UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Brilliant Acquisition Corporation
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The |
Securities registered under Section 12(g) 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 ☐
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).
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 | ☐ |
| ☒ | 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 July 29, 2024 | |
| Common Stock, $0.0001 par value per share |
NUKKLEUS INC.
FORM 10-Q
December 31, 2023
TABLE OF CONTENTS
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
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Customer custodial cash | ||||||||
| Customer digital currency assets | ||||||||
| Digital assets | ||||||||
| Due from affiliates | ||||||||
| Note receivable - related parties, net | ||||||||
| Other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Cost method investment | ||||||||
| Intangible assets, net | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer custodial cash liabilities | ||||||||
| Customer digital currency liabilities | ||||||||
| Due to affiliates | ||||||||
| Loan payable | ||||||||
| Accrued payroll liability and directors' compensation | ||||||||
| Accrued professional fees | ||||||||
| Accrued liabilities and other payables | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Loan payable - related parties | ||||||||
| Interest payable - related parties | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES - (Note 12) | ||||||||
| STOCKHOLDERS' DEFICIT: | ||||||||
| Preferred stock ($ | ||||||||
| Common stock ($ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| TOTAL STOCKHOLDERS' DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | $ | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
1
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUES | ||||||||
| Revenue - general support services - related party | $ | $ | ||||||
| Revenue - financial services | ||||||||
| Total revenues | ||||||||
| COSTS OF REVENUES | ||||||||
| Cost of revenue - general support services - related party | ||||||||
| Cost of revenue - financial services | ||||||||
| Total costs of revenues | ||||||||
| GROSS PROFIT (LOSS) | ||||||||
| Gross profit - general support services - related party | ||||||||
| Gross profit (loss) - financial services | ( | ) | ||||||
| Total gross profit (loss) | ( | ) | ||||||
| OPERATING EXPENSES: | ||||||||
| Advertising and marketing | ||||||||
| Professional fees | ||||||||
| Compensation and related benefits | ||||||||
| Bad debt expense | ||||||||
| Other general and administrative | ||||||||
| Total operating expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER (EXPENSE) INCOME: | ||||||||
| Interest expense - related parties | ( | ) | ||||||
| Other income | ||||||||
| Total other income, net | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| COMPREHENSIVE LOSS: | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Unrealized foreign currency translation loss | ( | ) | ( | ) | ||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| NET LOSS PER COMMON SHARE: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
2
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Three Months Ended December 31, 2023
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Other | Total | ||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Accumulated | Comprehensive | Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Deficit | |||||||||||||||||||||||||
| Balance as of November 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||
| Conversion of related party debts into common stock | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of common stock in connection with reverse recapitalization | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2023 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
3
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended December 31, 2022
(Unaudited)
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation and service expense | ||||||||
| Provision for bad debt | ||||||||
| Unrealized foreign currency exchange (gain) loss | ( | ) | ||||||
| Impairment of digital assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Customer digital currency assets | ( | ) | ( | ) | ||||
| Accounts receivable | ( | ) | ||||||
| Digital assets | ( | ) | ||||||
| Due from affiliates | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Customer custodial cash liabilities | ( | ) | ||||||
| Customer digital currency liabilities | ||||||||
| Due to affiliates | ||||||||
| Accrued payroll liability and directors' compensation | ||||||||
| Accrued professional fees | ( | ) | ||||||
| Interest payable - related parties | ||||||||
| Accrued liabilities and other payables | ( | ) | ||||||
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in note receivable | ( | ) | ||||||
| Proceeds from note receivable – related parties | ||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Cash received in reverse recapitalization | ||||||||
| Proceeds from loan payable | ||||||||
| Proceeds from loan payable - related parties | ||||||||
| Repayments of loan payable - related parties | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH | ||||||||
| NET INCREASE IN CASH | ||||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Cash consisted of the following: | ||||||||
| Cash | $ | $ | ||||||
| Customer custodial cash | ||||||||
| Total cash | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of related party debts into common stock | $ | $ | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS
Nukkleus Inc. (formerly known as, Brilliant Acquisition Corporation) (“Nukkleus”) was formed on May 24, 2019. Nukkleus was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination with one or more businesses or entities. On June 23, 2023, Brilliant Acquisition Corporation, a British Virgin Islands company (prior to the Merger “Brilliant”, and following the Merger, a Delaware corporation “Nukkleus”), entered into an Amended and Restated Agreement and Plan of Merger (as amended by the First Amendment to the Amended and Restated Agreement and Plan of Merger on November 1, 2023, the “Merger Agreement”), by and among Brilliant BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), and Nukkleus Inc., a Delaware corporation (“Old Nukk” or the “Company”). Old Nukk (f/k/a Compliance & Risk Management Solutions Inc.) 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 Merger Agreement provides that, among other things, at the closing (the “Closing”) of the transactions contemplated by the Merger Agreement, Merger Sub merged with and into Old Nukk (the “Merger”), with Old Nukk surviving as a wholly-owned subsidiary of Brilliant. In connection with the Merger, Brilliant changed its name to “Nukkleus Inc.” (“Nukkleus” or “Combined Company”). The Merger and other transactions contemplated by the Merger Agreement are hereinafter referred to as the “Business Combination.” The Business Combination was completed on December 22, 2023 (“Closing Date”). The accompanying financial statements are those of Old Nukk, as adjusted for the reverse recapitalization, as described in Note 2.
As a result of Business Combination, Nukkleus now 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 $
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 $
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.
6
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS (continued)
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
On December 30, 2021, Old Nukk and the shareholder
(the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the
“Digiclear Agreement”) pursuant to which Old Nukk acquired
Liquidity and capital resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate
on an ongoing basis. At December 31, 2023 and September 30, 2023, the Company had cash of approximately $
The 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 $
The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
7
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Reverse recapitalization
Pursuant to the Merger Agreement, the merger between Brilliant and Old Nukk was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (the “Reverse Recapitalization”). Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Old Nukk issuing stock for the net assets of Brilliant, accompanied by a recapitalization. The net assets of Brilliant are stated at historical cost, with no goodwill or other intangible assets recorded.
Old Nukk was determined to be the accounting acquirer based on the following predominant factors:
| ● | Old Nukk’s existing stockholders have the greatest voting interest in the Combined Company; |
| ● | Old Nukk controls the majority of the board of directors of the Combined Company and, given the board of directors election and retention provisions, Old Nukk holds the ability to maintain control of the board of directors on a go-forward basis; and |
| ● | Old Nukk’s senior management is the senior management of the Combined Company. |
The condensed consolidated assets, liabilities,
and results of operations prior to the Reverse Recapitalization are those of Old Nukk. The shares and corresponding capital amounts and
losses per share, prior to the Reverse Recapitalization, have been retroactively restated based on shares reflecting the exchange ratio
of
Principals 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 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 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 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 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, 2023 filed with the Securities and Exchange Commission on July 12, 2024. The consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023, but does not include all disclosures required by U.S. GAAP.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the 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 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 months ended December 31, 2023 and 2022 include the allowance for doubtful accounts, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, and the fair value of customer digital currency assets and liabilities.
8
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and cash equivalents
| Country: | December 31, 2023 | September 30, 2023 | ||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| United Kingdom | % | % | ||||||||||||||
| Republic of Lithuania | % | |||||||||||||||
| Malta | % | % | ||||||||||||||
| Total cash | $ | % | $ | % | ||||||||||||
For purposes of the 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 December 31, 2023 and September 30, 2023. 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 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.
