in which we provide software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party; and (2) the financial services segment, in which we provide payment services from one fiat currency to another. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.

 

Information with respect to these reportable business segments for the three and nine months ended June 30, 2023 and 2022 was as follows:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
       (as restated)       (as restated) 
Revenues                
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total   5,212,056    5,152,192    16,222,388    15,370,224 
                     
Costs of revenues                    
General support services   4,675,000    4,725,000    14,125,000    14,175,000 
Financial services   695,074    565,633    2,162,317    1,987,557 
Total   5,370,074    5,290,633    16,287,317    16,162,557 
                     
Gross profit (loss)                    
General support services   125,000    75,000    275,000    225,000 
Financial services   (283,018)   (213,441)   (339,929)   (1,017,333)
Total   (158,018)   (138,441)   (64,929)   (792,333)
                     
Operating expenses                    
Financial services   558,228    390,525    1,595,955    1,347,503 
Corporate/Other   496,555    1,125,525    1,494,776    3,312,000 
Total   1,054,783    1,516,050    3,090,731    4,659,503 
                     
Other income (expense)                    
Financial services   3,057    (918)   6,345    (3,319)
Corporate/Other   
-
    (330,878)   
-
    (402,585)
Total   3,057    (331,796)   6,345    (405,904)
                     
Net income (loss)                    
General support services   125,000    75,000    275,000    225,000 
Financial services   (838,189)   (604,884)   (1,929,539)   (2,368,155)
Corporate/Other   (496,555)   (1,456,403)   (1,494,776)   (3,714,585)
Total   (1,209,744)   (1,986,287)   (3,149,315)   (5,857,740)
                     
Amortization                    
Financial services   591,955    591,955    1,775,865    2,095,853 
Corporate/Other   937    937    2,810    1,873 
Total  $592,892   $592,892   $1,778,675   $2,097,726 

 

Total assets at June 30, 2023 and September 30, 2022  June 30,
2023
   September 30,
2022
 
Financial services  $8,203,817   $10,768,309 
Corporate/Other   7,143,061    7,596,595 
Total  $15,346,878   $18,364,904 

 

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NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

Digital asset wallets

 

Digital RFQ has committed to safeguard all digital assets and digital token identifiers on behalf of its customers. As such, Digital RFQ may be liable to its customers for losses arising from theft or loss of customer private keys. Digital RFQ has no reason to believe it will incur any expense associated with such potential liability because (i) it has no known or historical experience of claims to use as a basis of measurement, (ii) it accounts for and continually verifies the amount of digital assets within its control, and (iii) it engages third parties, which are digital asset trading platforms, to provide certain custodial services, including holding its customers’ digital token identifiers, securing its customers’ digital assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft. Its third-party digital asset trading platforms hold the digital assets in accounts in Digital RFQ’s name for the benefit of Digital RFQ’s customers.

 

Merger

 

On February 22, 2022, the Company entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among the Company and Brilliant Acquisition Corporation, a British Virgin Islands company (“Brilliant”). The Merger Agreement has been approved by the Company’s boards of directors. On June 23, 2023, the Company, Brilliant and BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”). The A&R Merger Agreement extended the Outside Closing Date (as defined in the A&R Merger Agreement), to the later of (i) July 23, 2023, or, (ii) following the approval by Brilliant’s shareholders of an extension of the life of the SPAC pursuant to Brilliant’s organizational documents, to the date so approved, but not later than December 23, 2023. The transactions contemplated by the A&R Merger Agreement are expected to close in the fourth quarter of fiscal year 2023, provided however there is no guarantee that the transaction will close.

 

White lion stock purchase agreement

 

On May 17, 2022, the Company entered into a Stock Purchase Agreement (the “White Lion Agreement”) with White Lion Capital Partners, LLC a California-based investment fund (“White Lion”). Under the terms of the White Lion Agreement, the Company has the right, but not the obligation, to require White Lion to purchase shares of its common stock up to a maximum amount of $75,000,000 or such lower amount as may be required pursuant to the rules of the market on which shares of its common stock trades at such time. Pursuant to terms of the White Lion Agreement and the Registration Rights Agreement (as defined below), the Company is required to use its commercially reasonable efforts to file with the SEC a registration statement covering the shares to be acquired by White Lion within sixty days following the closing of the previously announced business combination with Brilliant Acquisition Corporation described in its Current Report on Form 8-K filed with the SEC on February 23, 2022 (the “Business Combination”).

 

The term of the White Lion Agreement commences on the effective date of the registration statement and shall end on December 31, 2024, or, if earlier, the date on which White Lion has purchased the maximum number of shares of the Company’s common stock provided under the White Lion Agreement, in each case on the terms and subject to the conditions set forth in the White Lion Agreement. White Lion’s purchase price will be 96% of the dollar- volume weighted average price of the Company’s common stock over the two consecutive trading days immediately following receipt of the Company’s notice of its intent to make a draw. As of June 30, 2023, the White Lion Agreement is not yet effective.

 

During the term of the White Lion Agreement, on the terms and subject to the conditions set forth therein, the Company may draw up to the lesser of (i) the number of shares of the Company’s common stock which would result in beneficial ownership by White Lion of more than 4.99% of the outstanding shares of the Company’s common stock, (ii) the number of shares of the Company’s common stock equal to 30% of the average daily trading volume of the Company’s common stock over the five consecutive trading days immediately following the notice date, or (iii) the number of the Company’s common stock obtained by dividing $1,500,000 by the closing sale price of the Company’s common stock on the notice date.

 

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NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES (continued)

 

White lion stock purchase agreement (continued)

 

The Company is not entitled to draw on the White Lion Agreement if the closing sale price of the Company’s common stock on the trading day immediately preceding the notice date is less than $1.00 (following the reverse stock split proposed in connection with the closing of the Business Combination and described in the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2022, but adjusted for any other reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). The Company is not entitled to draw on the White Lion Agreement unless each of the following additional conditions is satisfied: (i) each of the Company’s representations and warranties set forth in the White Lion Agreement is true and correct (subject to qualifications as to materiality set forth therein) in all respects as of such time; (ii) a registration statement is and remains effective for the resale of securities in connection with the White Lion Agreement; (iii) the trading of the Company’s common stock shall not have been suspended by the SEC, the applicable trading market or FINRA, or otherwise halted for any reason; (iv) the Company shall have complied with its obligations and shall not otherwise be in breach or default of any agreement set forth in the White Lion Agreement; (v) no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any federal, state, local or foreign court or governmental authority of competent jurisdiction, including, without limitation, the SEC, which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the White Lion Agreement; (vi) all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by us with the SEC pursuant to the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K) shall have been filed with the SEC within the applicable time periods prescribed for such filings; (vii) to the extent the issuance of the put shares requires shareholder approval under the listing rules of the applicable national exchange or principal quotation system for the Company’s common stock, the Company has or will seek such approval; and (viii) certain other conditions as set forth in the White Lion Agreement.

 

In addition to the shares to be issued under the White Lion Agreement, the Company will include in its registration statement additional shares of the Company’s common stock in the amount of $750,000 being issued to White Lion in connection with the execution of the White Lion Agreement.

  

White lion registration rights agreement

 

In connection with the Company’s entry into the White Lion Agreement, the Company entered into a Registration Rights Agreement with White Lion (the “Registration Rights Agreement”). Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to use its commercially reasonable efforts to file a registration statement under the Securities Act registering the resale of the shares sold under the White Lion Agreement within sixty days of the closing of the Business Combination. The Registration Rights Agreement also provides that the Company is required to use its commercially reasonable efforts to keep the registration effective and to prepare and file with the SEC such amendments and supplements if the foregoing registration statement is not then in effect, and the Company proposes to file certain types of registration statements under as may be necessary to keep the registration statement effective.

 

NOTE 16 – 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.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended June 30, 2023 and 2022 should be read in conjunction with our unaudited condensed consolidated financial statements and related notes to those unaudited condensed consolidated financial statements that are included elsewhere in this report.

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:

 

our future operating results;

 

our business prospects;

 

any contractual arrangements and relationships with third parties;

 

the dependence of our future success on the general economy;

 

any possible financings; and

 

the adequacy of our cash resources and working capital.

 

Impact of COVID-19 on Our Operations

 

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. Due to the nature of our business, the technology we use and offer to our customers, and our employees’ ability to work remotely, there was no material impact of COVID-19 on our business, operations and financial results.

 

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, and governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.

 

Overview

 

We are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. We primarily provide our software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by TCM.

 

We have ownership of FOREXWARE, the primary software suite and technology solution which powers the FXDD brand globally today. We also have ownership of the FOREXWARE brand name. We have also acquired ownership of the customer interface and other software trading solutions being used by FXDD.com. By virtue of our relationship with TCM and FXDIRECT, we provide turnkey software and technology solutions for FXDD.com. We offer the customers of FXDD 24 hours, five days a week direct access to the global over the counter (“OTC”) FX market, which is a decentralized market in which participants trade directly with one another, rather than through a central exchange.

 

In an FX trade, participants effectively buy one currency and simultaneously sell another currency, with the two currencies that make up the trade being referred to as a “currency pair”. Our software and technology solutions enable FXDD to present its customers with price quotations on over the counter tradeable instruments, including over the counter currency pairs, and also provide our customers the ability to trade FX derivative contracts on currency pairs through a product referred to as Contracts for Difference (“CFD”). Our software solutions also offer other CFD products, including CFDs on metals, such as gold, and on futures linked to other products.

 

In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated 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.

 

26

 

 

On August 27, 2020, the Company renamed Nukkleus Exchange Malta Ltd. to Markets Direct Technology Group Ltd (“MDTG”). MDTG manages the technology and IP behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the IP rights to the brands such as Markets Direct and TCM. MDTG then leases out the rights to use these names/brands licenses to the appropriate entities.

 

In fiscal year 2021, the Company completed its acquisition of Match Financial Limited, a private limited company formed in England and Wales (“Match”). Match is engaged in providing payment services from one fiat currency to another.

 

On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 20,000,000 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF. Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s chief operating officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.

 

On December 30, 2021, the Company and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement) pursuant to which the Company agreed to acquire 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of 15,151,515 shares of common stock of the Company (valued at $5,000,000 based on the market price of the Company’s common stock on the acquisition date) (the “Digiclear Transaction”). In addition to, if and when the Company is acquired by a Special Purpose Acquisition Company (“SPAC”), the Company will fund and capitalize Digiclear with a minimum of $1,000,000 operating capital. Digiclear shall retain the right to unwind the transaction and to have the Company return the 5,400,000 ordinary shares of Digiclear share in return for Digiclear returning to the Company the 15,151,515 of Company common shares. Digiclear can only unwind the transaction if the Company is no longer under contract to be acquired by a SPAC. The Digiclear Transaction closed on March 17, 2022. Digiclear is a company developing a custody and settlement utility operating system.

 

Financial Services Segment’s Key Performance Indicators (KPI)

 

The key performance indicators outlined below are our financial services segment’s metrics that provide management with the most immediate understanding of the drivers of business performance and tracking of financial targets.

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Performance Indicator  2023   2022   2023   2022 
       (as restated)       (as restated) 
Trading volume  $67,159,843   $49,413,367   $359,730,350   $108,718,193 
Financial services revenue  $412,056   $352,192   $1,822,388   $970,224 
Financial services loss  $(283,018)  $(213,441)  $(339,929)  $(1,017,333)
Average cost per trade  $443   $1,917   $577   $3,346 
Average trade   42,832    167,503    95,928    183,027 
Number of trades   1,568    295    3,750    594 
Clients active   45    39    172    52 
Clients removed   1    0    8    0 
Gross trading margin   0.6%   0.7%   0.5%   0.9%
Gross margin   (68.7)%   (60.6)%   (18.7)%   (104.9)%

 

Trading volume is measured by number of trades and represents aggregate notional value of all trades.

 

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Financial services revenue represents the top-line revenue generated from trades, before considering the costs associated with the generation of financial services revenue.

 

Financial services loss is measured as financial services revenue, less costs which include amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services. For the three months ended June 30, 2023, we saw a 35.9% increase in trading volume over the three months ended June 30, 2022. For the nine months ended June 30, 2023, we saw a 230.9% increase in trading volume over the nine months ended June 30, 2022. The increase in trading volume had a similar positive effect on all other KPIs.

 

Average cost per trade is driven by financial services costs. We gained significant economies of scale as average cost per trade decreased measurably as trading volume increased.

 

Active clients for the three months ended June 30, 2023 and 2022 was 45 and 39, respectively. For the nine months ended June 30, 2023 and 2022 was 172 and 52, respectively.

 

Gross trading margin is a metric that measures financial services revenue to trading volume.

 

Critical 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. Changes in these estimates and assumptions may have a material impact on the unaudited condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and nine months ended June 30, 2023 and 2022 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances, valuation of stock-based compensation, and fair value of customer digital currency assets and liabilities.

 

Customer Custodial Cash and Customer Custodial Cash Liabilities

 

Customer custodial cash represents cash and cash equivalents maintained in Company bank accounts that are controlled by the Company but held for the benefit of customers. Customer custodial cash liabilities represent these cash deposits to be utilized for its contractual obligations to its customers. The Company classifies the assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

 

Customer Digital Currency Assets and Liabilities

 

At certain times, Digital RFQ’s customers’ funds that Digital RFQ uses to make payments on behalf of its customers, remain in the form of digital assets in its customers’ wallets at its digital asset trading platforms awaiting final conversion and/or transfer to the customer’s payment final destination. These indirectly held digital assets, may consist of USDT (Stablecoin), Bitcoin, and Ethereum (collectively, “Customer digital currency assets”). Digital RFQ maintains the internal recordkeeping of its customer digital currency assets, including the amount and type of digital asset owned by each of its customers.

 

Digital RFQ has control of the private keys and knows the balances of all wallets with its digital asset trading platforms in order to be able to successfully carry out the movement of digital assets for its client payment instruction. As part of its customer payment instruction, Digital RFQ can execute withdrawals on the wallets in its digital asset trading platforms.

 

The Company has determined that the Company has control of the customer digital currency assets and records these assets on its balance sheet with a corresponding liability. The Company recognizes customer digital currency liabilities and corresponding customer digital currency assets, on initial recognition and at each reporting date, at fair value of the customer digital currency assets. Subsequent changes in fair value are adjusted to the carrying amount of these customer digital currency assets, with changes in fair value recorded in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

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Any loss, theft, or other misuse would impact the measurement of customer digital currency assets. The Company classifies the customer digital currency assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

 

Investment, at Cost

 

Investment in which the Company does not have the ability to exercise significant influence over operating and financial matters is accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other (expense) income” in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss, and a new basis in the investment is established. No impairment expense for cost method investment was recorded for the three and nine months ended June 30, 2023 and 2022.

 

Intangible Assets

 

Intangible assets consist of trade names, regulatory licenses, technology and software, which are being amortized on a straight-line method over the estimated useful life of 3 - 5 years.

  

Impairment of Long-lived Assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of June 30, 2023. For the three and nine months ended June 30, 2023 and 2022, no impairment of long-lived assets was recognized.

 

Revenue Recognition

 

The Company accounts for revenue under the provisions of ASC Topic 606. The Company’s revenues are derived from providing:

 

General support services under a GSA to a related party. 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.

 

Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered.

 

Stock-based Compensation

 

The Company measures and recognizes compensation expense for all stock-based awards granted to non-employees, including stock options, based on the grant date fair value of the award. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.

 

For non-employee stock-based awards, fair value is measured based on the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is calculated and then recognized as compensation expense over the requisite performance period.

 

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Results of Operations

 

Summary of Key Results

 

For the Three and Nine Months Ended June 30, 2023 Versus the Three and Nine Months Ended June 30, 2022

 

Revenues

 

For both the three months ended June 30, 2023 and 2022, we had revenue from general support services rendered to TCM under a GSA of $4,800,000. For both the nine months ended June 30, 2023 and 2022, we had revenue from general support services rendered to TCM under a GSA of $14,400,000.

 

For the three months ended June 30, 2023, we had revenue from financial services of $412,056 as compared to $352,192 for the three months ended June 30, 2022, an increase of $59,864, or 17.0%. For the nine months ended June 30, 2023, we had revenue from financial services of $1,822,388, as compared to $970,224 for the nine months ended June 30, 2022, an increase of $852,164, or 87.8%. The significant increase was primarily attributable to our business expansion. We expect that our revenue from financial services will continue to increase in the near future since we are making efforts on expanding our financial services.

 

Costs of Revenues

 

For the three months ended June 30, 2023, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $4,675,000, as compared to $4,725,000 for the three months ended June 30, 2022, a decrease of $50,000, or 1.1%. For the nine months ended June 30, 2023, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $14,125,000, as compared to $14,175,000 for the nine months ended June 30, 2022, a decrease of $50,000, or 0.4%. Effective May 1, 2023, the amount payable by us to FXDIRECT for services under a GSA was reduced from $1,575,000 per month to $1,550,000 per month. Therefore, our cost of general support services for three and nine months ended June 30, 2023 was decreased as compared to the corresponding periods in fiscal 2022.

 

Cost of financial services include amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.

 

For the three months ended June 30, 2023, cost of financial services amounted to $695,074, as compared to $565,633 for the three months ended June 30, 2022, an increase of $129,441, or 22.9%. For the nine months ended June 30, 2023, cost of financial services amounted to $2,162,317, as compared to $1,987,557 for the nine months ended June 30, 2022, an increase of $174,760, or 8.8%. The increase was primarily attributable to an increase in our revenue from financial services.

 

Gross Profit (Loss)

 

Our gross profit from general support services for the three months ended June 30, 2023 was $125,000, as compared to $75,000 for the three months ended June 30, 2022, an increase of $50,000, or 66.7%. Gross margin increased to 2.6% for the three months ended June 30, 2023 from 1.6% for the three months ended June 30, 2022. Our gross profit from general support services for the nine months ended June 30, 2023 was $275,000, as compared to $225,000 for the nine months ended June 30, 2022, an increase of $50,000, or 22.2%. Gross margin increased to 1.9% for the nine months ended June 30, 2023 from 1.6% for the nine months ended June 30, 2022. The increase in our gross margin for the general support services segment for the three and nine months ended June 30, 2023 as compared to the corresponding periods in fiscal 2022 was attributed to the decrease in our cost of general support services as described above.

 

Gross loss from financial services for the three months ended June 30, 2023 was $283,018, as compared to $213,441 for the three months ended June 30, 2022, an increase of $69,577, or 32.6%. Gross margin decreased to (68.7)% for the three months ended June 30, 2023 from (60.6)% for the three months ended June 30, 2022. The decrease in our gross margin for the financial services segment for the three months ended June 30, 2023 as compared to the corresponding period in fiscal 2022 was primarily attributed to the increased cost of financial services. Gross loss from financial services for the nine months ended June 30, 2023 was $339,929, as compared to $1,017,333 for the nine months ended June 30, 2022, a decrease of $677,404, or 66.6%. Gross margin increased to (18.7)% for the nine months ended June 30, 2023 from (104.9)% for the nine months ended June 30, 2022. The significant increase in our gross margin for the financial services segment for the nine months ended June 30, 2023 as compared to the corresponding period in fiscal 2022 was primarily attributed to the increased scale of operations resulting from larger revenue, which is reflected in the allocation of fixed costs, mainly consisting of amortization costs of intangible assets, to cost of revenue. A large portion of our cost of financial services are fixed and do not change along with the increase/decrease in our revenue from financial services. We expect that our gross margin for the financial services segment will continue to increase since we anticipate we will generate more revenue from financial services and we can improve our gross margin from financial services segment to the extent that we can become more efficient by increasing our revenue.

 

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Operating Expenses

 

Operating expenses consisted of advertising and marketing, professional fees, compensation and related benefits, amortization of intangible assets, and other general and administrative expenses.

 

Advertising and marketing

 

For the three months ended June 30, 2023, advertising and marketing expense decreased by $145,507, or 98.9%, as compared to the three months ended June 30, 2022. For the nine months ended June 30, 2023, advertising and marketing expense decreased by $294,739, or 85.2%, as compared to the nine months ended June 30, 2022. The decrease was primarily attributable to our decreased advertising and marketing activities. We expect that our advertising and marketing expense will increase in the near future.

 

Professional fees

 

Professional fees primarily consisted of audit fees, legal service fees, advisory fees, and consulting fees. For the three months ended June 30, 2023, professional fees decreased by $475,166, or 45.4%, as compared to the three months ended June 30, 2022. The decrease was primarily attributable to a significant decrease in consulting fees of approximately $622,000 mainly due to decreased consulting services related to our merger and acquisition, offset by an increase in other miscellaneous items of approximately $147,000 resulting from our business expansion. For the nine months ended June 30, 2023, professional fees decreased by $1,495,966, or 45.2%, as compared to the nine months ended June 30, 2022. The decrease was primarily attributable to a significant decrease in advisory service fees of approximately $679,000 mainly due to decreased advisory service related to our merger and acquisition, a decrease in legal service fees of approximately $123,000 due to decreased legal service related to our merger and acquisition, a decrease in consulting fees of approximately $864,000 mainly due to decreased consulting services related to our merger and acquisition, offset by an increase in audit fees of approximately $162,000 and an increase in other miscellaneous items of approximately $8,000. We expect that our professional fees will remain in its current quarterly level with minimal increase in the near future.

 

Compensation and related benefits

 

For the three months ended June 30, 2023, our compensation and related benefits increased by $142,955, or 157.8%, as compared to the three months ended June 30, 2022. For the nine months ended June 30, 2023, our compensation and related benefits increased by $245,503, or 71.0%, as compared to the nine months ended June 30, 2022. The increase was mainly attributable to increased management in our financial services segment. We expect that our compensation and related benefits will remain in its current quarterly level with minimal increase in the near future.

  

Amortization of intangible assets

 

For the three and nine months ended June 30, 2023, our amortization of intangible assets remained roughly the same as the comparable periods in fiscal 2022.

  

Other general and administrative expenses

 

Other general and administrative expenses primarily consisted of rent, filing fee, and other miscellaneous items.

 

For the three months ended June 30, 2023, total other general and administrative expenses increased by $16,451, or 10.0%, as compared to the three months ended June 30, 2022. The increase was mainly due to an increase in filing fee of approximately $32,000 mainly due to the increase in our public filings, offset by a decrease in other miscellaneous items of approximately $15,000. For the nine months ended June 30, 2023, total other general and administrative expenses decreased by $24,506, or 5.3%, as compared to the nine months ended June 30, 2022. The decrease was mainly due to a decrease in rent of approximately $35,000, offset by an increase in other miscellaneous items of approximately $11,000. We expect that other general and administrative expenses will remain in its current quarterly level with minimal increase in the near future.

 

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Other (Expense) Income

 

Other (expense) income includes loss from equity method investment and other miscellaneous income (expense).

 

Other income, net, totaled $3,057 for the three months ended June 30, 2023, as compared to other expense, net, of $331,796 for the three months ended June 30, 2022, a decrease of $334,853, or 100.9%, which was attributable to a decrease in loss from equity method investment of approximately $331,000 and a decrease in other miscellaneous expense of approximately $4,000.

 

Other income, net, totaled $6,345 for the nine months ended June 30, 2023, as compared to other expense, net, of $405,904 for the nine months ended June 30, 2022, a decrease of $412,249, or 101.6%, which was attributable to a decrease in loss from equity method investment of approximately $401,000 and a decrease in other miscellaneous expense of approximately $11,000.

 

Net Loss

 

As a result of the factors described above, our net loss was $1,209,744, or $0.00 per share (basic and diluted), for the three months ended June 30, 2023, as compared to $1,986,287, or $0.01 per share (basic and diluted), for the three months ended June 30, 2022, a decrease of $776,543 or 39.1%.

 

As a result of the factors described above, our net loss was $3,149,315, or $0.01 per share (basic and diluted), for the nine months ended June 30, 2023, as compared to $5,857,740, or $0.02 per share (basic and diluted), for the nine months ended June 30, 2022, a decrease of $2,708,425 or 46.2%.

 

Foreign Currency Translation Adjustment

 

The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. The financial statements of our subsidiaries whose functional currency is the GBP or Euro or CAD are translated to U.S. dollars using period end rates of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $20,859 and a foreign currency translation gain of $27,644 for the three months ended June 30, 2023 and 2022, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $51,563 and a foreign currency translation gain of $38,631 for the nine months ended June 30, 2023 and 2022, respectively. This non-cash loss/gain had the effect of increasing/decreasing our reported comprehensive loss.

 

Comprehensive Loss

 

As a result of our foreign currency translation adjustment, we had comprehensive loss of $1,230,603 and $1,958,643 for the three months ended June 30, 2023 and 2022, respectively. As a result of our foreign currency translation adjustment, we had comprehensive loss of $3,200,878 and $5,819,109 for the nine months ended June 30, 2023 and 2022, respectively.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2023 and September 30, 2022, we had cash of approximately $142,000 and $364,000, respectively, exclusive of customer custodial cash. We had working capital deficit of approximately $4,955,000 as of June 30, 2023.

 

Our ability to continue as a going concern is dependent upon the management of expenses and our ability to obtain the necessary financing to meet our obligations and pay our liabilities arising from normal business operations when they come due, and upon profitable operations.

 

We need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, TCM has committed to inject capital into the Company in order to maintain the ongoing operations of the business.

 

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The following table sets forth a summary of changes in our working capital deficit from September 30, 2022 to June 30, 2023:

 

   June 30,   September 30,   Changes in 
   2023   2022   Amount   Percentage 
Working capital deficit:                
Total current assets  $2,405,857   $3,687,799   $(1,281,942)   (34.8)%
Total current liabilities   7,360,966    7,474,324    (113,358)   (1.5)%
Working capital deficit  $(4,955,109)  $(3,786,525)  $(1,168,584)   30.9%

 

Our working capital deficit increased by $1,168,584 to $4,955,109 at June 30, 2023 from $3,786,525 at September 30, 2022. The increase in working capital deficit was primarily attributable to a decrease in cash of approximately $222,000, a decrease in customer custodial cash of approximately $308,000 due to the decrease in cash maintained in our bank accounts held for the benefit of our customers, a decrease in customer digital currency assets of approximately $248,000 due to the decrease in customer digital currency controlled by us in the nine months ended June 30, 2023, a decrease in due from affiliates of approximately $623,000 resulting from the payments received from our affiliates in the nine months ended June 30, 2023, an increase in due to affiliates of approximately $586,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the nine months ended June 30, 2023, an increase in accrued payroll liability and directors’ compensation of approximately $128,000 due to our business expansion, offset by an increase in note receivable of approximately $154,000 driven by payment made for investment in note receivable in the nine months ended June 30, 2023, a decrease in customer custodial cash liabilities of approximately $317,000 resulting from fulfillment of our direct obligations to our customers, a decrease in customer digital currency liabilities of approximately $248,000 due to the decrease in customer digital currency controlled by us in the nine months ended June 30, 2023, a decrease in accrued professional fees of approximately $104,000 resulting from payments made to professional service providers in the nine months ended June 30, 2023, and a decrease in accrued liabilities and other payables of approximately $213,000 mainly due to the decrease in unearned revenue of approximately $203,000.

 

Because the exchange rate conversion is different for the condensed consolidated balance sheets and the unaudited condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the unaudited condensed consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the condensed consolidated balance sheets.

 

Cash Flow for the Nine Months Ended June 30, 2023 Compared to the Nine Months Ended June 30, 2022

 

Net cash flow used in operating activities for the nine months ended June 30, 2023 was $626,716, which primarily reflected our consolidated net loss of approximately $3,149,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in customer custodial cash liabilities of approximately $577,000 driven by fulfillment of our direct obligations to our customers in the nine months ended June 30, 2023, a decrease in customer digital currency liabilities of approximately $270,000 due to the decrease in customer digital currency controlled by us in the nine months ended June 30, 2023, a decrease in accrued professional fees of approximately $111,000 resulting from payments made to professional service providers in the nine months ended June 30, 2023, and a decrease in accrued liabilities and other payables of approximately $234,000 mainly due to the decrease in unearned revenue of approximately $203,000, offset by a decrease in customer digital currency assets of approximately $270,000 due to the decrease in customer digital currency controlled by us in the nine months ended June 30, 2023, a decrease in due from affiliates of approximately $648,000 resulting from the payments received from our affiliates in the nine months ended June 30, 2023, an increase in due to affiliates of approximately $506,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the nine months ended June 30, 2023, and an increase in accrued payroll liability and directors’ compensation of approximately $126,000 due to our business expansion, and the non-cash items adjustment primarily consisting of amortization of intangible assets of approximately $1,779,000, and stock-based compensation and service expense of approximately $296,000.

 

Net cash flow used in operating activities for the nine months ended June 30, 2022 was $56,834, which primarily reflected our consolidated net loss of approximately $5,858,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in customer digital currency liabilities of approximately $1,139,000 due to the decrease in customer digital currency controlled by us in the nine months ended June 30, 2022, a decrease in due to affiliates of approximately $316,000 due to the payments made to our affiliates in the nine months ended June 30, 2022, offset by a decrease in customer digital currency assets of approximately $1,139,000 due to the decrease in customer digital currency controlled by us in the nine months ended June 30, 2022, a decrease in due from affiliates of approximately $1,747,000 resulting from the payments received from our affiliates in the nine months ended June 30, 2022, an increase in customer custodial cash liabilities of approximately $262,000 resulting from our business expansion, and an increase in accrued liabilities and other payables of approximately $162,000 which was mainly due to the increase in accrued professional fees of approximately $113,000 resulting from the increase in professional service providers, and the non-cash items adjustment primarily consisting of amortization of intangible assets of approximately $2,098,000, stock-based compensation and service expense of approximately $1,430,000, and loss on equity method investment of approximately $401,000.

 

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Net cash flow used in investing activities was $195,856 for the nine months ended June 30, 2023. During the nine months ended June 30, 2023, we made payment for investment in note receivable of approximately $154,000 and payment for purchase of intangible asset of approximately $42,000.

 

There was no investing activity during the nine months ended June 30, 2022.

 

Our operations will require additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of revenue and reduce our costs, we expect to finance future cash needs through public and/or private offerings of equity securities and/or debt financings. We do not currently have any committed future funding. To the extent we raise additional capital by issuing equity securities, our stockholders could at that time experience substantial dilution. Any debt financing we are able to obtain may involve operating covenants that restrict our business. Our capital requirements for the next twelve months primarily relate to mergers, acquisitions and the development of business opportunities. In addition, we expect to use cash to pay fees related to professional services. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

 

The working capital requirements to finance our current business;

 

The use of capital for mergers, acquisitions and the development of business opportunities;

 

Addition of personnel as the business grows; and

 

The cost of being a public company.

 

We need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth. However, TCM has committed to inject capital into the Company in order to maintain the ongoing operations of the business.

 

Consistent with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between us and our officers, directors and their affiliates will be entered into only if such transactions are approved by a majority of the disinterested directors, are approved by vote of the stockholders, or are fair to us as a corporation as of the time it is authorized, approved or ratified by the board. We will conduct an appropriate review of all related party transactions on an ongoing basis. 

 

Off-Balance Sheet Arrangements

 

We had no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

 

Recently Issued Accounting Pronouncements

 

For information about recently issued accounting standards, refer to Note 3 to our Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this report.

 

Foreign Currency Exchange Rate Risk

 

A portion of our operations are in United Kingdom. Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between GBP and US dollars. For the three months ended June 30, 2023 and 2021, we had an unrealized foreign currency translation loss of approximately $21,000 and an unrealized foreign currency translation gain of approximately $28,000, respectively, because of changes in the exchange rates. For the nine months ended June 30, 2023 and 2021, we had an unrealized foreign currency translation loss of approximately $52,000 and an unrealized foreign currency translation gain of approximately $39,000, respectively, because of changes in the exchange rates.

 

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Inflation

 

The effect of inflation on our revenue and operating results was not significant.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

   

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

 

In connection with the preparation of the quarterly report on Form 10-Q for the quarter ended June 30, 2023, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our CEO and our CFO is the same person.

 

Management regularly assesses controls and did so most recently for our financial reporting as of June 30, 2023. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded that, because of the Company’s small size and limited resources, internal controls over financial reporting were not effective as of June 30, 2023.

 

Management determined that the Company has the following material weaknesses:

 

a) we have not sufficiently designed, implemented and documented internal controls at the entity level and across the key business and financial processes to allow us to achieve complete, accurate and timely financial reporting;
   
b) we have not designed and implemented controls to maintain appropriate segregation of duties in our business processes; and
   
c) we utilize third party service providers in our financial services segment, for which the Company relies on for determining amounts pertaining to revenue and cryptocurrency asset completeness, accuracy and existence. The third party service providers lack a key service organization control report.

 

We plan to take steps to enhance and improve the design of our internal control over financial reporting. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending September 30, 2023: (i) design, implement and document internal controls at the entity level and across the key business and financial processes and (ii) design and implement controls and appoint or hire sufficient staff to maintain appropriate segregation of duties in our business processes. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

In light of the material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the quarter ended June 30, 2023 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weakness, our consolidated financial statements for the quarter ended June 30, 2023 are fairly stated, in all material respects, in accordance with US GAAP.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 5. Other

 

None.

 

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Part II - Other Information

 

Item 1. Legal Proceedings

 

From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to any material legal proceedings.

  

Item 1A. Risk Factors

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

Merger

 

On February 22, 2022, Nukkleus entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Original Agreement”), by and among Nukkleus and Brilliant Acquisition Corporation, a British Virgin Islands company (“Brilliant”). On June 23, 2023, Nukkleus, Brilliant and BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”). Pursuant to the Original Agreement, NB Merger Sub, Inc., a wholly-owned subsidiary of Nukkleus, would have merged with and into Brilliant, with Brilliant surviving the merger as a wholly-owned subsidiary of Nukkleus, and Nukkleus would have become a Nasdaq-listed company and the parent company of Brilliant. Pursuant to the terms of the A&R Merger Agreement, Brilliant will continue out of the British Virgin Islands and into the State of Delaware so as to re-domicile as and become a Delaware corporation (the “Domestication”), following which Merger Sub will merge with and into Nukkleus, with Nukkleus surviving the merger as a wholly-owned subsidiary of Brilliant (the “Merger”), such transactions being referred to herein as the “Business Combination.” Following the Business Combination, Nukkleus and Brilliant will operate as a combined company.

 

As a result of and upon the closing of the Business Combination, pursuant to the terms of the A&R Merger Agreement, all of the outstanding shares of common stock, par value $0.0001 per share, of Nukkleus (“Nukkleus Common Stock”) will be cancelled in exchange for the right to receive a pro-rata portion of 14,000,000 shares of common stock of Brilliant (“Brilliant Common Stock”). Each outstanding option to purchase shares of Nukkleus Common Stock (whether vested or unvested) will be assumed by Brilliant and automatically converted into an option to purchase shares of Brilliant Common Stock (each, an “Assumed Option”). The holder of each Assumed Option will: (i) have the right to acquire a number of shares of Brilliant Common Stock equal to (as rounded down to the nearest whole number) the product of (A) the number of shares of Nukkleus Common Stock subject to such option prior to the effective time of the Merger, multiplied by (B) the exchange ratio of 1:26.227 (the “Exchange Ratio”); (ii) have an exercise price equal to (as rounded up to the nearest whole cent) the quotient of (A) the exercise price of the option, divided by (B) the Exchange Ratio; and (iii) be subject to the same vesting schedule as the applicable option of Nukkleus.