9
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
| Quoted Price in | Significant Other Observable | Significant Unobservable | Balance at | |||||||||||||
| Active Markets | Inputs | Inputs | December 31, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2023 | |||||||||||||
| Customer digital currency assets | $ | $ | $ | $ | ||||||||||||
| Customer digital currency liabilities | $ | $ | $ | $ | ||||||||||||
As of September 30, 2023, the Company did not have any customer digital currency assets and liabilities.
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.
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 condensed consolidated statements of operations and comprehensive loss. The Company assigns costs to transactions on a first-in, first-out basis.
10
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $
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 $
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.
Note receivable – related parties
Note receivable – related parties is presented
net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews
the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the
collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors,
including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend.
Note receivable is written off after exhaustive efforts at collection. During the three months ended December 31, 2023, accounts with
the amount of approximately $
Other current assets
Other current
assets primarily consist of security deposit, accounts receivable, interest receivable, and prepaid miscellaneous items. As of December
31, 2023 and September 30, 2023, other current assets amounted to $
11
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Variable interest entity (“VIE”)
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE.
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then the Company consolidates the VIE.
The Company analyzes its investment in Jacobi to determine whether it is a VIE and, if so, whether the Company is the primary beneficiary in accordance with ASC 810 Consolidation. The Company determines Jacobi is a VIE since it has insufficient equity to permit it to finance its activities without additional subordinated financial support. In determining whether it is the primary beneficiary, the Company considers whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also considers whether it has the obligation to absorb losses of, or the right to receive benefits from, the VIE. The Company is not the primary beneficiary of Jacobi as it does not have the power to direct the activities that most significantly impact the economic performance of Jacobi, due to Jacobi’ management and board of directors’ structure. As a result, the variable interest entity is not consolidated. Creditors of the Company’s variable interest entity do not have recourse against the general credit of the Company. The Company uses the cost method to account for its investment in Jacobi in which the Company is not deemed to be the primary beneficiary.
The Company’s investment in unconsolidated variable interest entity is classified as cost method investment in the condensed consolidated balance sheets. The Company’s assets and liabilities with the variable interest entity are classified as due from/to affiliates.
| December 31, 2023 | September 30, 2023 | |||||||
| Cost method investment | $ | $ | ||||||
| Due from affiliates | ||||||||
| Total VIE assets | $ | $ | ||||||
| Maximum exposure to loss | $ | $ | ||||||
Intangible assets
Intangible assets consist of regulatory licenses,
which are being amortized on a straight-line method over the estimated useful life of
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. The Company did not record any impairment charge for the three months ended December 31, 2023 and 2022 as there was no impairment indicator noted.
12
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 approximately |
| ● | 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). |
13
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 |
| Three Months Ended December 31, | ||||||||
| Revenue Stream | 2023 | 2022 | ||||||
| General support services | $ | $ | ||||||
| Financial services | ||||||||
| Total revenues | $ | $ | ||||||
Advertising and marketing costs
All costs related to
advertising and marketing are expensed as incurred. For the three months ended December 31, 2023 and 2022, advertising and marketing costs
amounted to $
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.
14
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 December 31, 2023 and September 30, 2023 were translated at 0.7849 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 0.9046 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 1.3264 CAD and 1.3591 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 three months ended December 31, 2023 and 2022 was 0.8053 GBP and 0.8525 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 and 2022 was 0.9288 EUR and 0.9806 EUR to $1.00. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 was 1.3619 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 months ended December 31, 2023 and 2022 consisted of net loss and unrealized loss 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.
15
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share data
ASC Topic 260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three months ended December 31, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (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.
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Options to purchase common stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Potentially dilutive securities | ||||||||
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.
Merger
Old Nukk completed a Business Combination with
Brilliant on December 22, 2023. All references in these condensed consolidated financial statements to shares and corresponding capital
amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based on shares reflecting the exchange
ratio of
Recently issued accounting pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
16
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - CUSTOMER ASSETS AND LIABILITIES
The Company includes customer funds in the condensed consolidated balance sheets as customer custodial cash and includes these cash deposits to be utilized for its contractual obligations to its customers as customer custodial cash liabilities in the condensed consolidated balance sheets.
| December 31, 2023 | September 30, 2023 | |||||||
| Customer custodial cash | $ | $ | ||||||
| Customer digital currency assets | ||||||||
| Total customer assets | $ | $ | ||||||
| Customer custodial cash liabilities | $ | $ | ||||||
| Customer digital currency liabilities | ||||||||
| Total customer liabilities | $ | $ | ||||||
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 months ended December 31, 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.
| December 31, 2023 | September 30, 2023 | |||||||||||||||
| Fair Value | Percentage of Total | Fair Value | Percentage of Total | |||||||||||||
| Stablecoin/USD Coin | $ | % | $ | |||||||||||||
| Ethereum | % | |||||||||||||||
| Total customer digital currency assets | $ | % | $ | |||||||||||||
NOTE 5 – DIGITAL ASSETS
| Asset | Estimated Useful Life | Cost | Impairment | Digital Assets | ||||||||||
| Bitcoin | $ | $ | $ | |||||||||||
| Ethereum | ||||||||||||||
| Stablecoin/USD Coin | ||||||||||||||
| Other | ||||||||||||||
| Total | $ | $ | $ | |||||||||||
17
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – DIGITAL ASSETS (continued)
| Asset | Estimated Useful Life | Cost | Impairment | Digital Assets | ||||||||||
| Bitcoin | $ | $ | $ | |||||||||||
| Ethereum | ||||||||||||||
| Stablecoin/USD Coin | ||||||||||||||
| Other | ||||||||||||||
| Total | $ | $ | $ | |||||||||||
The Company recorded impairment expense of and
$
NOTE 6– NOTE PAYABLE
In November
2023, the Company entered into a loan agreement with a third party. Pursuant to the loan agreement, the Company borrowed $
As of December
31, 2023, the outstanding principal balance was $
NOTE 7– ACCRUED LIABILITIES AND OTHER PAYABLES
| December 31, 2023 | September 30, 2023 | |||||||
| Unearned revenue | $ | $ | ||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 8 – SHARE CAPITAL
Common shares issued for services
During the three months ended December 31, 2023,
the Company issued a total of
Common shares issued for related party debts conversion
On December
19, 2023, the Company and FXDIRECT, a related party, entered into a Debt Conversion Agreement pursuant to which the outstanding amount
of $
On
December 19, 2023, the Company and Emil Assentato, the Company’s former chief
executive officer and chairman, entered into a Debt Conversion Agreement pursuant to which the outstanding principal amount of
$
18
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – SHARE CAPITAL (continued)
Options
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at December 31, 2023 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at December 31, 2023 | Weighted Average Exercise Price | |||||||||||||||||
| $ | | $ | $ | |||||||||||||||||||
| $ | | $ | $ | |||||||||||||||||||
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at September 30, 2023 | $ | |||||||
| Granted | ||||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Options exercisable at December 31, 2023 | $ | |||||||
| Options expected to vest | $ | |||||||
The aggregate intrinsic value of both stock options
outstanding and stock options exercisable at December 31, 2023 was $
| Number of Options | Weighted Average Exercise Price | |||||||
| Nonvested at September 30, 2023 | $ | |||||||
| Vested | ||||||||
| Nonvested at December 31, 2023 | $ | |||||||
Warrants
As a result of the Business Combination which
was completed on December 22, 2023,
There was no stock warrant activity during the
period from Closing Date to December 31, 2023.
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
| Exercise Price | Number Outstanding at December 31, 2023 | Remaining Contractual Life (Years) | Number Exercisable at December 31, 2023 | Exercise Price | ||||||||||||||
| $ | $ | |||||||||||||||||
The aggregate intrinsic value of stock warrants
outstanding and stock warrants exercisable at December 31, 2023 was $
19
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – 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 $
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 $
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 $
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 $
Both of the above entities are affiliates through common ownership.
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Service provided to: | ||||||||
| TCM | $ | $ | ||||||
| $ | $ | |||||||
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Service received from: | ||||||||
| FXDIRECT | $ | $ | ||||||
| $ | $ | |||||||
During the three months ended December 31, 2023
and 2022, Digital RFQ earned revenue from related parties in the amount of $
20
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Due from affiliates
| December 31, 2023 | September 30, 2023 | |||||||
| Jacobi | $ | $ | ||||||
| FXDD Mauritius (1) | ||||||||
| TCM | - | |||||||
| Craig Vallis | ||||||||
| Jamal Khurshid (2) | ||||||||
| Total | $ | $ | ||||||
| (1) |
| (2) |
The balances due from Jacobi, FXDD Mauritius, Craig Vallis, and Jamal Khurshid represent monies that the Company paid on behalf of Jacobi, FXDD Mauritius, Craig Vallis, and Jamal Khurshid. The balance due from TCM as of September 30, 2023 represents unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.
Management believes that the affiliates’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from affiliates at December 31, 2023 and September 30, 2023.
Due to affiliates
| December 31, 2023 | September 30, 2023 | |||||||
| Forexware LLC (1) | $ | $ | ||||||
| FXDIRECT (2) | ||||||||
| Currency Mountain Holdings Bermuda, Limited (“CMH”) | ||||||||
| FXDD Trading (1) | ||||||||
| Markets Direct Payments (1) | ||||||||
| Match Fintech Limited (3) | ||||||||
| Total | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
The balances due to affiliates represent 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.
21
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Customer digital currency assets and liabilities – related parties
At December 31, 2023
and September 30, 2023, related parties’ digital currency, which was controlled by Digital RFQ, amounted to $
Note receivable – related parties
Promissory note
The Company originated a note receivable to a
shareholder in the principal amount of $
For the
three months ended December 31, 2023 and 2022, the interest income related to this note amounted to $
As of December 31, 2023
and September 30, 2023, the outstanding interest balance related to this note was $
Line of credit
On July 31, 2023, the Company entered into a Credit
Deed (the “Credit Deed”) providing a $
| Outstanding principal under the Line of Credit at September 30, 2023 | $ | |||
| Repayment of Line of Credit | ( | ) | ||
| Outstanding principal under the Line of Credit at December 31, 2023 | $ |
During the three months ended December 31, 2023,
accrued and unpaid interest related to the line of credit with the amount of approximately $
Loan payable – related parties and interest payable – related parties
On July
19, 2023, Digital RFQ issued a promissory note (the “July 2023 Loan”) in the principal amount of $
On
August 15, 2023, Digital RFQ issued a promissory note (the “August 2023 Loan”) in the principal amount of $
22
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (continued)
Loan payable – related parties and interest payable – related parties (continued)
On
September 18, 2023, the Company issued a promissory note (the “September 2023 Loan”) in the principal amount of $
During the
three months ended December 31, 2023, the Company issued a few of promissory notes in the aggregate principal of $
As of December
31, 2023 and September 30, 2023, the outstanding principal balance totaled $
For the
three months ended December 31, 2023, the interest expense related to related parties’ loans amounted to $
As of December
31, 2023 and September 30, 2023, the related accrued and unpaid interest for related parties’ loans was $
Letter agreement with ClearThink
Nukkleus was 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.
Craig Marshak, a former member of the Board of
Directors of the Company, was a managing director of ClearThink, a transaction advisory firm. ClearThink had 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. The letter agreement was terminated on October 27, 2023. The Company paid ClearThink $
NOTE 10 – CONCENTRATIONS
Customers
| Three Months Ended December 31, | ||||||||
| Customer | 2023 | 2022 | ||||||
| A – related party | % | % | ||||||
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 December 31, 2023, accounted for
One related party
customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable and
due from affiliates at September 30, 2023, accounted for
23
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – CONCENTRATIONS (continued)
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 months ended December 31, 2023 and 2022.
| Three Months Ended December 31, | ||||||||
| Supplier | 2023 | 2022 | ||||||
| A – related party | % | % | ||||||
Two
related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable,
accrued liabilities and other payables, and due to affiliates at December 31, 2023, accounted for
Two related
party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable,
accrued liabilities and other payables, and due to affiliates at September 30, 2023, accounted for
NOTE 11 – SEGMENT INFORMATION
For the three months ended December 31, 2023 and
2022, the Company operated in
24
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – SEGMENT INFORMATION (continued)
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| General support services | $ | $ | ||||||
| Financial services | ||||||||
| Total | ||||||||
| Costs of revenues | ||||||||
| General support services | ||||||||
| Financial services | ||||||||
| Total | ||||||||
| Gross profit (loss) | ||||||||
| General support services | ||||||||
| Financial services | ( | ) | ||||||
| Total | ( | ) | ||||||
| Operating expenses | ||||||||
| Financial services | ||||||||
| Corporate/Other | ||||||||
| Total | ||||||||
| Other income (expense) | ||||||||
| Financial services | ||||||||
| Corporate/Other | ( | ) | - | |||||
| Total | ||||||||
| Net income (loss) | ||||||||
| General support services | ||||||||
| Financial services | ( | ) | ( | ) | ||||
| Corporate/Other | ( | ) | ( | ) | ||||
| Total | ( | ) | ( | ) | ||||
| Amortization | ||||||||
| Financial services | ||||||||
| Corporate/Other | ||||||||
| Total | $ | $ | ||||||
| Total assets at December 31, 2023 and September 30, 2023 | December 31, 2023 | September 30, 2023 | ||||||
| Financial services | $ | $ | ||||||
| Corporate/Other | ||||||||
| Total | $ | $ | ||||||
25
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – 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.
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 had the right, but not the obligation, to require White Lion to
purchase shares of its common stock up to a maximum amount of $
NOTE 13 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Common shares issued for services
In January 2024, the Company issued
Common shares issued for Settlement Agreement and Stipulation
On May 28, 2024, the Company entered into a Settlement
Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding
claims owed to SCC. Pursuant to the Settlement Agreement, on May 31, 2024, the Company issued
Financing
On March 6, 2024, the Company and a related party
entered into a Facility Agreement, pursuant to which the Company borrowed $
In March 2024, the Company and an individual,
who is a shareholder of the Company, entered into a Loan Agreement, pursuant to which the Company can borrow up to GBP
Senior Unsecured Promissory Note – June 2024
On June 11, 2024 (the “Effective Date”),
the Company issued a Senior Unsecured Promissory Note (the “Note”) in the principal amount of $
26
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS (continued)
Senior Unsecured Promissory Note – June 2024 (continued)
The Company and the Lender also entered into a
Restructuring Agreement providing that, among other items, the Lender, in its sole discretion, will have the right for a period for six
months from the Effective Date (the “Investment Period”), to lend the Company an additional $
Further, during the Investment Period, the Lender, without any additional compensation, will be exclusive advisor to the Company with respect to potential acquisitions by the Company and the Company will use its reasonable best efforts to consider all proposals by the Lender. Any such acquisition proposal provided by the Lender will be subject to the Lender and such party entering a definitive binding agreement and the Board of Directors and shareholders of the Company approving such acquisition.