 

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Pursuant to the A&R Merger Agreement, in connection with the Domestication, all of the issued and outstanding ordinary shares, no par value per share, of Brilliant (“Brilliant Ordinary Shares”), rights to receive one-tenth of one ordinary share of Brilliant per right (“Brilliant Rights”) and warrants entitling the holder thereof to purchase one Brilliant Ordinary Share at a price of $11.50 per Brilliant Ordinary Share (“Brilliant Warrants”) will remain outstanding and become substantially identical securities of the SPAC as a Delaware corporation. The A&R Merger Agreement also provides for holders of Brilliant securities, other than Brilliant’s sponsor or affiliates, to receive an additional issuance, as follows: (1) in the case of holders of Brilliant Ordinary Shares, such number of newly issued shares of Brilliant Common Stock equal to a pro rata share of the Backstop Pool (as defined below); and (2) in the case of holders of Brilliant Rights, such number of shares of Brilliant Common Stock equal to a pro rata share of the Backstop Pool, in each case subject to rounding in accordance with the A&R Merger Agreement (such ratio of the aggregate number of shares of Brilliant Common Stock issuable to each Brilliant public shareholder, including such shareholder’s share in the Backstop Pool, to the aggregate number of Brilliant Ordinary Shares and Brilliant Rights held by such Brilliant public shareholder, the “SPAC Additional Share Ratio”). Outstanding Brilliant Warrants held by holders other than Brilliant’s sponsor or affiliates will receive a number of Brilliant Warrants equal to one warrant exercisable to receive one share of Brilliant Common Stock plus an additional number of warrants equal to the SPAC Additional Share Ratio, with each warrant exercisable to receive one share of Brilliant Common Stock per warrant. The Backstop Pool is defined in the A&R Merger Agreement as a pool of shares of Brilliant Common Stock equal to the lower of (1) 1,012,000 and (2) 40% of the aggregate number of Brilliant Ordinary Shares and Brilliant Rights to receive one-tenth of one Brilliant Ordinary Share, subject to rounding in accordance with the Merger Agreement.

 

The A&R Merger Agreement also extended the Outside Closing Date (as defined in the A&R Merger Agreement), to the later of (i) July 23, 2023, or, (ii) following the approval by Brilliant’s shareholders of an extension of the life of the SPAC pursuant to Brilliant’s organizational documents, to the date so approved, but not later than December 23, 2023.

 

White Lion Stock Purchase Agreement

 

On May 17, 2022, the Company entered into a Stock Purchase Agreement (the “White Lion Agreement”) with White Lion Capital Partners, LLC a California-based investment fund (“White Lion”). Under the terms of the White Lion Agreement, the Company has the right, but not the obligation, to require White Lion to purchase shares of its common stock up to a maximum amount of $75,000,000 or such lower amount as may be required pursuant to the rules of the market on which shares of its common stock trades at such time. Pursuant to terms of the White Lion Agreement and the Registration Rights Agreement (as defined below), the Company is required to use its commercially reasonable efforts to file with the SEC a registration statement covering the shares to be acquired by White Lion within sixty days following the closing of the previously announced business combination with Brilliant Acquisition Corporation described in its Current Report on Form 8-K filed with the SEC on February 23, 2022 (the “Business Combination”).

 

The term of the White Lion Agreement commences on the effective date of the registration statement and shall end on December 31, 2024, or, if earlier, the date on which White Lion has purchased the maximum number of shares of the Company’s common stock provided under the White Lion Agreement, in each case on the terms and subject to the conditions set forth in the White Lion Agreement. White Lion’s purchase price will be 96% of the dollar- volume weighted average price of the Company’s common stock over the two consecutive trading days immediately following receipt of the Company’s notice of its intent to make a draw. As of June 30, 2023, the White Lion Agreement is not yet effective.

 

During the term of the White Lion Agreement, on the terms and subject to the conditions set forth therein, the Company may draw up to the lesser of (i) the number of shares of the Company’s common stock which would result in beneficial ownership by White Lion of more than 4.99% of the outstanding shares of the Company’s common stock, (ii) the number of shares of the Company’s common stock equal to 30% of the average daily trading volume of the Company’s common stock over the five consecutive trading days immediately following the notice date, or (iii) the number of the Company’s common stock obtained by dividing $1,500,000 by the closing sale price of the Company’s common stock on the notice date.

 

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The Company is not entitled to draw on the White Lion Agreement if the closing sale price of the Company’s common stock on the trading day immediately preceding the notice date is less than $1.00 (following the reverse stock split proposed in connection with the closing of the Business Combination and described in the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2022, but adjusted for any other reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). The Company is not entitled to draw on the White Lion Agreement unless each of the following additional conditions is satisfied: (i) each of the Company’s representations and warranties set forth in the White Lion Agreement is true and correct (subject to qualifications as to materiality set forth therein) in all respects as of such time; (ii) a registration statement is and remains effective for the resale of securities in connection with the White Lion Agreement; (iii) the trading of the Company’s common stock shall not have been suspended by the SEC, the applicable trading market or FINRA, or otherwise halted for any reason; (iv) the Company shall have complied with its obligations and shall not otherwise be in breach or default of any agreement set forth in the White Lion Agreement; (v) no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any federal, state, local or foreign court or governmental authority of competent jurisdiction, including, without limitation, the SEC, which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the White Lion Agreement; (vi) all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by us with the SEC pursuant to the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K) shall have been filed with the SEC within the applicable time periods prescribed for such filings; (vii) to the extent the issuance of the put shares requires shareholder approval under the listing rules of the applicable national exchange or principal quotation system for the Company’s common stock, the Company has or will seek such approval; and (viii) certain other conditions as set forth in the White Lion Agreement.

 

In addition to the shares to be issued under the White Lion Agreement, the Company will include in its registration statement additional shares of the Company’s common stock in the amount of $750,000 being issued to White Lion in connection with the execution of the White Lion Agreement.

 

White Lion Registration Rights Agreement

 

In connection with the Company’s entry into the White Lion Agreement, the Company entered into a Registration Rights Agreement with White Lion (the “Registration Rights Agreement”). Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to use its commercially reasonable efforts to file a registration statement under the Securities Act registering the resale of the shares sold under the White Lion Agreement within sixty days of the closing of the Business Combination. The Registration Rights Agreement also provides that the Company is required to use its commercially reasonable efforts to keep the registration effective and to prepare and file with the SEC such amendments and supplements if the foregoing registration statement is not then in effect, and the Company proposes to file certain types of registration statements under as may be necessary to keep the registration statement effective.

 

General Services Agreement

 

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 Triton Capital Markets Ltd. (“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. Effective May 1, 2023, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month. 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.

 

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Item 6. Exhibits

 

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

 

Exhibit
Number
  Description
2.1   Agreement and Plan of Merger, dated as of February 22, 2022, by and among Nukkleus Inc. and Brilliant Acquisition Corporation (12)
     
2.2   Amended and Restated Agreement and Plan of Merger dated as of June 23, 2023 by and among Nukkleus Inc., Brilliant Acquisition Corporation and BRIL Merger Sub, Inc. (13)
     
3.1   Certificate of Amendment to the Certificate of Incorporation filed June 3, 2016 (2)
     
3.2   Statement of Designation, Powers, Preferences and Rights of Series A Preferred Stock (2)
     
3.3   Amended and Restated By-laws of Nukkleus Inc. (3)
     
4.1   Securities Purchase Agreement between Nukkleus Inc. and Currency Mountain Holdings Bermuda, Limited dated June 3, 2016 (2)
     
10.1   Purchase and Sale Agreement by and between Nukkleus, Inc. and Michael Stephen Greenacre; Nicholas Aaron Gregory; Jamal Khurshid; Travers David Lee; Azam Shah; Craig Iain Vallis; Bertram Bartholomew Worsley; and Oliver James Worsley dated May 24, 2021 (10)
     
10.2   General Service Agreement between Nukkleus Limited and FML Malta Limited dated May 24, 2016 (4)
     
10.3   General Service Agreement between Nukkleus Limited and FXDirectDealer LLC dated May 24, 2016 (1)
     
10.4   Stock Purchase Agreement dated May 27, 2016 among Nukkleus Inc., IBIH Limited, the shareholders of IBIH Limited and Currency Mountain Holdings LLC (2)
     
10.5   Amendment No. 1 dated June 2, 2016 to the Asset Purchase Agreement by and between Nukkleus Inc., its majority shareholder Charms Investments Ltd., and its wholly-owned subsidiary, Nukkleus Limited and Currency Mountain Holdings Bermuda, Limited (2)
     
10.6   Amendment No. 1 dated June 3, 2016 to the General Service Agreement between Nukkleus Limited and FXDD Trading Limited (2)
     
10.7   Letter Agreement between Nukkleus Inc. and IBIH Limited dated June 3, 2016 (2)
     
10.8   Director Agreement by and between Nukkleus Inc. and Craig Marshak dated August 1, 2016 (3)
     
10.9   Amendment dated October 17, 2017 of that certain General Service Agreement between Nukkleus Limited and FML Malta Limited (5)
     
10.10   Amendment dated October 17, 2017 of that certain General Service Agreement between Nukkleus Limited and FXDirectDealer LLC (5)
     
10.11   Settlement Agreement and Mutual Release between Nukkleus Inc., IBIH Limited, Terra (FX) Offshore Limited, Ludico Investments Limited, Currency Mountain Holdings LLC and the IBIH Shareholders dated November 17, 2017 (6)
     
10.12   Letter Agreement entered between FML Malta Ltd., FXDD Malta Limited and Nukkleus Limited (7)
     
10.13   Stock Redemption Agreement dated February 13, 2018 between Nukkleus Inc. and Currency Mountain Holdings Bermuda, Limited (8)
     
10.14   Form of Support Agreement, dated as of February 22, 2022 among Brilliant Acquisition Corporation and the investors party thereto (12)
     
10.15   Form of Registration Rights Agreement (12)
     
10.16   Form of Lock-Up Agreement (12)
     
10.17*    Amendment to the General Services Agreement between Nukkleus Limited and FXDirectDealer LLC

 

39

 

 

21.1   List of Subsidiaries (11)
     
31.1*   Rule 13a-14(a) Certification of the Chief Executive and Financial Officer
     
32.1*   Section 1350 Certification of Chief Executive and Financial Officer
     
101.INS*   Inline XBRL Instance Document.
     
101.SCH*   Inline XBRL Taxonomy Extension Schema Document.
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*Filed herewith.

 

(1) Incorporated by reference to the Form 8K Current Report filed with the SEC on May 31, 2016.
(2) Incorporated by reference to the Form 8K Current Report filed with the SEC on June 3, 2016.
(3) Incorporated by reference to the Form 8K Current Report filed with the SEC on August 9, 2016.
(4) Incorporated by reference to the Form 8K Current Report filed with the SEC on October 25, 2016.
(5) Incorporated by reference to the Form 8K Current Report filed with the SEC on October 19, 2017.
(6) Incorporated by reference to the Form 8K Current Report filed with the SEC on December 5, 2017.
(7) Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 27, 2017.
(8) Incorporated by reference to the Form 10Q Quarterly Report filed with the SEC on February 13, 2018.
(9) Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 28, 2020.
(10) Incorporated by reference to the Form 8K Current Report filed with the SEC on June 3, 2021.
(11) Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 29, 2021.

(12)

(13)

Incorporated by reference to the Form 8K Current Report filed with the SEC on February 23, 2022.

Incorporated by reference to the Form 8K Current Report filed with the SEC on June 26, 2023.

 

40

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  NUKKLEUS INC.
  (Registrant)
     
Date: August 14, 2023 By:  /s/ Emil Assentato
    Emil Assentato
    Chief Executive Officer
(Principal Executive Officer) and
Chief Financial Officer
(Principal Financial and Accounting Officer) and Chairman

 

41

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Exhibit 10.17

 

AMENDMENT TO THE

GLOBAL SERVICE AGREEMENT

 

This Amendment, to the Global Service Agreement dated May 24, 2016 between Nukkleus Limited, a private limited Bermuda company (“Nukk”) and FXDirectDealer, LLC, a limited liability company organized under the laws of the State of Delaware (“FXDD”) (the “Original Agreement”), which was amended on October 17, 2017, is entered this 24th day of April 2023. All defined terms not defined herein shall have the meaning as set forth in the Original Agreement.

 

1.The Parties hereby agree that Section 28 of the Original Agreement shall be amended and restated as follows:

 

Commencing May 1, 2023, Nukk shall compensate FXDD at a rate of USD$1,550,000 per month (the “Rates”). The Rates are subject to change with reasonable notice depending upon the type of business and Support required at that particular time, but, in no event shall the total charge be less than the agreed upon rate per month for the first three years, unless otherwise agreed to in writing. The compensation shall be paid to FXDD, in arrears daily, with final adjustment no later than the 25th of each consecutive month.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date above written.

 

Nukkleus Limited   FXDirectDealer, LLC  
       
By:   By:  
       
Name and title:   Name and title:  

 

 

 

 

Signatures

 

Date:  Aug 09 2023   Signature:  /s/ Emil Assentato
        Emil Assentato

 

Date:  Aug 09 2023   Signature:  /s/ Joseph Botkier
        Joseph Botkier

 

 

Exhibit 31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Emil Assentato, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q (the “report”) of Nukkleus Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.As sole executive officer of the Registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.As sole executive officer of the Registrant, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2023 By: /s/ Emil Assentato
    Emil Assentato
    Chief Executive Officer
(Principal Executive Officer) and
Chief Financial Officer
(Principal Financial and Accounting Officer)

Exhibit 32.1

 

Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

 

The undersigned, Emil Assentato, in his capacities as Chief Executive Officer and Chief Financial Officer of Nukkleus Inc. (the “Registrant”) do each hereby certify with respect to the Quarterly Report on Form 10-Q of the Registrant for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that, to the best of its knowledge:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in this Report.

 

Date: August 14, 2023 /s/ Emil Assentato
  Emil Assentato
  Chief Executive Officer
(Principal Executive Officer) and
Chief Financial Officer
(Principal Financial and Accounting Officer)