In order to induce the Lender to provide the loan
contemplated pursuant to the Note, Emil Assentato entered into a Voting Agreement with the Company and the Lender agreeing to vote his
shares in support of any transaction provided by the Lender. The Company and the Lender have agreed that
Senior Unsecured Promissory Note – July 2024
On July 29, 2024 (the “Effective Date”),
the Company issued a Senior Unsecured Promissory Note (the “East Asia Note”) in the principal amount of $
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations for the three months ended December 31, 2023 and 2022 should be read in conjunction with our condensed consolidated financial statements and related notes to those 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 have ownership of the FOREXWARE assets, 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. We seek to offer our client’s customers 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.
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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 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 548,767 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 executive 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, Old Nukk and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which Old Nukk acquired 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of shares of common stock, which following the Merger represented 415,733 shares of common stock of the Company (valued at $5,000,000 based on the market price of Old Nukk’s common stock on the acquisition date) (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. In addition, upon the closing of the Merger, the Company agreed to provide an additional $1 million in investment to Digiclear in exchange for 4.545% of additional shares of Digiclear’s capital stock subject to the parties entering a definitive agreement. The Company and Digiclear have not entered into an additional agreement outlining the terms pursuant to which the Company would acquire the additional shares of Digiclear. 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 December 31, | ||||||||
| Performance Indicator | 2023 | 2022 | ||||||
| Trading volume | $ | 69,383,884 | $ | 141,867,422 | ||||
| Financial services revenue | $ | 442,391 | $ | 576,388 | ||||
| Financial services income (loss) | $ | 308,700 | $ | (129,873 | ) | |||
| Average cost per trade | $ | 295 | $ | 795 | ||||
| Average trade | 153,165 | 159,761 | ||||||
| Number of trades | 453 | 888 | ||||||
| Clients active | 53 | 57 | ||||||
| Clients removed | 3 | 6 | ||||||
| Gross trading margin | 0.6 | % | 0.4 | % | ||||
| Gross margin | 69.8 | % | (22.5 | )% | ||||
Trading volume is measured by number of trades and represents aggregate notional value of all trades.
Financial services revenue represents the top-line revenue generated from trades, before considering the costs associated with the generation of financial services revenue.
29
Financial services income (loss) is measured as financial services revenue, less costs incurred associated with delivery of our services. For the three months ended December 31, 2022, cost of financial services includes 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.
In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three months ended December 31, 2023, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services. We had a financial services income for the three months ended December 31, 2023 as compared to financial services loss for the three months ended December 31, 2022.
Average cost per trade is driven by financial services costs. Our average cost per trade decreased measurably as costs decreased.
Active clients for the three months ended December 31, 2023 and 2022 was 53 and 57, 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 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 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 months ended December 31, 2023 and 2022 include the allowance for doubtful accounts, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, and the 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 condensed consolidated statements of operations and comprehensive loss.
30
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.
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.
Results of Operations
Summary of Key Results
For the Three Months Ended December 31, 2023 Versus the Three Months Ended December 31, 2022
Revenues
For both the three months ended December 31, 2023 and 2022, we had revenue from general support services rendered to TCM under a GSA of $4,800,000. We do not expect any revenue from general support services in the near future since we have advised TCM that the GSA has been terminated due to non-payment by TCM under the GSA.
For the three months ended December 31, 2023, we had revenue from financial services of $442,391, as compared to $576,388 for the three months ended December 31, 2022, a decrease of $133,997, or 23.2%. The decrease was primarily attributable to the closure of our primary USD Banking rails when Signature and Silvergate closed in March 2023. We expect that our revenue from financial services will remain at its current level with minimal increase in the near future.
Costs of Revenues
For the three months ended December 31, 2023, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $4,650,000, as compared to $4,725,000 for the three months ended December 31, 2022, a decrease of $75,000, or 1.6%. 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 the three months ended December 31, 2023 was decreased as compared to the three months ended December 2022.
For the three months ended December 31, 2022, cost of financial services includes 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.
31
In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three months ended December 31, 2023, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
For the three months ended December 31, 2023, cost of financial services amounted to $133,691, as compared to $706,261 for the three months ended December 31, 2022, a decrease of $572,570, or 81.1%. The significant decrease was primarily attributable to decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition in the three months ended December 31, 2023.
Gross Profit (Loss)
Our gross profit from general support services for the three months ended December 31, 2023 was $150,000, as compared to $75,000 for the three months ended December 31, 2022, an increase of $75,000, or 100.0%. Gross margin increased to 3.1% for the three months ended December 31, 2023 from 1.6% for the three months ended December 31, 2022. The increase in our gross margin for the general support services segment for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was attributed to the decrease in our cost of general support services as described above.
Gross profit from financial services for the three months ended December 31, 2023 was $308,700, as compared to gross loss of $129,873 for the three months ended December 31, 2022, a decrease of $438,573, or 337.7%. Gross margin increased to 69.8% for the three months ended December 31, 2023 from (22.5)% for the three months ended December 31, 2022. The increase in our gross margin for the financial services segment for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was primarily attributed to the decrease in cost for financial services driven by decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition. We expect that our gross margin for the financial services segment will remain in its current level with minimal increase in the near future.
Operating Expenses
Operating expenses consisted of advertising and marketing, professional fees, compensation and related benefits, bad debt expense, and other general and administrative expenses.
Advertising and marketing
For the three months ended December 31, 2023, advertising and marketing expense decreased by $28,104, or 57.2%, as compared to the three months ended December 31, 2022. The decrease was primarily attributable to our decreased advertising and marketing activities. We expect that our advertising and marketing expense will remain in its current level with minimal 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 December 31, 2023, professional fees increased by $2,185,007, or 322.7%, as compared to the three months ended December 31, 2022. The increase was primarily attributable to a significant increase in advisory service fees of $2,293,000 mainly driven by common stock granted to advisors of approximately $2,016,000, and an increase in other miscellaneous items of approximately $22,000, offset by a decrease in consulting fees of approximately $130,000 mainly due to the decrease in options granted to consultants. We expect that our professional fees will remain in its current level with minimal increase in the near future.
Compensation and related benefits
For the three months ended December 31, 2023, our compensation and related benefits increased by $93,576, or 58.4%, as compared to the three months ended December 31, 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 level with minimal increase in the near future.
Bad debt expense
For the three months ended December 31, 2023, our had bad debt expense of $6,145,942. In December 2023, due to non-payment by TCM under the GSA, we have advised TCM that the GSA has been terminated. We made an allowance for doubtful account for the related party’s receivable in the amount of $6,145,942 in December 2023. We did not record any allowance for doubtful account for the three months ended December 31, 2022.
32
Other general and administrative expenses
Other general and administrative expenses primarily consisted of rent, amortization of intangible assets, travel and entertainment, and other miscellaneous items.
For the three months ended December 31, 2023, total other general and administrative expenses decreased by $72,114, or 37.0%, as compared to the three months ended December 31, 2022. The decrease was mainly due to a decrease in amortization of intangible assets of approximately $63,000 and a decrease in other miscellaneous items of approximately $9,000 driven by our efforts at stricter controls on corporate expenditure. We expect that other general and administrative expenses will remain in its current level with minimal decrease in the near future.
Other (Expense) Income
Other (expense) income includes related parties’ interest expense and other miscellaneous income.