v3.23.2
Document And Entity Information - shares
9 Months Ended
Jun. 30, 2023
Aug. 14, 2023
Document Information Line Items    
Entity Registrant Name Nukkleus Inc.  
Trading Symbol NUKK  
Document Type 10-Q  
Current Fiscal Year End Date --09-30  
Entity Common Stock, Shares Outstanding   367,175,886
Amendment Flag false  
Entity Central Index Key 0001592782  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Document Period End Date Jun. 30, 2023  
Document Fiscal Year Focus 2023  
Document Fiscal Period Focus Q3  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Document Quarterly Report true  
Document Transition Report false  
Entity File Number 000-55922  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 38-3912845  
Entity Address, Address Line One 525 Washington Boulevard  
Entity Address, City or Town Jersey City  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 07310  
City Area Code 212  
Local Phone Number 791-4663  
Title of 12(b) Security None  
Entity Interactive Data Current Yes  
v3.23.2
Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2023
Sep. 30, 2022
CURRENT ASSETS:    
Cash $ 142,341 $ 364,023
Customer custodial cash 1,712,095 2,020,394
Customer digital currency assets 248,214
Digital assets 1,107 73,415
Due from affiliates 308,461 931,136
Note receivable - related party 35,000 35,000
Note receivable 154,150
Other current assets 52,703 15,617
TOTAL CURRENT ASSETS 2,405,857 3,687,799
NON-CURRENT ASSETS:    
Cost method investment 6,602,000 6,602,000
Intangible assets, net 6,339,021 8,075,105
TOTAL NON-CURRENT ASSETS 12,941,021 14,677,105
TOTAL ASSETS 15,346,878 18,364,904
CURRENT LIABILITIES:    
Accounts payable 106,779 51,712
Customer custodial cash liabilities 1,703,893 2,020,717
Customer digital currency liabilities 248,214
Due to affiliates 5,100,131 4,514,063
Accrued payroll liability and directors’ compensation 365,257 237,205
Accrued professional fees 65,725 170,058
Accrued liabilities and other payables 19,181 232,355
TOTAL CURRENT LIABILITIES 7,360,966 7,474,324
TOTAL LIABILITIES 7,360,966 7,474,324
COMMITMENTS AND CONTINGENCIES - (Note 15)
STOCKHOLDERS’ EQUITY:    
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at June 30, 2023 and September 30, 2022)
Common stock ($0.0001 par value; 900,000,000 shares authorized; 367,175,886 shares issued and outstanding at June 30, 2023 and September 30, 2022) 36,718 36,718
Additional paid-in capital 25,432,669 25,136,459
Accumulated deficit (17,490,131) (14,340,816)
Accumulated other comprehensive income 6,656 58,219
TOTAL STOCKHOLDERS’ EQUITY 7,985,912 10,890,580
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 15,346,878 $ 18,364,904
v3.23.2
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares
Jun. 30, 2023
Sep. 30, 2022
Statement of Financial Position [Abstract]    
Preferred stock, shares authorized 15,000,000 15,000,000
Preferred stock par value (in Dollars per share) $ 0.0001 $ 0.0001
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock par value (in Dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized 900,000,000 900,000,000
Common stock, shares, issued 367,175,886 367,175,886
Common stock, shares, outstanding 367,175,886 367,175,886
v3.23.2
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
REVENUES        
Revenue - general support services - related party $ 4,800,000 $ 4,800,000 $ 14,400,000 $ 14,400,000
Revenue - financial services 412,056 352,192 1,822,388 970,224
Total revenues 5,212,056 5,152,192 16,222,388 15,370,224
COSTS OF REVENUES        
Cost of revenue - general support services - related party 4,675,000 4,725,000 14,125,000 14,175,000
Cost of revenue - financial services 695,074 565,633 2,162,317 1,987,557
Total costs of revenues 5,370,074 5,290,633 16,287,317 16,162,557
GROSS PROFIT (LOSS)        
Gross profit - general support services - related party 125,000 75,000 275,000 225,000
Gross loss - financial services (283,018) (213,441) (339,929) (1,017,333)
Total gross loss (158,018) (138,441) (64,929) (792,333)
OPERATING EXPENSES:        
Advertising and marketing 1,670 147,177 51,087 345,826
Professional fees 571,761 1,046,927 1,815,200 3,311,166
Compensation and related benefits 233,569 90,614 591,361 345,858
Amortization of intangible assets 66,291 66,291 198,871 197,935
Other general and administrative 181,492 165,041 434,212 458,718
Total operating expenses 1,054,783 1,516,050 3,090,731 4,659,503
LOSS FROM OPERATIONS (1,212,801) (1,654,491) (3,155,660) (5,451,836)
OTHER (EXPENSE) INCOME:        
Loss from equity method investment (330,680) (401,299)
Other income (expense) 3,057 (1,116) 6,345 (4,605)
Total other income (expense), net 3,057 (331,796) 6,345 (405,904)
LOSS BEFORE INCOME TAXES (1,209,744) (1,986,287) (3,149,315) (5,857,740)
INCOME TAXES
NET LOSS (1,209,744) (1,986,287) (3,149,315) (5,857,740)
COMPREHENSIVE LOSS:        
NET LOSS (1,209,744) (1,986,287) (3,149,315) (5,857,740)
OTHER COMPREHENSIVE (LOSS) INCOME        
Unrealized foreign currency translation (loss) gain (20,859) 27,644 (51,563) 38,631
COMPREHENSIVE LOSS $ (1,230,603) $ (1,958,643) $ (3,200,878) $ (5,819,109)
NET LOSS PER COMMON SHARE:        
Basic and diluted (in Dollars per share) $ 0 $ (0.01) $ (0.01) $ (0.02)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:        
Basic and diluted (in Shares) 367,175,886 367,175,886 367,175,886 352,412,872
v3.23.2
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (Parentheticals) - $ / shares
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Income Statement [Abstract]        
Diluted net loss per common share $ 0.00 $ (0.01) $ (0.01) $ (0.02)
Diluted weighted average common shares outstanding 367,175,886 367,175,886 367,175,886 352,412,872
v3.23.2
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity - USD ($)
Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income
Total
Balance at Sep. 30, 2021 $ 33,203 $ 11,613,208 $ (2,495,159) $ 8,440 $ 9,159,692
Balance (in Shares) at Sep. 30, 2021 332,024,371        
Common stock issued in connection with cost method investment $ 2,000 6,600,000 6,602,000
Common stock issued in connection with cost method investment (in Shares) 20,000,000        
Stock-based compensation 378,746 378,746
Net loss (1,944,839) (1,944,839)
Foreign currency translation adjustment (2,227) (2,227)
Balance at Dec. 31, 2021 $ 35,203 18,591,954 (4,439,998) 6,213 14,193,372
Balance (in Shares) at Dec. 31, 2021 352,024,371        
Balance at Sep. 30, 2021 $ 33,203 11,613,208 (2,495,159) 8,440 9,159,692
Balance (in Shares) at Sep. 30, 2021 332,024,371        
Net loss           (5,857,740)
Balance at Jun. 30, 2022 $ 36,718 24,652,919 (8,352,899) 47,071 16,383,809
Balance (in Shares) at Jun. 30, 2022 367,175,886        
Balance at Dec. 31, 2021 $ 35,203 18,591,954 (4,439,998) 6,213 14,193,372
Balance (in Shares) at Dec. 31, 2021 352,024,371        
Common stock issued in connection with equity method investment $ 1,515 4,998,485 5,000,000
Common stock issued in connection with equity method investment (in Shares) 15,151,515        
Stock options issued for the purchase of an intangible asset 11,237 11,237
Stock-based compensation 525,622 525,622
Net loss (1,926,614) (1,926,614)
Foreign currency translation adjustment 13,214 13,214
Balance at Mar. 31, 2022   $ 36,718 24,127,298 (6,366,612) 19,427 17,816,831
Balance (in Shares) at Mar. 31, 2022 367,175,886        
Stock-based compensation 525,621 525,621
Net loss (1,986,287) (1,986,287)
Foreign currency translation adjustment 27,644 27,644
Balance at Jun. 30, 2022 $ 36,718 24,652,919 (8,352,899) 47,071 16,383,809
Balance (in Shares) at Jun. 30, 2022 367,175,886        
Balance at Sep. 30, 2022 $ 36,718 25,136,459 (14,340,816) 58,219 10,890,580
Balance (in Shares) at Sep. 30, 2022 367,175,886        
Stock-based compensation 146,876 146,876
Net loss (1,133,922) (1,133,922)
Foreign currency translation adjustment (27,983) (27,983)
Balance at Dec. 31, 2022 $ 36,718 25,283,335 (15,474,738) 30,236 9,875,551
Balance (in Shares) at Dec. 31, 2022 367,175,886        
Balance at Sep. 30, 2022 $ 36,718 25,136,459 (14,340,816) 58,219 10,890,580
Balance (in Shares) at Sep. 30, 2022 367,175,886        
Net loss           (3,149,315)
Balance at Jun. 30, 2023 $ 36,718 25,432,669 (17,490,131) 6,656 7,985,912
Balance (in Shares) at Jun. 30, 2023 367,175,886        
Balance at Dec. 31, 2022 $ 36,718 25,283,335 (15,474,738) 30,236 9,875,551
Balance (in Shares) at Dec. 31, 2022 367,175,886        
Stock-based compensation 74,667 74,667
Net loss (805,649) (805,649)
Foreign currency translation adjustment (2,721) (2,721)
Balance at Mar. 31, 2023 $ 36,718 25,358,002 (16,280,387) 27,515 9,141,848
Balance (in Shares) at Mar. 31, 2023 367,175,886        
Stock-based compensation 74,667 74,667
Net loss (1,209,744) (1,209,744)
Foreign currency translation adjustment (20,859) (20,859)
Balance at Jun. 30, 2023 $ 36,718 $ 25,432,669 $ (17,490,131) $ 6,656 $ 7,985,912
Balance (in Shares) at Jun. 30, 2023 367,175,886        
v3.23.2
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (3,149,315) $ (5,857,740)
Adjustments to reconcile net loss to net cash used in operating activities:    
Amortization of intangible assets 1,778,675 2,097,726
Stock-based compensation and service expense 296,210 1,429,989
Unrealized foreign currency exchange gain (441)
Loss on equity method investment 401,299
Changes in operating assets and liabilities:    
Customer digital currency assets 270,421 1,139,351
Accounts receivable (298) (17,311)
Digital assets 78,927 (20,769)
Due from affiliates 648,073 1,746,529
Other current assets (34,864) 2,936
Accounts payable 45,496 33,649
Customer custodial cash liabilities (576,514) 262,180
Customer digital currency liabilities (270,421) (1,139,351)
Due to affiliates 506,149 (315,817)
Accrued payroll liability and directors’ compensation 126,450 36,667
Accrued professional fees (111,362) (18,650)
Accrued liabilities and other payables (233,902) 162,478
NET CASH USED IN OPERATING ACTIVITIES (626,716) (56,834)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Investment in note receivable (154,150)
Purchase of intangible asset (41,706)
NET CASH USED IN INVESTING ACTIVITIES (195,856)
EFFECT OF EXCHANGE RATE ON CASH 292,591 (104,494)
NET DECREASE IN CASH (529,981) (161,328)
Cash - beginning of period 2,384,417 1,203,073
Cash - end of period 1,854,436 1,041,745
Cash consisted of the following:    
Cash 142,341 75,827
Customer custodial cash 1,712,095 965,918
Total cash 1,854,436 1,041,745
Cash paid for:    
Interest
Income taxes
NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Common stock issued in connection with cost method investment 6,602,000
Common stock issued in connection with equity method investment 5,000,000
Stock options issued for the purchase of an intangible asset $ 11,237
v3.23.2
The Company History and Nature of the Business
9 Months Ended
Jun. 30, 2023
The Company History and Nature of the Business [Abstract]  
THE COMPANY HISTORY AND NATURE OF THE BUSINESS

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. Effective May 1, 2023, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month. 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 manages the technology and Internet Protocol (“IP”) behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the IP rights to the brands such as Markets Direct and TCM. MDTG then leases out the rights to use these names/brands licenses to the appropriate entities.

 

In fiscal year 2021, the Company completed its acquisition of Match Financial Limited, a private limited company formed in England and Wales (“Match”) and its subsidiaries. Match, through its Digital RFQ Limited (“Digital RFQ”) subsidiary, is engaged in providing payment services from one fiat currency to another or to digital assets.

 

On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 20,000,000 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin exchange-traded fund (“ETF”). Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s chief operating officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.

 

On December 30, 2021, the Company and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which the Company agreed to acquire 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of 15,151,515 shares of common stock of the Company (valued at $5,000,000 based on the market price of the Company’s common stock on the acquisition date) (the “Digiclear Transaction”). In addition to, if and when the Company is acquired by a Special Purpose Acquisition Company (“SPAC”), the Company will fund and capitalize Digiclear with a minimum of $1,000,000 operating capital in exchange for 4.545% of additional shares of Digiclear’s capital stock. Digiclear shall retain the right to unwind the transaction and to have the Company return the 5,400,000 ordinary shares of Digiclear share in return for Digiclear returning to the Company the 15,151,515 of Company common shares. Digiclear can only unwind the transaction if the Company is no longer under contract to be acquired by a SPAC (See Note 15 – Merger). The Digiclear Transaction closed on March 17, 2022. Digiclear is a company developing a custody and settlement utility operating system.

 

Liquidity and capital resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2023 and September 30, 2022, the Company had cash of $142,341 and $364,023, respectively, exclusive of customer custodial cash.

 

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 had a working capital deficit of approximately $4,955,000 at June 30, 2023 and incurred a net loss and generated negative cash flow from operating activities of approximately $3,149,000 and $627,000 for the nine months ended June 30, 2023, respectively. These are indicators of substantial doubt as to the Company’s ability to continue as a going concern for at least one year from issuance of these financial statements. 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.

 

The Company cannot be certain that such necessary capital through equity or debt financings will be available to it or whether such capital will be available on terms that are acceptable to it. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact the Company business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, TCM, 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.

 

Based on the foregoing, management believes that its current financial resources, as of the date of the issuance of these financial statements, are sufficient to fund its current twelve-month operating budget, alleviating any concerns by its historical operating results and satisfying its estimated liquidity needs for the twelve months from the issuance of these financial statements.

v3.23.2
Basis of Presentation and Principles of Consolidation
9 Months Ended
Jun. 30, 2023
Basis of Presentation and Principles of Consolidation [Abstract]  
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

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, 2022 filed with the Securities and Exchange Commission on April 10, 2023. The consolidated balance sheet as of September 30, 2022 contained herein has been derived from the audited consolidated financial statements as of September 30, 2022, but does not include all disclosures required by U.S. GAAP.

v3.23.2
Summary of Significant Accounting Policies
9 Months Ended
Jun. 30, 2023
Basis of Presentation and Principles of Consolidation [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. Changes in these estimates and assumptions may have a material impact on the unaudited condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and nine months ended June 30, 2023 and 2022 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances, valuation of stock-based compensation, and fair value of customer digital currency assets and liabilities.

 

Cash and cash equivalents

 

At June 30, 2023 and September 30, 2022, the Company’s cash balances by geographic area were as follows:

 

Country:  June 30, 2023   September 30, 2022 
United States  $74,396    52.3%  $47,860    13.1%
United Kingdom   65,636    46.1%   315,989    86.8%
Lithuania   2,135    1.5%   
-
    
-
 
Malta   174    0.1%   174    0.1%
Total cash  $142,341    100.0%  $364,023    100.0%

 

For purposes of the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at June 30, 2023 and September 30, 2022. Cash and cash equivalents excludes customer legal tender, which is reported separately as Customer custodial cash in the accompanying condensed consolidated balance sheets. Refer to “customer custodial cash and customer custodial cash liabilities” below for further details.

 

Customer custodial cash and customer custodial cash liabilities

 

Customer custodial cash represents cash and cash equivalents maintained in Company bank accounts that are controlled by the Company but held for the benefit of customers. Customer custodial cash liabilities represent these cash deposits to be utilized for its contractual obligations to its customers. The Company classifies the assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

 

Customer digital currency assets and liabilities

 

At certain times, Digital RFQ’s customers’ funds that Digital RFQ uses to make payments on behalf of its customers, remain in the form of digital assets in its customers’ wallets at its digital asset trading platforms awaiting final conversion and/or transfer to the customer’s payment final destination. These indirectly held digital assets, may consist of USDT (Stablecoin), Bitcoin, and Ethereum (collectively, “Customer digital currency assets”). Digital RFQ maintains the internal recordkeeping of its customer digital currency assets, including the amount and type of digital asset owned by each of its customers.

 

Digital RFQ has control of the private keys and knows the balances of all wallets with its digital asset trading platforms in order to be able to successfully carry out the movement of digital assets for its client payment instruction. As part of its customer payment instruction, Digital RFQ can execute withdrawals on the wallets in its digital asset trading platforms.

 

Management has determined that Digital RFQ has control of the customer digital currency assets and records these assets on its balance sheet with a corresponding liability. Digital RFQ recognizes customer digital currency liabilities and corresponding customer digital currency assets, on initial recognition and at each reporting date, at fair value of the customer digital currency assets. Subsequent changes in fair value are adjusted to the carrying amount of these customer digital currency assets, with changes in fair value recorded in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

Any loss, theft, or other misuse would impact the measurement of customer digital currency assets. The Company classifies the customer digital currency assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

 

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 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 fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying unaudited condensed consolidated financial statements, primarily due to their short-term nature.

 

Assets and liabilities measured at fair value on a recurring basis. Customer digital currency assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis.

 

The following table provides these assets and liabilities carried at fair value, measured as of September 30, 2022:

 

   Quoted
Price in
   Significant
Other
   Significant     
   Active
Markets
   Observable
Inputs
   Unobservable
Inputs
   Balance at
September 30,
 
   (Level 1)   (Level 2)   (Level 3)   2022 
Customer digital currency assets  $
     -
   $248,214   $
         -
   $248,214 
Customer digital currency liabilities  $
-
   $248,214   $
-
   $248,214 

 

Customer digital currency assets and liabilities represent the Company’s obligation to safeguard customers’ digital assets. Accordingly, the Company has valued the assets and liabilities using quoted market prices for the underlying digital assets which is based on Level 2 inputs.

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Credit risk and uncertainties

 

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.

 

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.

 

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances, including customer custodial cash, in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company may also hold cash at digital asset trading platforms and performs a regular assessment of these digital asset trading platforms as part of its risk management process. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2023, there were no balances in excess of the federally-insured limits.

 

We may maintain our cash assets at financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, in response to the rapidly declining financial condition of regional banks Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”), the California Department of Financial Protection and Innovation and the New York State Department of Financial Services closed SVB and Signature on March 10, 2023 and March 12, 2023, respectively, and the FDIC was appointed as receiver for SVB and Signature. In the event of a failure or liquidity issues of or at any of the financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations. Similarly, if our customers experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our results of operations, including the collection of accounts receivable and cash flows.

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

 

Digital assets

 

The digital assets held by the Company are accounted for as intangible assets with indefinite useful lives, and are initially measured at cost. Digital assets accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. The fair value is measured using the quoted price of the digital asset at the time its fair value is being measured. Impairment expense is reflected in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company assigns costs to transactions on a first-in, first-out basis.

 

Other current assets

 

Other current assets primarily consist of security deposit and prepaid listing fees. As of June 30, 2023 and September 30, 2022, other current assets amounted to $52,703 and $15,617, respectively.

 

Revenue recognition

 

The Company determines revenue recognition from contracts with customers through the following steps:

 

Step 1: Identify the contract with the customer

 

Step 2: Identify the performance obligations in the contract

 

Step 3: Determine the transaction price

 

Step 4: Allocate the transaction price to the performance obligations in the contract

 

Step 5: Recognize revenue when the company satisfies a performance obligation

 

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s revenues are derived from providing:

 

General support services under a GSA to a related party. 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 (including operational reporting and technical support infrastructure, website hosting and marketing solutions, accounting maintenance, risk monitoring services, new account processing and customer care and continued support) 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. The Company recognizes the full contracted amount each period with no deferred revenue. The nature of the performance obligation is to provide the specified goods or services directly to the customer. The Company engages another party to satisfy the performance obligation on its behalf. The Company’s performance obligation is not to arrange for the provision of the specified good or service by another party. The Company is primarily responsible for fulfilling the promise to provide the specified good or service. Therefore, the Company is deemed to be a principal in the transaction and recognizes revenue for that performance obligation. 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. Under a GSA, the Company is contractually obligated to provide for the fulfillment software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company’s 1.6% mark-up to the costs of the services being provided by FXDirect Dealer, LLC.

 

Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. Prepayments, if any, received from customers prior to the services being performed are recorded as advances from customers. In these cases, when the services are performed, the appropriate portion of the amount recorded as advance from customers is recognized as revenue.  There are 4 distinct stages that each trade must go through to be completed and must be converted from one currency into another. Where possible, fees are taken in United States dollar (“USD”) and therefore if there is an agreed fee with the client then this will be taken on the USD leg of the transaction regardless of whether it is pre-conversion or post-conversion.  The first stage is notification and there is no real opportunity for us to realize revenue at this stage.  The second stage is the funding stage and it allows us to charge the agreed fee before any currency conversion, we call this pre-trade revenue. The third stage of the transaction is conversion and we are able to realize revenue in the spread between the price we pay for the conversion and the price we charge the client for the conversion. The fourth opportunity for us to realize revenue (charge our fee) is after the conversion has taken place (post-trade).

 

Disaggregation of revenues

 

The Company’s revenues stream detail are as follows:

 

Revenue Stream   Revenue Stream Detail
General support services   Providing software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party
Financial services   Providing payment services from one fiat currency to another or to digital assets

 

In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2023 and 2022:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Revenue Stream  2023   2022   2023   2022 
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total revenues  $5,212,056   $5,152,192   $16,222,388   $15,370,224 

 

Cost method investment

 

Investment in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other (expense) income” in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss, and a new basis in the investment is established. No impairment expense was recorded for the three and nine months ended June 30, 2023 and 2022.