Other income, net, totaled $19,134 for the three months ended December 31, 2023, as compared to $2,573 for the three months ended December 31, 2022, an increase of $16,561, or 643.6%, which was attributable to an increase in other miscellaneous income of approximately $24,000, offset by an increase in related parties’ interest expense of approximately $7,000.
Net Loss
As a result of the factors described above, our net loss was $8,928,095, or $0.85 per share (basic and diluted), for the three months ended December 31, 2023, as compared to $1,133,922, or $0.11 per share (basic and diluted), for the three months ended December 31, 2022, an increase of $7,794,173 or 687.4%.
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 $63,313 and $27,983 for the three months ended December 31, 2023 and 2022, respectively. This non-cash loss had the effect of increasing our reported comprehensive loss.
Comprehensive Loss
As a result of our foreign currency translation adjustment, we had comprehensive loss of $8,991,408 and $1,161,905 for the three months ended December 31, 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 December 31, 2023 and September 30, 2023, we had cash of approximately $204,000 and $19,000, respectively, exclusive of customer custodial cash. We had working capital deficit of approximately $9,663,000 as of December 31, 2023. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. As described below, we have raised additional capital through the sale of equity and debt and we plan to raise additional capital in the future through the sale of equity or debt to implement our business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, if at all.
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The following table sets forth a summary of changes in our working capital deficit from September 30, 2023 to December 31, 2023:
| December 31, | September 30, | Changes in | ||||||||||||||
| 2023 | 2023 | Amount | Percentage | |||||||||||||
| Working capital deficit: | ||||||||||||||||
| Total current assets | $ | 1,960,086 | $ | 2,928,408 | $ | (968,322 | ) | (33.1 | )% | |||||||
| Total current liabilities | 11,622,879 | 9,123,465 | 2,499,414 | 27.4 | % | |||||||||||
| Working capital deficit | $ | (9,662,793 | ) | $ | (6,195,057 | ) | $ | (3,467,736 | ) | 56.0 | % | |||||
Our working capital deficit increased by $3,467,736 to $9,662,793 at December 31, 2023 from $6,195,057 at September 30, 2023. The increase in working capital deficit was primarily attributable to a significant decrease in due from affiliates of approximately $2,010,000 which was primarily attributable to our receivable from TCM was written off after exhaustive efforts at collection in the three months ended December 31, 2023, a decrease in note receivable – related parties, net, of approximately $128,000 driven by repayments received from note receivable – related parties in the three months ended December 31, 2023, an increase in accounts payable of approximately $157,000 due to our financial services business expansion, an increase in customer digital currency liabilities of approximately $996,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, and an increase in due to affiliates of approximately $1,370,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the three months ended December 31, 2023, offset by an increase in cash of approximately $185,000, an increase in customer digital currency assets of approximately $996,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, and a decrease in customer custodial cash liabilities of approximately $112,000 resulting from fulfillment of our direct obligations to our customers.
Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the 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 Three Months Ended December 31, 2023 Compared to the Three Months Ended December 31, 2022
The following summarizes the key components of our cash flows for the three months ended December 31, 2023 and 2022:
| Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash (used in) provided by operating activities | $ | (737,831 | ) | $ | 5,834,320 | |||
| Net cash provided by (used in) investing activities | 130,137 | (67,800 | ) | |||||
| Net cash provided by financing activities | 746,171 | - | ||||||
| Effect of exchange rate on cash | 33,314 | 384,202 | ||||||
| Net increase in cash | $ | 171,791 | $ | 6,150,722 | ||||
Net cash flow used in operating activities for the three months ended December 31, 2023 was $737,831, which primarily reflected our consolidated net loss of approximately $8,928,000, and the changes in operating assets and liabilities, primarily consisting of an increase in customer digital currency assets of approximately $971,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, a significant increase in due from affiliates of approximately $4,134,000 due to the payments made to our affiliates and monies that we paid on behalf of our affiliates in the three months ended December 31 2023, and a decrease in customer custodial cash liabilities of approximately $172,000 driven by fulfillment of our direct obligations to our customers in the three months ended December 31, 2023, offset by an increase in accounts payable of approximately $147,000 due to our business expansion, an in customer digital currency liabilities of approximately $971,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, a significant increase in due to affiliates of approximately $4,078,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the three months ended December 31, 2023, and the non-cash items adjustment primarily consisting of stock-based compensation and service expense of approximately $2,090,000, and provision for bad debt of approximately $6,146,000.
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Net cash flow provided by operating activities for the three months ended December 31, 2022 was $5,834,320, which primarily reflected the non-cash items adjustment primarily consisting of amortization of intangible assets, mainly representing intangible assets acquired on Match acquisition, of approximately $593,000, and stock-based compensation and service expense of approximately $147,000 due to options granted for professional services, and the changes in operating assets and liabilities, primarily consisting of a decrease in due from affiliates of approximately $285,000 resulting from the payments received from our affiliates in the first quarter of fiscal 2023, a significant increase in customer custodial cash liabilities of approximately $5,875,000 resulting from our business expansion, an increase in due to affiliates of approximately $93,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the first quarter of fiscal 2023, offset by our consolidated net loss of approximately $1,134,000.
Net cash flow provided by investing activities was $130,137 for the three months ended December 31, 2023 as compared to net cash flow used in investing activities of $67,800 for the three months ended December 31, 2022. During the three months ended December 31, 2023, we received proceeds from note receivable – related parties of approximately $130,000. During the three months ended December 31, 2022, we made payment for note receivable of approximately $68,000.
Net cash flow provided by financing activities was $746,171 for the three months ended December 31, 2023. During the three months ended December 31, 2023, we received cash in reverse recapitalization of approximately $150,000 and received proceeds from loans payable from third party and related party of approximately $678,000, offset by repayments made for loan payable – related parties of approximately $82,000.
There was no financing activity during the three months ended December 31, 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 development of business opportunities; |
| ● | Addition of personnel as the business grows; and |
| ● | The cost of being a public company. |
We need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
Consistent with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between us and our officers, directors and their affiliates will be entered into only if such transactions are approved by a majority of the disinterested directors, are approved by vote of the stockholders, or are fair to us as a corporation as of the time it is authorized, approved or ratified by the board. We will conduct an appropriate review of all related party transactions on an ongoing basis.
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 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 December 31, 2023 and 2022, we had an unrealized foreign currency translation loss of approximately $63,000 and $28,000, respectively, because of changes in the exchange rates.
Inflation
The effect of inflation on our revenue and operating results was not significant.
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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 December 31, 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.
Management regularly assesses controls and did so most recently for our financial reporting as of December 31, 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 concluded that our disclosure controls and procedures were not effective as of December 31, 2023 due to the material weaknesses that were previously reported in our Annual Report on Form 10-K for the year ended September 30, 2023 filed with the SEC on July 12, 2024, that have not yet been remediated. Management’s plan to remediate these material weaknesses is described in detail in such Annual Report on Form 10-K for the year ended September 30, 2023.
In light of the material weakness, we performed additional analyses and procedures in order to conclude that our condensed consolidated financial statements for the quarter ended December 31, 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 condensed consolidated financial statements for the quarter ended December 31, 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
General Services Agreement
The Company, through its wholly owned subsidiary, provides software and technology solutions for the worldwide retail foreign exchange trading industry. The Company’s primary customer is Triton Capital Markets Ltd. (“TCM”) (formerly known as FXDD Malta Limited). Emil Assentato, the former CEO, a former director of the Company and a shareholder of the Company, is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of TCM. In order to define the services rendered to TCM, Nukkleus Limited, a wholly-owned subsidiary of the Company, entered into a General Services Agreement (“GSA”) with TCM in May 2016. The GSA provides that TCM will pay Nukkleus Limited a minimum of $1,600,000 per month. Due to non-payment by TCM under the GSA, the Company has advised TCM that the GSA has been terminated. The Company has historically generated substantially most of its revenue through the services rendered under the GSA.
Resignation/Appointment
On July 24, 2024, Emil Assentato resigned as Chief Executive Officer and from the Board of Directors of the Company, effective immediately. His resignation was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Jamal (Jamie) Khurshid, the Chief Operating Officer and a director of the Company, was appointed as Chief Executive Officer effective July 24, 2024.
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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
Common shares issued for Settlement Agreement and Stipulation
On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, SCC has agreed to purchase certain outstanding payables between the Company and designated vendors of the Company totaling $1,118,953.75 (the “Payables”) and will exchange such Payables for a settlement amount payable in shares of common stock of the Company (the “Settlement Shares”). The Settlement Shares shall be priced at 70% of the average of the three lowest trading prices during the five trading day period prior to a share request, which may not be less than $0.05 per share. In the event the Company’s market price decreases to or below $0.75 per share, then either the Company or SCC may declare a default. SCC has agreed that it will not become the beneficial owner of more than 4.99% of common stock of the Company at any point in time. Further, the Settlement Agreement provides that Settlement Shares may not be issued to SCC if such issuance would exceed 19.9% of the outstanding common stock as of May 23, 2024. The Settlement Agreement and the issuance of the Settlement Shares was approved by the Circuit Court of the Twelfth Judicial Circuit Court for Manatee County, Florida (the “Court”) on May 29, 2024 (Case No. 2024 CA 755). The Court entered an Order confirming the fairness of the terms and conditions of the Settlement Agreement and the issuance of the Settlement Shares.
Senior Unsecured Promissory Note – June 2024
On June 11, 2024 (the “Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “Note”) in the principal amount of $312,500 to X Group Fund of Funds, a Michigan limited partnership (the “Lender”) in consideration of cash proceeds in the amount of $250,000. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the Note, the Company issued the Lender a Stock Purchase Warrant (“Warrant”) to acquire 1,200,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The Lender shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25.
The Company and the Lender also entered into a Restructuring Agreement providing that, among other items, the Lender, in its sole discretion, will have the right for a period for six months from the Effective Date (the “Investment Period”), to lend the Company an additional $500,000 in consideration of a convertible promissory note that will have a term of two years, bear interest at 12% and will convert into shares of common stock at a per share price of $0.25. During the Investment Period, the Company may not incur additional debt or enter into any equity financing arrangement without the written consent of the Lender. The Company has agreed, in its good faith, to negotiate the sale of its wholly owned subsidiary, Digital RFQ Ltd. (“Digital”) to Digital’s current management team led by Jamie Khurshid subject to approval of the Company’s Board of Directors and shareholders and subject to compliance with all federal, state and Nasdaq rules. The Lender provided an additional $50,000 following the initial closing, with such funds was disbursed as agreed between the Company and the Lender.
Further, during the Investment Period, the Lender, without any additional compensation, will be exclusive advisor to the Company with respect to potential acquisitions by the Company and the Company will use its reasonable best efforts to consider all proposals by the Lender. Any such acquisition proposal provided by the Lender will be subject to the Lender and such party entering a definitive binding agreement and the Board of Directors and shareholders of the Company approving such acquisition.
In order to induce the Lender to provide the loan contemplated pursuant to the Note, Emil Assentato entered into a Voting Agreement with the Company and the Lender agreeing to vote his shares in support of any transaction provided by the Lender. The Company and the Lender have agreed that 100% of all loan balances including loans payable to Emil Assentato by the Company will be recorded on the books of the Company as a bona fide debt of the Company, of which 30% of such debt will be paid within nine (9) months of the Effective Date and the balance to be repaid within twenty-four (24) months of the Effective Date.
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Senior Unsecured Promissory Note – July 2024
On July 29, 2024 (the “Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “East Asia Note”) in the principal amount of $515,094 to East Asia Technology Investments Limited (the “East Asia”) in consideration of cash proceeds in the amount of $412,075. The East Asia Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the East Asia Note, the Company issued East Asia a Stock Purchase Warrant (“Warrant”) to acquire 1,400,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The Lender shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.3125.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
The following exhibits are incorporated into this Form 10-Q Quarterly Report:
| * | Indicates management contract or compensatory plan or arrangement. |
| # | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
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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. | ||
| By: | /s/ Jamal (Jamie) Khurshid | |
| Dated: July 29, 2024 | Jamal (Jamie) Khurshid | |
Chief Executive Officer (Principal Executive Officer), and Principal Financial and Accounting Officer and Director | ||
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Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jamal Khurshid, 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: July 29, 2024 | By: | /s/ Jamal Khurshid |
| Jamal Khurshid | ||
Chief Executive Officer (Principal Executive Officer) and 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, Jamal Khurshid, in his capacities as Chief Executive Officer and Principal 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 December 31, 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: July 29, 2024 | /s/ Jamal Khurshid |
| Jamal Khurshid | |
Chief Executive Officer (Principal Executive Officer) and Principal Financial and Accounting Officer |
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 15,000,000 | 15,000,000 |
| 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 | 40,000,000 | 40,000,000 |
| Common stock, shares issued | 13,899,712 | 10,074,657 |
| Common stock, shares outstanding | 13,899,712 | 10,074,657 |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Income Statement [Abstract] | ||
| Diluted | $ (0.85) | $ (0.11) |
| Diluted | 10,563,645 | 10,074,657 |
The Company History and Nature of the Business |
3 Months Ended |
|---|---|
Dec. 31, 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. (formerly known as, Brilliant Acquisition Corporation) (“Nukkleus”) was formed on May 24, 2019. Nukkleus was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination with one or more businesses or entities. On June 23, 2023, Brilliant Acquisition Corporation, a British Virgin Islands company (prior to the Merger “Brilliant”, and following the Merger, a Delaware corporation “Nukkleus”), entered into an Amended and Restated Agreement and Plan of Merger (as amended by the First Amendment to the Amended and Restated Agreement and Plan of Merger on November 1, 2023, the “Merger Agreement”), by and among Brilliant BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), and Nukkleus Inc., a Delaware corporation (“Old Nukk” or the “Company”). Old Nukk (f/k/a Compliance & Risk Management Solutions Inc.) 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 Merger Agreement provides that, among other things, at the closing (the “Closing”) of the transactions contemplated by the Merger Agreement, Merger Sub merged with and into Old Nukk (the “Merger”), with Old Nukk surviving as a wholly-owned subsidiary of Brilliant. In connection with the Merger, Brilliant changed its name to “Nukkleus Inc.” (“Nukkleus” or “Combined Company”). The Merger and other transactions contemplated by the Merger Agreement are hereinafter referred to as the “Business Combination.” The Business Combination was completed on December 22, 2023 (“Closing Date”). The accompanying financial statements are those of Old Nukk, as adjusted for the reverse recapitalization, as described in Note 2.