 

Intangible assets

 

Intangible assets consist of trade names, regulatory licenses, technology and software, which are being amortized on a straight-line method over the estimated useful life of 3 - 5 years.

 

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of June 30, 2023. For the three and nine months ended June 30, 2023 and 2022, no impairment of long-lived assets was recognized.

 

Advertising and marketing costs

 

All costs related to advertising and marketing are expensed as incurred. For the three months ended June 30, 2023 and 2022, advertising and marketing costs amounted to $1,670 and $147,177, respectively, which was included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2023 and 2022, advertising and marketing costs amounted to $51,087 and $345,826, respectively, which is included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

Stock-based compensation

 

The Company measures and recognizes compensation expense for all stock-based awards granted to non-employees, including stock options, based on the grant date fair value of the award. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.

 

For non-employee stock-based awards, fair value is measured based on the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is calculated and then recognized as compensation expense over the requisite performance period.

 

Income taxes

 

The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

 

The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal and foreign tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the period of the change in estimate.

 

The Company follows the provisions of FASB ASC 740-10 Uncertainty in Income Taxes (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. 

 

Foreign currency translation

 

The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange prevailing at the balance sheet date. Revenue and expenses are translated using average rates during each reporting period, and stockholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss.

 

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Most of the Company’s revenue transactions are transacted in the functional currency of the Company. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.7867 GBP and 0.8987 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.9162 EUR and 1.0221 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 were translated at 1.3235 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 and 2022 was 0.8249 GBP and 0.7615 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 was 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the period from February 18, 2023 through June 30, 2023 was 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

 

Comprehensive loss

 

Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2023 and 2022 consisted of net loss and unrealized loss/gain from foreign currency translation adjustment.

 

Segment reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

 

The Company has determined that it has two reportable business segments: general support services segment and financial services segment. These reportable segments offer different types of services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. 

 

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. For the three and nine months ended June 30, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. 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 had an anti-dilutive impact.

 

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Stock options   4,350,000    5,850,000    5,850,000    5,850,000 
Potentially dilutive security   4,350,000    5,850,000    5,850,000    5,850,000 

 

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 unaudited condensed consolidated financialss 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 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 consolidated financial condition, results of operations, cash flows or disclosures.

v3.23.2
Customer Assets and Liabilities
9 Months Ended
Jun. 30, 2023
Customer Assets and Liabilities [Abstract]  
CUSTOMER ASSETS AND LIABILITIES

NOTE 4 - CUSTOMER ASSETS AND LIABILITIES

 

The Company includes customer funds in the condensed consolidated balance sheets as customer custodial cash and also includes such a corresponding liability reflected as customer custodial cash liabilities in the condensed consolidated balance sheets.

 

The following table presents customers’ cash and digital positions:

 

   June 30,
2023
   September 30,
2022
 
Customer custodial cash  $1,712,095   $2,020,394 
Customer digital currency assets   
-
    248,214 
Total customer assets  $1,712,095   $2,268,608 
           
Customer custodial cash liabilities  $1,703,893   $2,020,717 
Customer digital currency liabilities   
-
    248,214 
Total customer liabilities  $1,703,893   $2,268,931 

 

The Company controls digital assets for its customers in digital wallets and digital token identifiers necessary to access digital assets on digital asset trading platforms. The Company maintains a record of all assets in digital wallets held on digital asset trading platforms as well as the private keys, which are maintained on behalf of customers. The Company records the assets and liabilities, on the initial recognition and at each reporting date, at the fair value of the digital assets which it controls for its customers. Any loss or theft would impact the measurement of the customer digital currency assets. During the three and nine months ended June 30, 2023 and 2022, no losses have been incurred in connection with customer digital currency assets. The Company also controls the bank accounts holding the customer custodial cash, as reflected on the accompanying condensed consolidated balance sheets.

 

The following table sets forth the fair market value of customer digital currency assets, as shown in the condensed consolidated balance sheets, as customer digital currency assets and customer digital currency liabilities, as of June 30, 2023 and September 30, 2022:

 

   June 30, 2023   September 30, 2022 
   Fair value   Percentage of total   Fair value   Percentage of total 
Bitcoin  $
        -
    
         -
   $162,294    65.4%
Stablecoin/USD Coin   
-
    
-
    85,897    34.6%
Ethereum   
-
    
-
    23    0.0%
Others   
-
    
-
    
-
    
-
 
Total customer digital currency assets  $
-
    
-
   $248,214    100.0%
v3.23.2
Digital Assets
9 Months Ended
Jun. 30, 2023
Digital Assets [Abstract]  
DIGITAL ASSETS

NOTE 5 – DIGITAL ASSETS

 

The following table summarizes the Company’s digital asset holdings as of June 30, 2023:

 

Asset  Estimated
useful life
  Cost   Impairment   Digital assets 
Bitcoin  Indefinite  $218   $
            -
   $218 
Ethereum  Indefinite   487    
-
    487 
Stablecoin/USD Coin  Indefinite   308    
-
    308 
Other  Indefinite   94    
-
    94 
Total 
 
  $1,107   $
-
   $1,107 

 

The following table summarizes the Company’s digital asset holdings as of September 30, 2022:

 

Asset  Estimated
useful life
  Cost   Impairment   Digital assets 
Bitcoin  Indefinite  $63,377   $774   $62,603 
Ethereum  Indefinite   1,289    
-
    1,289 
Stablecoin/USD Coin  Indefinite   9,417    
-
    9,417 
Other  Indefinite   106    
-
    106 
Total 
 
  $74,189   $774   $73,415 

 

The Company recorded impairment expense of $122 and $0 for the three months ended June 30, 2023 and 2022, respectively. The Company recorded impairment expense of $7,865 and $0 for the nine months ended June 30, 2023 and 2022, respectively.

v3.23.2
Note Receivable
9 Months Ended
Jun. 30, 2023
Note Receivable [Abstract]  
NOTE RECEIVABLE

NOTE 6 – NOTE RECEIVABLE

 

As of June 30, 2023, the Company made loans with an aggregate principal of $154,150 to Brilliant. The principal shall be payable promptly after the date on which Brilliant consummates an initial business combination with a target business. The principal may be prepaid at any time. These loans bear a fixed interest rate of 0% per annum. These loans shall not be convertible into any securities of Brilliant, and the Company shall have no recourse with respect to Brilliant’s ability to convert these loans into any securities of Brilliant (See Note 15 – Merger).

v3.23.2
Cost Method Investment
9 Months Ended
Jun. 30, 2023
Cost Method Investment [Member]  
COST METHOD INVESTMENT

NOTE 7 – COST METHOD INVESTMENT 

 

At June 30, 2023, cost method investment amounted to $6,602,000. The investment represents the Company’s minority interest in Jacobi, a private company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF.

 

On December 15, 2021, the Company issued 20,000,000 shares of its common stock to Jacobi’s shareholders for acquisition of 5.0% equity interest of Jacobi. These shares were valued at $6,602,000 ($0.3301 per share), the fair market value on the grant date using the reported closing share price of the Company on the date of grant.

 

In accordance with ASC Topic 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company monitors its investment in the non-marketable security and will recognize, if ever existing, a loss in value which is deemed to be other than temporary. The Company determined that there was no impairment of this investment as of June 30, 2023. 

v3.23.2
Equity Method Investment
9 Months Ended
Jun. 30, 2023
Equity Method Investment [Abstract]  
EQUITY METHOD INVESTMENT

NOTE 8 – EQUITY METHOD INVESTMENT

 

As of both June 30, 2023 and September 30, 2022, the equity method investment amounted to $0. The investment represents the Company’s interest in Digiclear. Digiclear was incorporated on July 13, 2021 in United Kingdom. The company and the other unrelated party accounted for 50% and 50% of the total ownership, respectively. Digiclear is a company developing a custody and settlement utility operating system.

 

The Company accounts for the investment in Digiclear under the equity method of accounting. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

 

In September 2022, the Company assessed its equity method investment for any impairment and concluded that there were indicators of impairment as of September 30, 2022. The impairment is due to the Company’s conclusion that it will be unable to recover the carrying amount of the investment due to the investee’s a series of operating losses and global economic environment. The Company calculated that the estimated undiscounted cash flows were less than the carrying amount related to the equity method investment. The Company has recognized an impairment loss of $4,310,745 related to the equity method investment for the year ended September 30, 2022, which reduced the investment value to zero.

v3.23.2
Intangible Assets
9 Months Ended
Jun. 30, 2023
Intangible Assets [Abstract]  
INTANGIBLE ASSETS

NOTE 9 – INTANGIBLE ASSETS

 

Intangible assets primarily consist of the valuation of identifiable intangible assets acquired, representing trade names, regulatory licenses, and technology. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

 

At June 30, 2023 and September 30, 2022, intangible assets consisted of the following:

 

   Useful Life  June 30,
2023
   September 30,
2022
 
Trade names  3 Years  $784,246   $784,246 
Regulatory licenses  3 Years   181,342    138,751 
Technology  5 Years   10,300,774    10,300,774 
Software  3 Years   11,237    11,237 
       11,277,599    11,235,008 
Less: accumulated amortization      (4,938,578)   (3,159,903)
      $6,339,021   $8,075,105 

 

For the three months ended June 30, 2023 and 2022, amortization expense amounted to $592,892 and $592,892, respectively, of which, $526,602 and $526,601 was included in cost of revenue – financial services, and $66,290 and $66,291 was included in operating expenses, respectively.

 

For the nine months ended June 30, 2023 and 2022, amortization expense amounted to $1,778,675 and $2,097,726, respectively, of which, $1,579,804 and $1,899,791 was included in cost of revenue – financial services, and $198,871 and $197,935 was included in operating expenses, respectively.

 

Amortization of intangible assets attributable to future periods is as follows:

 

For the Twelve-month Period Ending June 30:  Amortization amount 
2024  $2,360,124 
2025   2,076,224 
2026   1,902,673 
2027 and thereafter   
-
 
   $6,339,021 
v3.23.2
Accrued Liabilities and Other Payables
9 Months Ended
Jun. 30, 2023
Accrued Liabilities and Other Payables [Abstract]  
ACCRUED LIABILITIES AND OTHER PAYABLES

NOTE 10 – ACCRUED LIABILITIES AND OTHER PAYABLES

 

At June 30, 2023 and September 30, 2022, accrued liabilities and other payables consisted of the following:

 

   June 30,
2023
   September 30,
2022
 
Unearned revenue  $
-
   $203,222 
Others   19,181    29,133 
Total  $19,181   $232,355 
v3.23.2
Share Capital
9 Months Ended
Jun. 30, 2023
Share Capital [Abstract]  
SHARE CAPITAL

NOTE 11 – 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.  

 

Options

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2023:

 

  Options Outstanding   Options Exercisable 
  Range of
Exercise Price
   Number
Outstanding at
June 30,
2023
   Weighted Average
Remaining
Contractual Life
(Years)
   Weighted Average
Exercise Price
   Number
Exercisable at
June 30,
2023
   Weighted Average
Exercise Price
 
$ 0.09 – 0.45    3,350,000    3.51   $0.13    1,150,000   $0.13 
  2.50    1,000,000    3.22    2.50    1,000,000    2.50 
$ 0.09 – 2.50    4,350,000    3.44   $0.67    2,150,000   $1.23 

 

Stock option activities for the nine months ended June 30, 2023 were as follows:

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Outstanding at October 1, 2022   5,850,000   $0.67 
Granted   
-
    
-
 
Expired   (1,500,000)   (0.67)
Outstanding at June 30, 2023   4,350,000   $0.67 
Options exercisable at June 30, 2023   2,150,000   $1.23 
Options expected to vest   2,200,000   $0.12 

 

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at June 30, 2023 was $0.

 

For the three months ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $74,667 and $525,621, respectively, which was recorded as professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

For the nine months ended June 30, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $296,210 and $1,429,989, respectively, which was recorded as professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

A summary of the status of the Company’s nonvested stock options granted as of June 30, 2023 and changes during the nine months ended June 30, 2023 is presented below:

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Nonvested at October 1, 2022   3,800,000   $0.35 
Granted   
-
    
-
 
Vested   (1,600,000)   (0.65)
Nonvested at June 30, 2023   2,200,000   $0.12 
v3.23.2
Related Party Transactions
9 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 12 – RELATED PARTY TRANSACTIONS

 

Services provided by related parties

 

From time to time, Oliver Worsley, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $14,942 and $7,879 for the three months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $40,005 and $7,879 for the nine months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As of June 30, 2023 and September 30, 2022, the accrued and unpaid services charge related to Oliver Worsley amounted to $0 and $16,691, respectively, which have been included in accrued professional fees on the accompanying condensed consolidated balance sheets.

 

From time to time, Craig Vallis, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $26,017 and $23,991 for the three months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $100,012 and $65,529 for the nine months ended June 30, 2023 and 2022, respectively, which have been included in professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

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’s general support services operate 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’s general support services operate 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. Effective May 1, 2023, the minimum amount payable by the Company to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month.

 

Both of the above entities are affiliates through common ownership.

 

During the three and nine months ended June 30, 2023 and 2022, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Service provided to:                
TCM  $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, 2023 and 2022, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Service received from:                
FXDIRECT  $4,675,000   $4,725,000   $14,125,000   $14,175,000 
   $4,675,000   $4,725,000   $14,125,000   $14,175,000 

 

During the three months ended June 30, 2023 and 2022, Digital RFQ earned revenue from related parties in the amount of $29,343 and $17,974, respectively, which was included in revenue – financial services on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

During the nine months ended June 30, 2023 and 2022, Digital RFQ earned revenue from related parties in the amount of $107,859 and $28,239, respectively, which was included in revenue – financial services on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

Due from affiliates

 

At June 30, 2023 and September 30, 2022, due from affiliates consisted of the following:

 

   June 30,
2023
   September 30,
2022
 
Digiclear  $229,837   $35,762 
Jacobi   24,422    
-
 
FXDD Mauritius (1)   3,012    
-
 
TCM   51,190    895,374 
Total  $308,461   $931,136 

 

(1)FXDD Mauritius is controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.

 

The balance due from Digiclear represents advances made to Digiclear and monies that the Company paid on behalf of Digiclear. The balances due from Jacobi and FXDD Mauritius represent monies that the Company paid on behalf of Jacobi and FXDD Mauritius. The balance due from TCM represents 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 June 30, 2023 and September 30, 2022. The Company historically has not experienced uncollectible receivable from the related parties.

 

Due to affiliates

 

At June 30, 2023 and September 30, 2022, due to affiliates consisted of the following:

 

   June 30,
2023
   September 30,
2022
 
Forexware LLC (1)  $1,211,665   $1,079,229 
FXDIRECT   3,289,537    3,042,101 
Currency Mountain Holdings Bermuda, Limited (“CMH”)   42,000    42,000 
FXDD Trading (1)   498,963    242,113 
Markets Direct Payments (1)   2,415    2,114 
Match Fintech Limited (2)   55,551    106,506 
Total  $5,100,131   $4,514,063 

 

(1)Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.

 

(2)Match Fintech Limited is controlled by affiliates of the Company.

 

The balances due to affiliates represents expenses paid by Forexware LLC, FXDIRECT, FXDD Trading, Markets Direct Payments, and Match Fintech Limited 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.

 

Amounts due to affiliates are short-term in nature, non-interest bearing, unsecured and repayable on demand.

 

Customer digital currency assets and liabilities – related parties

 

At June 30, 2023 and September 30, 2022, related parties’ digital currency, which was controlled by Digital RFQ, amounted to $0 and $248,214, respectively, which was included in customer digital currency assets and liabilities on the accompanying condensed consolidated balance sheets.

 

Note receivable – related party

 

The Company originated a note receivable to a shareholder in the principal amount of $35,000 on September 1, 2022. The note shall mature with respect to $17,500 on March 1, 2023 and with respect to $17,500 on September 1, 2023. The note bears a fixed interest rate of 5.0% per annum. Currently, this loan is in default.

 

For the three months ended June 30, 2023, the interest income related to this note amounted to $468 and has been included in other income on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2023, the interest income related to this note amounted to $1,362 and has been included in other income on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

As of June 30, 2023 and September 30, 2022, the outstanding interest balance related to this note was $1,587 and $159, respectively, and was included in other current assets on the accompanying condensed consolidated balance sheets.

 

Letter agreement with ClearThink

 

Nukkleus is party to a letter agreement with ClearThink dated as of November 22, 2021, pursuant to which ClearThink was engaged by Nukkleus in connection with the Business Combination (See Note 15 - White lion stock purchase agreement).

 

Craig Marshak, a member of the Board of Directors of the Company, is a managing director of ClearThink, a transaction advisory firm. ClearThink has been engaged by the Company to serve as the exclusive transactional financial advisor, and finder with respect to the Business Combination, to advise the Company with respect to the Business Combination. As of June 30, 2023, the Company has paid ClearThink $140,000, and upon closing of the Business Combination the Company is obligated to pay ClearThink 1.2% of the total transaction value plus reimbursable expenses less the $140,000 paid to ClearThink as of June 30, 2023.

v3.23.2
Concentrations
9 Months Ended
Jun. 30, 2023
Concentrations [Abstract]  
CONCENTRATIONS

NOTE 13 – CONCENTRATIONS

 

Customers

 

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended June 30, 2023 and 2022.

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Customer  2023   2022   2023   2022 
A – related party   92.1%   93.2%   88.8%   93.7%

 

Two related party customers, whose outstanding receivables accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2023, accounted for 91.0% of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2023.

 

One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding due from affiliates at September 30, 2022, accounted for 96.2% of the Company’s total outstanding due from affiliates at September 30, 2022.

 

Suppliers

 

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s costs of revenues for the three and nine months ended June 30, 2023 and 2022.

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Supplier  2023   2022   2023   2022 
A – related party   87.1%   89.3%   86.7%   87.7%

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable and due to affiliates at June 30, 2023, accounted for 79.5% of the Company’s total outstanding accounts payable and due to affiliates at June 30, 2023.