As a result of Business Combination, Nukkleus now 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 the Company’s Former Chief Executive Officer (“CEO”) 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 548,767 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 executive 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, Old Nukk and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which Old Nukk acquired 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of shares of common stock, which following the Merger represented 415,733 shares of common stock of the Company (valued at $5,000,000 based on the market price of Old Nukk’s common stock on the acquisition date) (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. In addition, upon the closing of the Merger, the Company agreed to provide an additional $1 million in investment to Digiclear in exchange for 4.545% of additional shares of Digiclear’s capital stock subject to the parties entering a definitive agreement. The Company and Digiclear have not entered into an additional agreement outlining the terms pursuant to which the Company would acquire the additional shares of Digiclear. 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 December 31, 2023 and September 30, 2023, the Company had cash of approximately $204,000 and $19,000, respectively, exclusive of customer custodial cash.
The 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 $9,663,000 at December 31, 2023 and incurred a net loss and generated negative cash flow from operating activities of approximately and for the three months ended December 31, 2023, respectively. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions, if any.
The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. |
Basis of Presentation and Principles of Consolidation |
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| Basis of Presentation and Principles of Consolidation [Abstract] | ||||||||||
| BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION | NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Reverse recapitalization
Pursuant to the Merger Agreement, the merger between Brilliant and Old Nukk was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (the “Reverse Recapitalization”). Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Old Nukk issuing stock for the net assets of Brilliant, accompanied by a recapitalization. The net assets of Brilliant are stated at historical cost, with no goodwill or other intangible assets recorded.
Old Nukk was determined to be the accounting acquirer based on the following predominant factors:
The condensed consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Old Nukk. The shares and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.
Principals 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 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 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 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 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, 2023 filed with the Securities and Exchange Commission on July 12, 2024. The consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023, but does not include all disclosures required by U.S. GAAP. |
Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the 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 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 months ended December 31, 2023 and 2022 include the allowance for doubtful accounts, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, and the fair value of customer digital currency assets and liabilities.
Cash and cash equivalents
At December 31, 2023 and September 30, 2023, the Company’s cash balances by geographic area were as follows:
For purposes of the 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 December 31, 2023 and September 30, 2023. 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 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:
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 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 December 31, 2023:
As of September 30, 2023, the Company did not have any customer digital currency assets and liabilities.
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.
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 condensed consolidated statements of operations and comprehensive loss. The Company assigns costs to transactions on a first-in, first-out basis.
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 December 31, 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.
Note receivable – related parties
Note receivable – related parties is presented net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors, including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend. Note receivable is written off after exhaustive efforts at collection. During the three months ended December 31, 2023, accounts with the amount of approximately $600,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-offs of note receivable – related parties against the allowance for doubtful accounts only impact the balance sheet accounts. At December 31, 2023 and September 30, 2023, the Company has established, based on a review of its outstanding balances, an allowance for doubtful account in the amounts of $0 and $637,072, respectively, for its note receivable – related parties.
Other current assets
Other current assets primarily consist of security deposit, accounts receivable, interest receivable, and prepaid miscellaneous items. As of December 31, 2023 and September 30, 2023, other current assets amounted to $32,927 and $32,522, respectively.
Variable interest entity (“VIE”)
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE.
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then the Company consolidates the VIE.
The Company analyzes its investment in Jacobi to determine whether it is a VIE and, if so, whether the Company is the primary beneficiary in accordance with ASC 810 Consolidation. The Company determines Jacobi is a VIE since it has insufficient equity to permit it to finance its activities without additional subordinated financial support. In determining whether it is the primary beneficiary, the Company considers whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also considers whether it has the obligation to absorb losses of, or the right to receive benefits from, the VIE. The Company is not the primary beneficiary of Jacobi as it does not have the power to direct the activities that most significantly impact the economic performance of Jacobi, due to Jacobi’ management and board of directors’ structure. As a result, the variable interest entity is not consolidated. Creditors of the Company’s variable interest entity do not have recourse against the general credit of the Company. The Company uses the cost method to account for its investment in Jacobi in which the Company is not deemed to be the primary beneficiary.
The Company’s investment in unconsolidated variable interest entity is classified as cost method investment in the condensed consolidated balance sheets. The Company’s assets and liabilities with the variable interest entity are classified as due from/to affiliates.
As of December 31, 2023 and September 30, 2023, the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:
Intangible assets
Intangible assets consist of regulatory licenses, which are being amortized on a straight-line method over the estimated useful life of 3 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. The Company did not record any impairment charge for the three months ended December 31, 2023 and 2022 as there was no impairment indicator noted.
Revenue recognition
The Company determines revenue recognition from contracts with customers through the following steps:
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:
Disaggregation of revenues
The Company’s revenues stream detail are as follows:
In the following table, revenues are disaggregated by segment for the three months ended December 31, 2023 and 2022:
Advertising and marketing costs
All costs related to advertising and marketing are expensed as incurred. For the three months ended December 31, 2023 and 2022, advertising and marketing costs amounted to $21,018 and $49,122, respectively, which was included in operating expenses on the accompanying 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 December 31, 2023 and September 30, 2023 were translated at 0.7849 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 0.9046 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 1.3264 CAD and 1.3591 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 three months ended December 31, 2023 and 2022 was 0.8053 GBP and 0.8525 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 and 2022 was 0.9288 EUR and 0.9806 EUR to $1.00. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 was 1.3619 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 months ended December 31, 2023 and 2022 consisted of net loss and unrealized loss 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 months ended December 31, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (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:
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.
Merger
Old Nukk completed a Business Combination with Brilliant on December 22, 2023. All references in these condensed consolidated financial statements to shares and corresponding capital amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.
Recently issued accounting pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. |
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Customer Assets and Liabilities |
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| 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 includes these cash deposits to be utilized for its contractual obligations to its customers as customer custodial cash liabilities in the condensed consolidated balance sheets.
The following table presents customers’ cash and digital positions:
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 months ended December 31, 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 December 31, 2023 and September 30, 2023:
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Digital Assets |
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| Digital Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DIGITAL ASSETS | NOTE 5 – DIGITAL ASSETS
The following table summarizes the Company's digital asset holdings as of December 31, 2023:
The following table summarizes the Company's digital asset holdings as of September 30, 2023:
The Company recorded impairment expense of and $7,610 for the three months ended December 31, 2023 and 2022, respectively, which was included in other general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. |
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Note Payable |
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Dec. 31, 2023 | |
| Note Payable [Abstract] | |
| NOTE PAYABLE | NOTE 6– NOTE PAYABLE
In November 2023, the Company entered into a loan agreement with a third party. Pursuant to the loan agreement, the Company borrowed $50,000 from the third party. The loan bears a fixed interest rate of 0% per annum and is payable on demand.
As of December 31, 2023, the outstanding principal balance was $50,000. |
Accrued Liabilities and Other Payables |
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| Accrued Liabilities and Other Payables [Abstract] | |||||||||||||||||||||||||||||||||||||
| ACCRUED LIABILITIES AND OTHER PAYABLES | NOTE 7– ACCRUED LIABILITIES AND OTHER PAYABLES
At December 31, 2023 and September 30, 2023, accrued liabilities and other payables consisted of the following:
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Share Capital |
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| Share Capital [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHARE CAPITAL | NOTE 8 – SHARE CAPITAL
Common shares issued for services
During the three months ended December 31, 2023, the Company issued a total of 425,295 shares of its common stock for services rendered. These shares were valued at $2,015,601, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $2,015,601 for the three months ended December 31, 2023.
Common shares issued for related party debts conversion
On December 19, 2023, the Company and FXDIRECT, a related party, entered into a Debt Conversion Agreement pursuant to which the outstanding amount of $2,727,061 was converted into 757,678 shares of common stock of the Company. The fair market value of the shares issued exceeded the total amount of the debt converted of $2,727,061 by $3,900,255 which was treated as a distribution transaction due to FXDIRECT’s relationship with the Company.