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable and due to affiliates at September 30, 2022, accounted for 79.2% of the Company’s total outstanding accounts payable and due to affiliates at September 30, 2022.

v3.23.2
Segment Information
9 Months Ended
Jun. 30, 2023
Segment Information [Abstract]  
SEGMENT INFORMATION

NOTE 14 – SEGMENT INFORMATION

 

For the three and nine months ended June 30, 2023 and 2022, the Company operated in two reportable business segments - (1) the general support services segment, in which we provide software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party; and (2) the financial services segment, in which we provide payment services from one fiat currency to another. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.

 

Information with respect to these reportable business segments for the three and nine months ended June 30, 2023 and 2022 was as follows:

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
       (as restated)       (as restated) 
Revenues                
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total   5,212,056    5,152,192    16,222,388    15,370,224 
                     
Costs of revenues                    
General support services   4,675,000    4,725,000    14,125,000    14,175,000 
Financial services   695,074    565,633    2,162,317    1,987,557 
Total   5,370,074    5,290,633    16,287,317    16,162,557 
                     
Gross profit (loss)                    
General support services   125,000    75,000    275,000    225,000 
Financial services   (283,018)   (213,441)   (339,929)   (1,017,333)
Total   (158,018)   (138,441)   (64,929)   (792,333)
                     
Operating expenses                    
Financial services   558,228    390,525    1,595,955    1,347,503 
Corporate/Other   496,555    1,125,525    1,494,776    3,312,000 
Total   1,054,783    1,516,050    3,090,731    4,659,503 
                     
Other income (expense)                    
Financial services   3,057    (918)   6,345    (3,319)
Corporate/Other   
-
    (330,878)   
-
    (402,585)
Total   3,057    (331,796)   6,345    (405,904)
                     
Net income (loss)                    
General support services   125,000    75,000    275,000    225,000 
Financial services   (838,189)   (604,884)   (1,929,539)   (2,368,155)
Corporate/Other   (496,555)   (1,456,403)   (1,494,776)   (3,714,585)
Total   (1,209,744)   (1,986,287)   (3,149,315)   (5,857,740)
                     
Amortization                    
Financial services   591,955    591,955    1,775,865    2,095,853 
Corporate/Other   937    937    2,810    1,873 
Total  $592,892   $592,892   $1,778,675   $2,097,726 

 

Total assets at June 30, 2023 and September 30, 2022  June 30,
2023
   September 30,
2022
 
Financial services  $8,203,817   $10,768,309 
Corporate/Other   7,143,061    7,596,595 
Total  $15,346,878   $18,364,904 
v3.23.2
Commitments and Contingencies
9 Months Ended
Jun. 30, 2023
Commitments and Contingencies [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

Digital asset wallets

 

Digital RFQ has committed to safeguard all digital assets and digital token identifiers on behalf of its customers. As such, Digital RFQ may be liable to its customers for losses arising from theft or loss of customer private keys. Digital RFQ has no reason to believe it will incur any expense associated with such potential liability because (i) it has no known or historical experience of claims to use as a basis of measurement, (ii) it accounts for and continually verifies the amount of digital assets within its control, and (iii) it engages third parties, which are digital asset trading platforms, to provide certain custodial services, including holding its customers’ digital token identifiers, securing its customers’ digital assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft. Its third-party digital asset trading platforms hold the digital assets in accounts in Digital RFQ’s name for the benefit of Digital RFQ’s customers.

 

Merger

 

On February 22, 2022, the Company entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among the Company and Brilliant Acquisition Corporation, a British Virgin Islands company (“Brilliant”). The Merger Agreement has been approved by the Company’s boards of directors. On June 23, 2023, the Company, Brilliant and BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”). The A&R Merger Agreement extended the Outside Closing Date (as defined in the A&R Merger Agreement), to the later of (i) July 23, 2023, or, (ii) following the approval by Brilliant’s shareholders of an extension of the life of the SPAC pursuant to Brilliant’s organizational documents, to the date so approved, but not later than December 23, 2023. The transactions contemplated by the A&R Merger Agreement are expected to close in the fourth quarter of fiscal year 2023, provided however there is no guarantee that the transaction will close.

 

White lion stock purchase agreement

 

On May 17, 2022, the Company entered into a Stock Purchase Agreement (the “White Lion Agreement”) with White Lion Capital Partners, LLC a California-based investment fund (“White Lion”). Under the terms of the White Lion Agreement, the Company has the right, but not the obligation, to require White Lion to purchase shares of its common stock up to a maximum amount of $75,000,000 or such lower amount as may be required pursuant to the rules of the market on which shares of its common stock trades at such time. Pursuant to terms of the White Lion Agreement and the Registration Rights Agreement (as defined below), the Company is required to use its commercially reasonable efforts to file with the SEC a registration statement covering the shares to be acquired by White Lion within sixty days following the closing of the previously announced business combination with Brilliant Acquisition Corporation described in its Current Report on Form 8-K filed with the SEC on February 23, 2022 (the “Business Combination”).

 

The term of the White Lion Agreement commences on the effective date of the registration statement and shall end on December 31, 2024, or, if earlier, the date on which White Lion has purchased the maximum number of shares of the Company’s common stock provided under the White Lion Agreement, in each case on the terms and subject to the conditions set forth in the White Lion Agreement. White Lion’s purchase price will be 96% of the dollar- volume weighted average price of the Company’s common stock over the two consecutive trading days immediately following receipt of the Company’s notice of its intent to make a draw. As of June 30, 2023, the White Lion Agreement is not yet effective.

 

During the term of the White Lion Agreement, on the terms and subject to the conditions set forth therein, the Company may draw up to the lesser of (i) the number of shares of the Company’s common stock which would result in beneficial ownership by White Lion of more than 4.99% of the outstanding shares of the Company’s common stock, (ii) the number of shares of the Company’s common stock equal to 30% of the average daily trading volume of the Company’s common stock over the five consecutive trading days immediately following the notice date, or (iii) the number of the Company’s common stock obtained by dividing $1,500,000 by the closing sale price of the Company’s common stock on the notice date.

 

The Company is not entitled to draw on the White Lion Agreement if the closing sale price of the Company’s common stock on the trading day immediately preceding the notice date is less than $1.00 (following the reverse stock split proposed in connection with the closing of the Business Combination and described in the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2022, but adjusted for any other reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). The Company is not entitled to draw on the White Lion Agreement unless each of the following additional conditions is satisfied: (i) each of the Company’s representations and warranties set forth in the White Lion Agreement is true and correct (subject to qualifications as to materiality set forth therein) in all respects as of such time; (ii) a registration statement is and remains effective for the resale of securities in connection with the White Lion Agreement; (iii) the trading of the Company’s common stock shall not have been suspended by the SEC, the applicable trading market or FINRA, or otherwise halted for any reason; (iv) the Company shall have complied with its obligations and shall not otherwise be in breach or default of any agreement set forth in the White Lion Agreement; (v) no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any federal, state, local or foreign court or governmental authority of competent jurisdiction, including, without limitation, the SEC, which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the White Lion Agreement; (vi) all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by us with the SEC pursuant to the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K) shall have been filed with the SEC within the applicable time periods prescribed for such filings; (vii) to the extent the issuance of the put shares requires shareholder approval under the listing rules of the applicable national exchange or principal quotation system for the Company’s common stock, the Company has or will seek such approval; and (viii) certain other conditions as set forth in the White Lion Agreement.

 

In addition to the shares to be issued under the White Lion Agreement, the Company will include in its registration statement additional shares of the Company’s common stock in the amount of $750,000 being issued to White Lion in connection with the execution of the White Lion Agreement.

  

White lion registration rights agreement

 

In connection with the Company’s entry into the White Lion Agreement, the Company entered into a Registration Rights Agreement with White Lion (the “Registration Rights Agreement”). Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to use its commercially reasonable efforts to file a registration statement under the Securities Act registering the resale of the shares sold under the White Lion Agreement within sixty days of the closing of the Business Combination. The Registration Rights Agreement also provides that the Company is required to use its commercially reasonable efforts to keep the registration effective and to prepare and file with the SEC such amendments and supplements if the foregoing registration statement is not then in effect, and the Company proposes to file certain types of registration statements under as may be necessary to keep the registration statement effective.

v3.23.2
Subsequent Events
9 Months Ended
Jun. 30, 2023
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 16 – 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.

v3.23.2
Accounting Policies, by Policy (Policies)
9 Months Ended
Jun. 30, 2023
Basis of Presentation and Principles of Consolidation [Abstract]  
Use of estimates

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. Changes in these estimates and assumptions may have a material impact on the unaudited condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

Significant estimates during the three and nine months ended June 30, 2023 and 2022 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances, valuation of stock-based compensation, and fair value of customer digital currency assets and liabilities.

Cash and cash equivalents

Cash and cash equivalents

At June 30, 2023 and September 30, 2022, the Company’s cash balances by geographic area were as follows:

Country:  June 30, 2023   September 30, 2022 
United States  $74,396    52.3%  $47,860    13.1%
United Kingdom   65,636    46.1%   315,989    86.8%
Lithuania   2,135    1.5%   
-
    
-
 
Malta   174    0.1%   174    0.1%
Total cash  $142,341    100.0%  $364,023    100.0%

For purposes of the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less when purchased and money market accounts to be cash equivalents. The Company had no cash equivalents at June 30, 2023 and September 30, 2022. Cash and cash equivalents excludes customer legal tender, which is reported separately as Customer custodial cash in the accompanying condensed consolidated balance sheets. Refer to “customer custodial cash and customer custodial cash liabilities” below for further details.

Customer custodial cash and customer custodial cash liabilities

Customer custodial cash and customer custodial cash liabilities

Customer custodial cash represents cash and cash equivalents maintained in Company bank accounts that are controlled by the Company but held for the benefit of customers. Customer custodial cash liabilities represent these cash deposits to be utilized for its contractual obligations to its customers. The Company classifies the assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

Customer digital currency assets and liabilities

Customer digital currency assets and liabilities

At certain times, Digital RFQ’s customers’ funds that Digital RFQ uses to make payments on behalf of its customers, remain in the form of digital assets in its customers’ wallets at its digital asset trading platforms awaiting final conversion and/or transfer to the customer’s payment final destination. These indirectly held digital assets, may consist of USDT (Stablecoin), Bitcoin, and Ethereum (collectively, “Customer digital currency assets”). Digital RFQ maintains the internal recordkeeping of its customer digital currency assets, including the amount and type of digital asset owned by each of its customers.

Digital RFQ has control of the private keys and knows the balances of all wallets with its digital asset trading platforms in order to be able to successfully carry out the movement of digital assets for its client payment instruction. As part of its customer payment instruction, Digital RFQ can execute withdrawals on the wallets in its digital asset trading platforms.

 

Management has determined that Digital RFQ has control of the customer digital currency assets and records these assets on its balance sheet with a corresponding liability. Digital RFQ recognizes customer digital currency liabilities and corresponding customer digital currency assets, on initial recognition and at each reporting date, at fair value of the customer digital currency assets. Subsequent changes in fair value are adjusted to the carrying amount of these customer digital currency assets, with changes in fair value recorded in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

Any loss, theft, or other misuse would impact the measurement of customer digital currency assets. The Company classifies the customer digital currency assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.

Fair value of financial instruments and fair value measurements

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 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 fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying unaudited condensed consolidated financial statements, primarily due to their short-term nature.

Assets and liabilities measured at fair value on a recurring basis. Customer digital currency assets and liabilities are measured at fair value on a recurring basis. These assets and liabilities are measured at fair value on an ongoing basis.

 

The following table provides these assets and liabilities carried at fair value, measured as of September 30, 2022:

   Quoted
Price in
   Significant
Other
   Significant     
   Active
Markets
   Observable
Inputs
   Unobservable
Inputs
   Balance at
September 30,
 
   (Level 1)   (Level 2)   (Level 3)   2022 
Customer digital currency assets  $
     -
   $248,214   $
         -
   $248,214 
Customer digital currency liabilities  $
-
   $248,214   $
-
   $248,214 

Customer digital currency assets and liabilities represent the Company’s obligation to safeguard customers’ digital assets. Accordingly, the Company has valued the assets and liabilities using quoted market prices for the underlying digital assets which is based on Level 2 inputs.

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Credit risk and uncertainties

Credit risk and uncertainties

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.

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.

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances, including customer custodial cash, in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company may also hold cash at digital asset trading platforms and performs a regular assessment of these digital asset trading platforms as part of its risk management process. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2023, there were no balances in excess of the federally-insured limits.

We may maintain our cash assets at financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, in response to the rapidly declining financial condition of regional banks Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”), the California Department of Financial Protection and Innovation and the New York State Department of Financial Services closed SVB and Signature on March 10, 2023 and March 12, 2023, respectively, and the FDIC was appointed as receiver for SVB and Signature. In the event of a failure or liquidity issues of or at any of the financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations. Similarly, if our customers experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our results of operations, including the collection of accounts receivable and cash flows.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

Digital assets

Digital assets

The digital assets held by the Company are accounted for as intangible assets with indefinite useful lives, and are initially measured at cost. Digital assets accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. The fair value is measured using the quoted price of the digital asset at the time its fair value is being measured. Impairment expense is reflected in other general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company assigns costs to transactions on a first-in, first-out basis.

Other current assets

Other current assets

Other current assets primarily consist of security deposit and prepaid listing fees. As of June 30, 2023 and September 30, 2022, other current assets amounted to $52,703 and $15,617, respectively.

 

Revenue recognition

Revenue recognition

The Company determines revenue recognition from contracts with customers through the following steps:

Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s revenues are derived from providing:

General support services under a GSA to a related party. 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 (including operational reporting and technical support infrastructure, website hosting and marketing solutions, accounting maintenance, risk monitoring services, new account processing and customer care and continued support) 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. The Company recognizes the full contracted amount each period with no deferred revenue. The nature of the performance obligation is to provide the specified goods or services directly to the customer. The Company engages another party to satisfy the performance obligation on its behalf. The Company’s performance obligation is not to arrange for the provision of the specified good or service by another party. The Company is primarily responsible for fulfilling the promise to provide the specified good or service. Therefore, the Company is deemed to be a principal in the transaction and recognizes revenue for that performance obligation. 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. Under a GSA, the Company is contractually obligated to provide for the fulfillment software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company’s 1.6% mark-up to the costs of the services being provided by FXDirect Dealer, LLC.
Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. Prepayments, if any, received from customers prior to the services being performed are recorded as advances from customers. In these cases, when the services are performed, the appropriate portion of the amount recorded as advance from customers is recognized as revenue.  There are 4 distinct stages that each trade must go through to be completed and must be converted from one currency into another. Where possible, fees are taken in United States dollar (“USD”) and therefore if there is an agreed fee with the client then this will be taken on the USD leg of the transaction regardless of whether it is pre-conversion or post-conversion.  The first stage is notification and there is no real opportunity for us to realize revenue at this stage.  The second stage is the funding stage and it allows us to charge the agreed fee before any currency conversion, we call this pre-trade revenue. The third stage of the transaction is conversion and we are able to realize revenue in the spread between the price we pay for the conversion and the price we charge the client for the conversion. The fourth opportunity for us to realize revenue (charge our fee) is after the conversion has taken place (post-trade).

 

Disaggregation of revenues

Disaggregation of revenues

The Company’s revenues stream detail are as follows:

Revenue Stream   Revenue Stream Detail
General support services   Providing software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party
Financial services   Providing payment services from one fiat currency to another or to digital assets

In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2023 and 2022:

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Revenue Stream  2023   2022   2023   2022 
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total revenues  $5,212,056   $5,152,192   $16,222,388   $15,370,224 
Cost method investment

Cost method investment

Investment in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other (expense) income” in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss, and a new basis in the investment is established. No impairment expense was recorded for the three and nine months ended June 30, 2023 and 2022.

Intangible assets

Intangible assets

Intangible assets consist of trade names, regulatory licenses, technology and software, which are being amortized on a straight-line method over the estimated useful life of 3 - 5 years.

Impairment of long-lived assets

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of June 30, 2023. For the three and nine months ended June 30, 2023 and 2022, no impairment of long-lived assets was recognized.

Advertising and marketing costs

Advertising and marketing costs

All costs related to advertising and marketing are expensed as incurred. For the three months ended June 30, 2023 and 2022, advertising and marketing costs amounted to $1,670 and $147,177, respectively, which was included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2023 and 2022, advertising and marketing costs amounted to $51,087 and $345,826, respectively, which is included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Stock-based compensation

Stock-based compensation

The Company measures and recognizes compensation expense for all stock-based awards granted to non-employees, including stock options, based on the grant date fair value of the award. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.

 

For non-employee stock-based awards, fair value is measured based on the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is calculated and then recognized as compensation expense over the requisite performance period.

Income taxes

Income taxes

The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal and foreign tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the period of the change in estimate.

The Company follows the provisions of FASB ASC 740-10 Uncertainty in Income Taxes (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. 

Foreign currency translation

Foreign currency translation

The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange prevailing at the balance sheet date. Revenue and expenses are translated using average rates during each reporting period, and stockholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss.

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Most of the Company’s revenue transactions are transacted in the functional currency of the Company. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.7867 GBP and 0.8987 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.9162 EUR and 1.0221 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 were translated at 1.3235 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 and 2022 was 0.8249 GBP and 0.7615 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 was 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the period from February 18, 2023 through June 30, 2023 was 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

 

Comprehensive loss

Comprehensive loss

Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2023 and 2022 consisted of net loss and unrealized loss/gain from foreign currency translation adjustment.

Segment reporting

Segment reporting

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company.

The Company has determined that it has two reportable business segments: general support services segment and financial services segment. These reportable segments offer different types of services and products, have different types of revenue, and are managed separately as each requires different operating strategies and management expertise. 

Per share data

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. For the three and nine months ended June 30, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. 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 had an anti-dilutive impact.

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Stock options   4,350,000    5,850,000    5,850,000    5,850,000 
Potentially dilutive security   4,350,000    5,850,000    5,850,000    5,850,000 
Reclassification

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

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 unaudited condensed consolidated financialss 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 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 consolidated financial condition, results of operations, cash flows or disclosures.

v3.23.2
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Jun. 30, 2023
Basis of Presentation and Principles of Consolidation [Abstract]  
Schedule of Cash Balances by Geographic Area At June 30, 2023 and September 30, 2022, the Company’s cash balances by geographic area were as follows:
Country:  June 30, 2023   September 30, 2022 
United States  $74,396    52.3%  $47,860    13.1%
United Kingdom   65,636    46.1%   315,989    86.8%
Lithuania   2,135    1.5%   
-
    
-
 
Malta   174    0.1%   174    0.1%
Total cash  $142,341    100.0%  $364,023    100.0%
Schedule of Assets and Liabilities Carried at Fair Value Measured The following table provides these assets and liabilities carried at fair value, measured as of September 30, 2022:
   Quoted
Price in
   Significant
Other
   Significant     
   Active
Markets
   Observable
Inputs
   Unobservable
Inputs
   Balance at
September 30,
 
   (Level 1)   (Level 2)   (Level 3)   2022 
Customer digital currency assets  $
     -
   $248,214   $
         -
   $248,214 
Customer digital currency liabilities  $
-
   $248,214   $
-
   $248,214 
Schedule of Revenues Are Disaggregated By Segment In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2023 and 2022:
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Revenue Stream  2023   2022   2023   2022 
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total revenues  $5,212,056   $5,152,192   $16,222,388   $15,370,224 
Schedule of Diluted Per Share The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Stock options   4,350,000    5,850,000    5,850,000    5,850,000 
Potentially dilutive security   4,350,000    5,850,000    5,850,000    5,850,000 
v3.23.2
Customer Assets and Liabilities (Tables)
9 Months Ended
Jun. 30, 2023
Customer Assets and Liabilities [Abstract]  
Schedule of Cash and Digital Positions The following table presents customers’ cash and digital positions:
   June 30,
2023
   September 30,
2022
 
Customer custodial cash  $1,712,095   $2,020,394 
Customer digital currency assets   
-
    248,214 
Total customer assets  $1,712,095   $2,268,608 
           
Customer custodial cash liabilities  $1,703,893   $2,020,717 
Customer digital currency liabilities   
-
    248,214 
Total customer liabilities  $1,703,893   $2,268,931 
Schedule of fair market value of customer digital currency assets The following table sets forth the fair market value of customer digital currency assets, as shown in the condensed consolidated balance sheets, as customer digital currency assets and customer digital currency liabilities, as of June 30, 2023 and September 30, 2022:
   June 30, 2023   September 30, 2022 
   Fair value   Percentage of total   Fair value   Percentage of total 
Bitcoin  $
        -
    
         -
   $162,294    65.4%
Stablecoin/USD Coin   
-
    
-
    85,897    34.6%
Ethereum   
-
    
-
    23    0.0%
Others   
-
    
-
    
-
    
-
 
Total customer digital currency assets  $
-
    
-
   $248,214    100.0%
v3.23.2
Digital Assets (Tables)
9 Months Ended
Jun. 30, 2023
Digital Assets [Abstract]  
Schedule of Digital Asset The following table summarizes the Company’s digital asset holdings as of June 30, 2023:
Asset  Estimated
useful life
  Cost   Impairment   Digital assets 
Bitcoin  Indefinite  $218   $
            -
   $218 
Ethereum  Indefinite   487    
-
    487 
Stablecoin/USD Coin  Indefinite   308    
-
    308 
Other  Indefinite   94    
-
    94 
Total 
 
  $1,107   $
-
   $1,107 
The following table summarizes the Company’s digital asset holdings as of September 30, 2022:
Asset  Estimated
useful life
  Cost   Impairment   Digital assets 
Bitcoin  Indefinite  $63,377   $774   $62,603 
Ethereum  Indefinite   1,289    
-
    1,289 
Stablecoin/USD Coin  Indefinite   9,417    
-
    9,417 
Other  Indefinite   106    
-
    106 
Total 
 
  $74,189   $774   $73,415 
v3.23.2
Intangible Assets (Tables)
9 Months Ended
Jun. 30, 2023
Intangible Assets [Abstract]  
Schedule of Intangible Assets At June 30, 2023 and September 30, 2022, intangible assets consisted of the following:
   Useful Life  June 30,
2023
   September 30,
2022
 
Trade names  3 Years  $784,246   $784,246 
Regulatory licenses  3 Years   181,342    138,751 
Technology  5 Years   10,300,774    10,300,774 
Software  3 Years   11,237    11,237 
       11,277,599    11,235,008 
Less: accumulated amortization      (4,938,578)   (3,159,903)
      $6,339,021   $8,075,105 
Schedule of Amortization of Intangible Assets Attributable to Future Periods Amortization of intangible assets attributable to future periods is as follows:
For the Twelve-month Period Ending June 30:  Amortization amount 
2024  $2,360,124 
2025   2,076,224 
2026   1,902,673 
2027 and thereafter   
-
 
   $6,339,021 
v3.23.2
Accrued Liabilities and Other Payables (Tables)
9 Months Ended
Jun. 30, 2023
Accrued Liabilities and Other Payables [Abstract]  
Schedule of Accrued Liabilities and Other Payables At June 30, 2023 and September 30, 2022, accrued liabilities and other payables consisted of the following:
   June 30,
2023
   September 30,
2022
 
Unearned revenue  $
-
   $203,222 
Others   19,181    29,133 
Total  $19,181   $232,355 
v3.23.2
Share Capital (Tables)
9 Months Ended
Jun. 30, 2023
Share Capital [Abstract]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2023:
  Options Outstanding   Options Exercisable 
  Range of
Exercise Price
   Number
Outstanding at
June 30,
2023
   Weighted Average
Remaining
Contractual Life
(Years)
   Weighted Average
Exercise Price
   Number
Exercisable at
June 30,
2023
   Weighted Average
Exercise Price
 
$ 0.09 – 0.45    3,350,000    3.51   $0.13    1,150,000   $0.13 
  2.50    1,000,000    3.22    2.50    1,000,000    2.50 
$ 0.09 – 2.50    4,350,000    3.44   $0.67    2,150,000   $1.23 
Schedule of Stock Option Activities Stock option activities for the nine months ended June 30, 2023 were as follows:
   Number of
Options
   Weighted
Average
Exercise
Price
 
Outstanding at October 1, 2022   5,850,000   $0.67 
Granted   
-
    
-
 
Expired   (1,500,000)   (0.67)
Outstanding at June 30, 2023   4,350,000   $0.67 
Options exercisable at June 30, 2023   2,150,000   $1.23 
Options expected to vest   2,200,000   $0.12 
Schedule of Nonvested Stock Options Granted A summary of the status of the Company’s nonvested stock options granted as of June 30, 2023 and changes during the nine months ended June 30, 2023 is presented below:
   Number of
Options
   Weighted
Average
Exercise
Price
 
Nonvested at October 1, 2022   3,800,000   $0.35 
Granted   
-
    
-
 
Vested   (1,600,000)   (0.65)
Nonvested at June 30, 2023   2,200,000   $0.12 
v3.23.2
Related Party Transactions (Tables)
9 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Schedule of General Support Services Provided to the Related Party During the three and nine months ended June 30, 2023 and 2022, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss were as follows:
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Service provided to:                
TCM  $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, 2023 and 2022, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss were as follows:
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
Service received from:                
FXDIRECT  $4,675,000   $4,725,000   $14,125,000   $14,175,000 
   $4,675,000   $4,725,000   $14,125,000   $14,175,000 
(1)FXDD Mauritius is controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
Schedule of Due From Related Parties At June 30, 2023 and September 30, 2022, due from affiliates consisted of the following:
   June 30,
2023
   September 30,
2022
 
Digiclear  $229,837   $35,762 
Jacobi   24,422    
-
 
FXDD Mauritius (1)   3,012    
-
 
TCM   51,190    895,374 
Total  $308,461   $931,136 
(1)FXDD Mauritius is controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
Schedule of Due to Related Parties At June 30, 2023 and September 30, 2022, due to affiliates consisted of the following:
   June 30,
2023
   September 30,
2022
 
Forexware LLC (1)  $1,211,665   $1,079,229 
FXDIRECT   3,289,537    3,042,101 
Currency Mountain Holdings Bermuda, Limited (“CMH”)   42,000    42,000 
FXDD Trading (1)   498,963    242,113 
Markets Direct Payments (1)   2,415    2,114 
Match Fintech Limited (2)   55,551    106,506 
Total  $5,100,131   $4,514,063 
(1)Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
(2)Match Fintech Limited is controlled by affiliates of the Company.
v3.23.2
Concentrations (Tables)
9 Months Ended
Jun. 30, 2023
Concentrations [Abstract]  
Schedule of Customer and Supplier Revenues The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended June 30, 2023 and 2022.
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Customer  2023   2022   2023   2022 
A – related party   92.1%   93.2%   88.8%   93.7%
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s costs of revenues for the three and nine months ended June 30, 2023 and 2022.
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
Supplier  2023   2022   2023   2022 
A – related party   87.1%   89.3%   86.7%   87.7%
v3.23.2
Segment Information (Tables)
9 Months Ended
Jun. 30, 2023
Segment Information [Abstract]  
Schedule of Reportable Business Segments Information with respect to these reportable business segments for the three and nine months ended June 30, 2023 and 2022 was as follows:
   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2023   2022   2023   2022 
       (as restated)       (as restated) 
Revenues                
General support services  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   412,056    352,192    1,822,388    970,224 
Total   5,212,056    5,152,192    16,222,388    15,370,224 
                     
Costs of revenues                    
General support services   4,675,000    4,725,000    14,125,000    14,175,000 
Financial services   695,074    565,633    2,162,317    1,987,557 
Total   5,370,074    5,290,633    16,287,317    16,162,557 
                     
Gross profit (loss)                    
General support services   125,000    75,000    275,000    225,000 
Financial services   (283,018)   (213,441)   (339,929)   (1,017,333)
Total   (158,018)   (138,441)   (64,929)   (792,333)
                     
Operating expenses                    
Financial services   558,228    390,525    1,595,955    1,347,503 
Corporate/Other   496,555    1,125,525    1,494,776    3,312,000 
Total   1,054,783    1,516,050    3,090,731    4,659,503 
                     
Other income (expense)                    
Financial services   3,057    (918)   6,345    (3,319)
Corporate/Other   
-
    (330,878)   
-
    (402,585)
Total   3,057    (331,796)   6,345    (405,904)
                     
Net income (loss)                    
General support services   125,000    75,000    275,000    225,000 
Financial services   (838,189)   (604,884)   (1,929,539)   (2,368,155)
Corporate/Other   (496,555)   (1,456,403)   (1,494,776)   (3,714,585)
Total   (1,209,744)   (1,986,287)   (3,149,315)   (5,857,740)
                     
Amortization                    
Financial services   591,955    591,955    1,775,865    2,095,853 
Corporate/Other   937    937    2,810    1,873 
Total  $592,892   $592,892   $1,778,675   $2,097,726 
Schedule of Total Assets
Total assets at June 30, 2023 and September 30, 2022  June 30,
2023
   September 30,
2022
 
Financial services  $8,203,817   $10,768,309 
Corporate/Other   7,143,061    7,596,595 
Total  $15,346,878   $18,364,904 
v3.23.2
The Company History and Nature of the Business (Details) - USD ($)
1 Months Ended 9 Months Ended
May 01, 2023
Dec. 30, 2021
Oct. 20, 2021
Jun. 30, 2023
Sep. 30, 2022
The Company History and Nature of the Business (Details) [Line Items]          
Related party transaction expense $ 1,550,000        
Description of directly own       Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s chief operating officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.  
Consideration shares (in Shares)   15,151,515      
Operating capital   $ 1,000,000      
Exchange shares percentage   4.545%      
Cash       $ 142,341 $ 364,023
Incurred net loss       3,149,000  
Working capital deficit       627,000  
Triton Capital Market Ltd [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Related party transaction expense $ 1,575,000        
Digiclear Agreement [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Ordinary shares outstanding (in Shares)   5,400,000      
Triton Capital Market Ltd [Member] | GSA [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Generated revenue per month       $ 1,600,000  
Percentage of shares owned       79.00%  
Triton Capital Market Ltd [Member] | FXDIRECT [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Related party transaction expense       $ 1,575,000  
Jacobi Agreement [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Acquire to issued and outstanding percentage     5.00%    
Consideration of shares (in Shares)     20,000,000    
Digiclear Agreement [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Balance of ordinary shares issued (in Shares)   5,400,000      
Balance of ordinary shares outstanding (in Shares)   5,400,000      
Digiclear Transaction [Member]          
The Company History and Nature of the Business (Details) [Line Items]          
Consideration shares (in Shares)   15,151,515      
Market price   $ 5,000,000      
v3.23.2
Summary of Significant Accounting Policies (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Sep. 30, 2022
Summary of Significant Accounting Policies (Details) [Line Items]          
Federally-insured limits $ 250,000   $ 250,000    
Insurance limit 250,000   250,000    
Other current assets 52,703   $ 52,703   $ 15,617
Services cost percentage     1.60%    
Advertising and marketing $ 1,670 $ 147,177 $ 51,087 $ 345,826  
Foreign Currency Translation Description     Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.7867 GBP and 0.8987 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 and September 30, 2022 were translated at 0.9162 EUR and 1.0221 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2023 were translated at 1.3235 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 and 2022 was 0.8249 GBP and 0.7615 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2023 was 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the period from February 18, 2023 through June 30, 2023 was 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.     
Minimum [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Estimated useful life 3 years   3 years    
Maximum [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Estimated useful life 5 years   5 years    
v3.23.2
Summary of Significant Accounting Policies (Details) - Schedule of Cash Balances by Geographic Area - USD ($)
9 Months Ended 12 Months Ended
Jun. 30, 2023
Sep. 30, 2022
Jun. 30, 2022
Schedule of Cash Balances by Geographic Area [Abstract]      
Total cash $ 142,341 $ 364,023 $ 75,827
Cash percentage 100.00% 100.00%  
United States [Member]      
Schedule of Cash Balances by Geographic Area [Abstract]      
Total cash $ 74,396 $ 47,860  
Cash percentage 52.30% 13.10%  
United Kingdom [Member]      
Schedule of Cash Balances by Geographic Area [Abstract]      
Total cash $ 65,636 $ 315,989  
Cash percentage 46.10% 86.80%  
Lithuania [Member]      
Schedule of Cash Balances by Geographic Area [Abstract]      
Total cash $ 2,135  
Cash percentage 1.50%  
Malta [Member]      
Schedule of Cash Balances by Geographic Area [Abstract]      
Total cash $ 174 $ 174  
Cash percentage 0.10% 0.10%  
v3.23.2
Summary of Significant Accounting Policies (Details) - Schedule of Assets and Liabilities Carried at Fair Value Measured
Sep. 30, 2022
USD ($)
Schedule of Assets and Liabilities Carried at Fair Value Measured [Abstract]  
Customer digital currency assets $ 248,214
Customer digital currency liabilities 248,214
Quoted Price in Active Markets (Level 1) [Member]  
Schedule of Assets and Liabilities Carried at Fair Value Measured [Abstract]  
Customer digital currency assets
Customer digital currency liabilities
Significant Other Observable Inputs (Level 2) [Member]  
Schedule of Assets and Liabilities Carried at Fair Value Measured [Abstract]  
Customer digital currency assets 248,214
Customer digital currency liabilities 248,214
Significant Unobservable Inputs (Level 3) [Member]  
Schedule of Assets and Liabilities Carried at Fair Value Measured [Abstract]  
Customer digital currency assets
Customer digital currency liabilities
v3.23.2
Summary of Significant Accounting Policies (Details) - Schedule of Revenues Are Disaggregated By Segment - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Schedule of Revenues are Disaggregated by Segment [Abstract]        
General support services $ 4,800,000 $ 4,800,000 $ 14,400,000 $ 14,400,000
Financial services 412,056 352,192 1,822,388 970,224
Total revenues $ 5,212,056 $ 5,152,192 $ 16,222,388 $ 15,370,224
v3.23.2
Summary of Significant Accounting Policies (Details) - Schedule of Diluted Per Share - shares
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Schedule of Diluted Per Share [Abstract]        
Stock options 4,350,000 5,850,000 5,850,000 5,850,000
Potentially dilutive security 4,350,000 5,850,000 5,850,000 5,850,000
v3.23.2
Customer Assets and Liabilities (Details) - Schedule of Cash and Digital Positions - USD ($)
Jun. 30, 2023
Sep. 30, 2022
Schedule of cash and digital positions [Abstract]    
Customer custodial cash $ 1,712,095 $ 2,020,394
Customer digital currency assets 248,214
Total customer assets 1,712,095 2,268,608
Customer custodial cash liabilities 1,703,893 2,020,717
Customer digital currency liabilities 248,214
Total customer liabilities $ 1,703,893 $ 2,268,931
v3.23.2
Customer Assets and Liabilities (Details) - Schedule of fair market value of customer digital currency assets - USD ($)
Jun. 30, 2023
Sep. 30, 2022
Schedule of fair market value of customer digital currency assets [Abstract]    
Fair value $ 248,214
Percentage of total 100.00%
Bitcoin [Member]    
Schedule of fair market value of customer digital currency assets [Abstract]    
Fair value $ 162,294
Percentage of total 65.40%
Stablecoin/USD Coin [Member]    
Schedule of fair market value of customer digital currency assets [Abstract]    
Fair value $ 85,897
Percentage of total 34.60%
Ethereum [Member]    
Schedule of fair market value of customer digital currency assets [Abstract]    
Fair value $ 23
Percentage of total 0.00%
Others [Member]    
Schedule of fair market value of customer digital currency assets [Abstract]    
Fair value
Percentage of total
v3.23.2
Digital Assets (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Digital Assets [Abstract]        
Impairment expense $ 122 $ 0 $ 7,865 $ 0
v3.23.2
Digital Assets (Details) - Schedule of Digital Asset - USD ($)
9 Months Ended 12 Months Ended
Jun. 30, 2023
Sep. 30, 2022
Digital Assets (Details) - Schedule of Digital Asset [Line Items]    
Estimated useful life
Gross carrying amount $ 1,107 $ 74,189
Impairment 774
Digital assets, net $ 1,107 $ 73,415
Bitcoin [Member]    
Digital Assets (Details) - Schedule of Digital Asset [Line Items]    
Estimated useful life Indefinite Indefinite
Gross carrying amount $ 218 $ 63,377
Impairment 774
Digital assets, net $ 218 $ 62,603
Ethereum [Member]    
Digital Assets (Details) - Schedule of Digital Asset [Line Items]    
Estimated useful life Indefinite Indefinite
Gross carrying amount $ 487 $ 1,289
Impairment
Digital assets, net $ 487 $ 1,289
Stablecoin/USD Coin [Member]    
Digital Assets (Details) - Schedule of Digital Asset [Line Items]    
Estimated useful life Indefinite Indefinite
Gross carrying amount $ 308 $ 9,417
Impairment
Digital assets, net $ 308 $ 9,417
Other [Member]    
Digital Assets (Details) - Schedule of Digital Asset [Line Items]    
Estimated useful life Indefinite Indefinite
Gross carrying amount $ 94 $ 106
Impairment
Digital assets, net $ 94 $ 106
v3.23.2
Note Receivable (Details)
Jun. 30, 2023
USD ($)
Note Receivable [Abstract]  
Aggregate principal amount $ 154,150
Fixed interest rate 0.00%
v3.23.2
Cost Method Investment (Details) - USD ($)
Dec. 15, 2021
Jun. 30, 2023
Cost Method Investment [Abstract]    
Cost method investment amount   $ 6,602,000
Common stock shares issued (in Shares) 20,000,000  
Percentage of equity interest rate 5.00%  
Fair market value $ 6,602,000  
Shares valued (in Dollars per share) $ 0.3301  
v3.23.2
Equity Method Investment (Details) - USD ($)
9 Months Ended
Sep. 30, 2022
Jun. 30, 2023
Equity Method Investment (Details) [Line Items]    
Investment amount $ 0 $ 0
Equity method investment $ 0 $ 4,310,745
Other Unrelated Party [Member]    
Equity Method Investment (Details) [Line Items]    
Ownership, percentage   50.00%
Ownership [Member]    
Equity Method Investment (Details) [Line Items]    
Ownership, percentage   50.00%
v3.23.2
Intangible Assets (Details) - USD ($)
3 Months Ended 9 Months Ended
Apr. 01, 2023
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Intangible Assets Net Including Goodwill [Abstract]          
Amortization expense   $ 592,892 $ 592,892 $ 1,778,675 $ 2,097,726
Cost of revenue financial services $ 526,602   526,601 1,579,804 1,899,791
Operating expenses $ 66,290   $ 66,291 $ 198,871 $ 197,935
v3.23.2
Intangible Assets (Details) - Schedule of Intangible Assets - USD ($)
9 Months Ended 12 Months Ended
Jun. 30, 2023
Sep. 30, 2022
Schedule of Intangible Assets [Abstract]    
Balance of intangible assets $ 11,277,599 $ 11,235,008
Less: accumulated amortization (4,938,578) (3,159,903)
Balance of intangible assets, Total $ 6,339,021 8,075,105
Trade names [Member]    
Schedule of Intangible Assets [Abstract]    
Useful Life, Trade names 3 years  
Balance of Trade names $ 784,246 784,246
Regulatory licenses [Member]    
Schedule of Intangible Assets [Abstract]    
Useful Life, Regulatory licenses 3 years  
Balance of Regulatory licenses $ 181,342 138,751
Technology [Member]    
Schedule of Intangible Assets [Abstract]    
Useful Life, Technology 5 years  
Balance of Technology $ 10,300,774 10,300,774
Software [Member]    
Schedule of Intangible Assets [Abstract]    
Useful Life, Software 3 years  
Balance of Software $ 11,237 $ 11,237
v3.23.2
Intangible Assets (Details) - Schedule of Amortization of Intangible Assets Attributable to Future Periods
Jun. 30, 2023
USD ($)
Schedule of Amortization of Intangible Assets Attributable to Future Periods [Abstract]  
2024 $ 2,360,124
2025 2,076,224
2026 1,902,673
2027 and thereafter
Total $ 6,339,021
v3.23.2
Accrued Liabilities and Other Payables (Details) - Schedule of Accrued Liabilities and Other Payables - USD ($)
Jun. 30, 2023
Sep. 30, 2022
Schedule of accrued liabilities and other payables [Abstract]    
Unearned revenue $ 203,222
Others 19,181 29,133
Total $ 19,181 $ 232,355
v3.23.2
Share Capital (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Share Capital (Details) [Line Items]        
Aggregate intrinsic value of stock options outstanding $ 0   $ 0  
Stock-based compensation expense $ 74,667 $ 525,621 $ 296,210 $ 1,429,989
Board of Directors [Member]        
Share Capital (Details) [Line Items]        
Preferred stock, shares authorized (in Shares) 15,000,000   15,000,000  
v3.23.2
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding
9 Months Ended
Jun. 30, 2023
$ / shares
shares
Options Outstanding [Member] | Exercise Price 0.09 – 0.45 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Number Outstanding at December 31, 2022 (in Shares) | shares 3,350,000
Weighted Average Remaining Contractual Life (Years) 3 years 6 months 3 days
Weighted Average Exercise Price $ 0.13
Options Outstanding [Member] | Exercise Price 2.50 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Price $ 2.5
Number Outstanding at December 31, 2022 (in Shares) | shares 1,000,000
Weighted Average Remaining Contractual Life (Years) 3 years 2 months 19 days
Weighted Average Exercise Price $ 2.5
Options Outstanding [Member] | Exercise Price 0.09 – 2.50 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Number Outstanding at December 31, 2022 (in Shares) | shares 4,350,000
Weighted Average Remaining Contractual Life (Years) 3 years 5 months 8 days
Weighted Average Exercise Price $ 0.67
Options Outstanding [Member] | Minimum [Member] | Exercise Price 0.09 – 0.45 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Price 0.09
Options Outstanding [Member] | Minimum [Member] | Exercise Price 0.09 – 2.50 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Price 0.09
Options Outstanding [Member] | Maximum [Member] | Exercise Price 0.09 – 0.45 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Price 0.45
Options Outstanding [Member] | Maximum [Member] | Exercise Price 0.09 – 2.50 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Price $ 2.5
Options Exercisable [Member] | Exercise Price 0.09 – 0.45 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Number Exercisable at December 31, 2022 (in Shares) | shares 1,150,000
Weighted Average Exercise Price $ 0.13
Options Exercisable [Member] | Exercise Price 2.50 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Number Exercisable at December 31, 2022 (in Shares) | shares 1,000,000
Weighted Average Exercise Price $ 2.5
Options Exercisable [Member] | Exercise Price 0.09 – 2.50 [Member]  
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Number Exercisable at December 31, 2022 (in Shares) | shares 2,150,000
Weighted Average Exercise Price $ 1.23
v3.23.2
Share Capital (Details) - Schedule of Stock Option Activities
9 Months Ended
Jun. 30, 2023
$ / shares
shares
Schedule of Stock Option Activities [Abstract]  
Number of Options outstanding | shares 5,850,000
Weighted Average Exercise Price outstanding | $ / shares $ 0.67
Number of Options Granted | shares
Weighted Average Exercise Price Granted | $ / shares
Number of Options Expired | shares (1,500,000)
Weighted Average Exercise Price Options Expired | $ / shares $ (0.67)
Number of Options, Outstanding ending | shares 4,350,000
Weighted Average Exercise Price Outstanding ending | $ / shares $ 0.67
Number of Options exercisable | shares 2,150,000
Weighted Average Exercise Price Options exercisable | $ / shares $ 1.23
Number of Options expected to vest | shares | shares 2,200,000
Weighted Average Exercise Price Options expected to vest | $ / shares | $ / shares $ 0.12
v3.23.2
Share Capital (Details) - Schedule of Nonvested Stock Options Granted
9 Months Ended
Jun. 30, 2023
$ / shares
shares
Schedule of Nonvested Stock Options Granted [Abstract]  
Number of Options Nonvested Beginning | shares 3,800,000
Weighted Average Exercise Price Nonvested Beginning | $ / shares $ 0.35
Number of Options Granted | shares
Weighted Average Exercise Price Granted | $ / shares
Number of Options Vested | shares (1,600,000)
Weighted Average Exercise Price Vested | $ / shares $ (0.65)
Number of Options Nonvested Ending | shares 2,200,000
Weighted Average Exercise Price Nonvested Ending | $ / shares $ 0.12
v3.23.2
Related Party Transactions (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
May 01, 2023
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Sep. 30, 2022
Sep. 01, 2023
Mar. 01, 2023
Sep. 01, 2022
Related Party Transactions (Details) [Line Items]                  
Recognized consulting expenses   $ 26,017 $ 23,991 $ 100,012 $ 65,529        
Accrued and unpaid services   0   0   $ 16,691      
Minimum monthly amount received $ 1,550,000                
Minimum monthly amount payable $ 1,575,000                
Revenue from related parties   $ 29,343 17,974 $ 107,859 28,239        
Principal amount                 $ 35,000
Mature with respect amount               $ 17,500  
Interest rate   5.00%   5.00%          
Other income   $ 468   $ 1,362          
Outstanding interest       $ 1,587   159      
Forecast [Member]                  
Related Party Transactions (Details) [Line Items]                  
Mature with respect amount             $ 17,500    
Business Combination [Member]                  
Related Party Transactions (Details) [Line Items]                  
Description, business combination       the Company has paid ClearThink $140,000, and upon closing of the Business Combination the Company is obligated to pay ClearThink 1.2% of the total transaction value plus reimbursable expenses less the $140,000 paid to ClearThink as of June 30, 2023.          
TCM [Member] | GSA [Member]                  
Related Party Transactions (Details) [Line Items]                  
Minimum monthly amount received       $ 1,600,000          
FXDIRECT [Member] | GSA [Member]                  
Related Party Transactions (Details) [Line Items]                  
Minimum monthly amount payable       1,575,000          
RFQ [Member] | FXDD Trading [Member]                  
Related Party Transactions (Details) [Line Items]                  
Digital RFQ, amount       0   $ 248,214      
Oliver Worsley [Member]                  
Related Party Transactions (Details) [Line Items]                  
Recognized consulting expenses   $ 14,942 $ 7,879 $ 40,005 $ 7,879        
v3.23.2
Related Party Transactions (Details) - Schedule of General Support Services Provided to the Related Party - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Service provided to:        
Service provided to related parties $ 4,800,000 $ 4,800,000 $ 14,400,000 $ 14,400,000
Service received from:        
Service received from related parties 4,675,000 4,725,000 14,125,000 14,175,000
TCM [Member]        
Service provided to:        
Service provided to related parties 4,800,000 4,800,000 14,400,000 14,400,000
FXDIRECT [Member]        
Service received from:        
Service received from related parties $ 4,675,000 $ 4,725,000 $ 14,125,000 $ 14,175,000
v3.23.2
Related Party Transactions (Details) - Schedule of Due From Related Parties - USD ($)
Jun. 30, 2023
Sep. 30, 2022
Related Party Transactions (Details) - Schedule of Due From Related Parties [Line Items]    
Due from related parties $ 308,461 $ 931,136
Digiclear [Member]    
Related Party Transactions (Details) - Schedule of Due From Related Parties [Line Items]    
Due from related parties 229,837 35,762
Jacobi [Member]    
Related Party Transactions (Details) - Schedule of Due From Related Parties [Line Items]    
Due from related parties 24,422
FXDD Mauritius [Member]    
Related Party Transactions (Details) - Schedule of Due From Related Parties [Line Items]    
Due from related parties [1] 3,012
TCM [Member]    
Related Party Transactions (Details) - Schedule of Due From Related Parties [Line Items]    
Due from related parties $ 51,190 $ 895,374
[1] FXDD Mauritius is controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
v3.23.2
Related Party Transactions (Details) - Schedule of Due to Related Parties - USD ($)
9 Months Ended 12 Months Ended
Jun. 30, 2023
Sep. 30, 2022
Variable Interest Entity [Line Items]    
Due to related parties $ 5,100,131 $ 4,514,063
Forexware LLC [Member]    
Variable Interest Entity [Line Items]    
Due to related parties [1] 1,211,665 1,079,229
FXDIRECT [Member]    
Variable Interest Entity [Line Items]    
Due to related parties 3,289,537 3,042,101
Currency Mountain Holdings Bermuda, Limited (“CMH”) [Member]    
Variable Interest Entity [Line Items]    
Due to related parties 42,000 42,000
FXDD Trading [Member]    
Variable Interest Entity [Line Items]    
Due to related parties [1] 498,963 242,113
Markets Direct Payments [Member]    
Variable Interest Entity [Line Items]    
Due to related parties [1] 2,415 2,114
Match Fintech Limited [Member]    
Variable Interest Entity [Line Items]    
Due to related parties [2] $ 55,551 $ 106,506
[1] Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
[2] Match Fintech Limited is controlled by affiliates of the Company.
v3.23.2
Concentrations (Details)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Sep. 30, 2022
Minimum [Member]      
Concentrations [Abstract]      
Percentage of outstanding receivable 10.00%    
Maximum [Member]      
Concentrations [Abstract]      
Percentage of outstanding receivable 79.50%    
Customers [Member]      
Concentrations [Abstract]      
Percentage of revenue 10.00% 10.00%  
Customers [Member] | Minimum [Member]      
Concentrations [Abstract]      
Percentage of outstanding receivable     10.00%
Customers [Member] | Maximum [Member]      
Concentrations [Abstract]      
Percentage of outstanding receivable     96.20%
Suppliers [Member]      
Concentrations [Abstract]      
Percentage of revenue 10.00% 10.00%  
Suppliers [Member] | Minimum [Member]      
Concentrations [Abstract]      
Percentage of outstanding payable 10.00%   10.00%
Suppliers [Member] | Maximum [Member]      
Concentrations [Abstract]      
Percentage of outstanding payable 91.00%   79.20%
v3.23.2
Concentrations (Details) - Schedule of Customer and Supplier Revenues
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Customer A [Member]        
Revenue, Major Customer [Line Items]        
Related party 92.10% 93.20% 88.80% 93.70%
Supplier A [Member]        
Revenue, Major Customer [Line Items]        
Related party 87.10% 89.30% 86.70% 87.70%
v3.23.2
Segment Information (Details) - Schedule of Reportable Business Segments - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Segment Information (Details) - Schedule of Reportable Business Segments [Line Items]        
Revenues $ 5,212,056 $ 5,152,192 $ 16,222,388 $ 15,370,224
Costs of revenues 5,370,074 5,290,633 16,287,317 16,162,557
Gross profit (loss) (158,018) (138,441) (64,929) (792,333)
Operating expenses 1,054,783 1,516,050 3,090,731 4,659,503
Other income (expense) 3,057 (331,796) 6,345 (405,904)
Net income (loss) (1,209,744) (1,986,287) (3,149,315) (5,857,740)
Amortization 592,892 592,892 1,778,675 2,097,726
General Support Services [Member]        
Segment Information (Details) - Schedule of Reportable Business Segments [Line Items]        
Revenues 4,800,000 4,800,000 14,400,000 14,400,000
Costs of revenues 4,675,000 4,725,000 14,125,000 14,175,000
Gross profit (loss) 125,000 75,000 275,000 225,000
Net income (loss) 125,000 75,000 275,000 225,000
Financial Services [Member]        
Segment Information (Details) - Schedule of Reportable Business Segments [Line Items]        
Revenues 412,056 352,192 1,822,388 970,224
Costs of revenues 695,074 565,633 2,162,317 1,987,557
Gross profit (loss) (283,018) (213,441) (339,929) (1,017,333)
Operating expenses 558,228 390,525 1,595,955 1,347,503
Other income (expense) 3,057 (918) 6,345 (3,319)
Net income (loss) (838,189) (604,884) (1,929,539) (2,368,155)
Amortization 591,955 591,955 1,775,865 2,095,853
Corporate/Other [Member]        
Segment Information (Details) - Schedule of Reportable Business Segments [Line Items]        
Operating expenses 496,555 1,125,525 1,494,776 3,312,000
Other income (expense) (330,878) (402,585)
Net income (loss) (496,555) (1,456,403) (1,494,776) (3,714,585)
Amortization $ 937 $ 937 $ 2,810 $ 1,873
v3.23.2
Segment Information (Details) - Schedule of Total Assets - USD ($)
Jun. 30, 2023
Sep. 30, 2022
Segment Information (Details) - Schedule of Total Assets [Line Items]    
Total assets $ 15,346,878 $ 18,364,904
Financial services [Member]    
Segment Information (Details) - Schedule of Total Assets [Line Items]    
Total assets 8,203,817 10,768,309
Corporate/Other [Member]    
Segment Information (Details) - Schedule of Total Assets [Line Items]    
Total assets $ 7,143,061 $ 7,596,595
v3.23.2
Commitments and Contingencies (Details) - USD ($)
1 Months Ended 9 Months Ended
May 17, 2020
Jun. 30, 2023
Commitments and Contingencies [Abstract]    
Common stock amount $ 75,000,000 $ 750,000
Purchase price percentage   96.00%
Description of common stock   (i) the number of shares of the Company’s common stock which would result in beneficial ownership by White Lion of more than 4.99% of the outstanding shares of the Company’s common stock, (ii) the number of shares of the Company’s common stock equal to 30% of the average daily trading volume of the Company’s common stock over the five consecutive trading days immediately following the notice date, or (iii) the number of the Company’s common stock obtained by dividing $1,500,000 by the closing sale price of the Company’s common stock on the notice date.
Common stock (in Dollars per share)   $ 1

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