On December 19, 2023, the Company and Emil Assentato, the Company’s former chief executive officer and chairman, entered into a Debt Conversion Agreement pursuant to which the outstanding principal amount of $270,000 and unpaid interest of $563 were converted into 70,129 shares of common stock of the Company (see Note 9 - Loan payable – related parties and interest payable – related parties). The fair market value of the shares issued exceeded the total amount of the debt converted of $270,563 by $342,847 which was treated as a distribution transaction due to Mr. Assentato’s relationship with the Company.
Options
The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at December 31, 2023:
Stock option activities for the three months ended December 31, 2023 were as follows:
The aggregate intrinsic value of both stock options outstanding and stock options exercisable at December 31, 2023 was $0. For the three months ended December 31, 2023 and 2022, stock-based compensation expense associated with stock options granted amounted to $74,667 and $146,876, respectively, which was recorded as professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.
A summary of the status of the Company’s nonvested stock options granted as of December 31, 2023 and changes during the three months ended December 31, 2023 is presented below:
Warrants
As a result of the Business Combination which was completed on December 22, 2023, 6,701,000 warrants of Brilliant were converted into 6,701,000 warrants of the Combined Company.
There was no stock warrant activity during the period from Closing Date to December 31, 2023. The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at December 31, 2023:
The aggregate intrinsic value of stock warrants outstanding and stock warrants exercisable at December 31, 2023 was $0. |
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Related Party Transactions |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | NOTE 9 – 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 $14,901 and $10,557 for the three months ended December 31, 2023 and 2022, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.
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 $26,698 and $22,287 for the three months ended December 31, 2023 and 2022, respectively, which have been included in professional fees on the accompanying 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 months ended December 31, 2023 and 2022, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:
During the three months ended December 31, 2023 and 2022, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:
During the three months ended December 31, 2023 and 2022, Digital RFQ earned revenue from related parties in the amount of $20,874 and $24,744, respectively, which was included in revenue – financial services on the accompanying condensed consolidated statements of operations and comprehensive loss.
Due from affiliates
At December 31, 2023 and September 30, 2023, due from affiliates consisted of the following:
The balances due from Jacobi, FXDD Mauritius, Craig Vallis, and Jamal Khurshid represent monies that the Company paid on behalf of Jacobi, FXDD Mauritius, Craig Vallis, and Jamal Khurshid. The balance due from TCM as of September 30, 2023 represents unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.
Management believes that the affiliates’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from affiliates at December 31, 2023 and September 30, 2023.
Due to affiliates
At December 31, 2023 and September 30, 2023, due to affiliates consisted of the following:
The balances due to affiliates represent 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 December 31, 2023 and September 30, 2023, related parties’ digital currency, which was controlled by Digital RFQ, amounted to $551,735 and $0, respectively, which was included in customer digital currency assets and liabilities on the accompanying condensed consolidated balance sheets.
Note receivable – related parties
Promissory note
The Company originated a note receivable to a shareholder in the principal amount of $35,000 on September 1, 2022. The note matured 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. The principal was funded with cash custodial money. Currently, this loan is in default.
For the three months ended December 31, 2023 and 2022, the interest income related to this note amounted to $465 and $439, respectively, and has been included in other (expense) income: other income on the accompanying condensed consolidated statements of operations and comprehensive loss.
As of December 31, 2023 and September 30, 2023, the outstanding interest balance related to this note was $2,545 and $1,980, respectively, and was included in other current assets on the accompanying condensed consolidated balance sheets.
Line of credit
On July 31, 2023, the Company entered into a Credit Deed (the “Credit Deed”) providing a $1 million line of credit (the “Line of Credit”) to a related party company which is a client of Digital RFQ. The Line of Credit allows the related party company to request loans thereunder until amount reaches $1 million. Loan drawn under the Line of Credit bears interest at an annual rate of 8% and will be receivable in installments commencing on December 31, 2023. The Line of Credit was collateralized by 133,514 shares of common stock of the Company.
In the three months ended December 31, 2023, activity recorded for the Line of Credit is summarized in the following table:
During the three months ended December 31, 2023, accrued and unpaid interest related to the line of credit with the amount of approximately $10,000 was written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-off of interest receivable against the allowance for doubtful accounts only impact the balance sheet accounts. At December 31, 2023 and September 30, 2023, the Company has established, based on a review of its outstanding interest receivable, an allowance for doubtful account in the amounts of $0 and $10,199, respectively, for the receivable.
Loan payable – related parties and interest payable – related parties
On July 19, 2023, Digital RFQ issued a promissory note (the “July 2023 Loan”) in the principal amount of $75,619 to Jamal Khurshid, the Company’s chief executive officer and director, in consideration of cash proceeds in the amount of $75,619. The July 2023 Loan bears interest of 5.0% per annum and is due and payable on July 19, 2026. On November 24, 2023, Digital RFQ borrowed GBP 4,000 from Jamal Khurshid. On November 27, 2023, all outstanding balance of principal and accrued interest related to the borrowings from Janal Khurshid were repaid in full.
On August 15, 2023, Digital RFQ issued a promissory note (the “August 2023 Loan”) in the principal amount of $75,000 to Emil Assentato, the Company’s former chief executive officer and chairman, in consideration of cash proceeds in the amount of $75,000. The August 2023 Loan bears interest of 5.0% per annum and is due and payable on August 15, 2026.
On September 18, 2023, the Company issued a promissory note (the “September 2023 Loan”) in the principal amount of $270,000 to Emil Assentato, the Company’s former chief executive officer and chairman, in consideration of cash proceeds in the amount of $270,000. The September 2023 Loan bears interest of 5.0% per annum and is due and payable on September 18, 2026. In December 2023, the September 2023 Loan principal of $270,000 and related accrued interest of $563 were converted into 70,129 shares of common stock of the Company (See Note 8 – Common shares issued for related party debts conversion).
During the three months ended December 31, 2023, the Company issued a few of promissory notes in the aggregate principal of $623,000 to Emil Assentato and Max Q, in consideration of cash proceeds in the amount of $623,000. These loans bear interest of 5.0% per annum and each individual loan will be due and payable three years from the date of issuance.
As of December 31, 2023 and September 30, 2023, the outstanding principal balance totaled $698,000 and $420,619, respectively.
For the three months ended December 31, 2023, the interest expense related to related parties’ loans amounted to $7,422 and has been reflected as interest expense – related parties on the accompanying condensed consolidated statements of operations and comprehensive loss.
As of December 31, 2023 and September 30, 2023, the related accrued and unpaid interest for related parties’ loans was $7,280 and $1,771, respectively, and has been reflected as interest payable – related parties on the accompanying condensed consolidated balance sheets.
Letter agreement with ClearThink
Nukkleus was 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.
Craig Marshak, a former member of the Board of Directors of the Company, was a managing director of ClearThink, a transaction advisory firm. ClearThink had 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. The letter agreement was terminated on October 27, 2023. The Company paid ClearThink $210,000 as of the date of closing of the Business Combination. |
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Concentrations |
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| Concentrations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONCENTRATIONS | NOTE 10 – 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 months ended December 31, 2023 and 2022.
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 December 31, 2023, accounted for 84.3% of the Company’s total outstanding accounts receivable and due from affiliates at December 31, 2023.
One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at September 30, 2023, accounted for 95.2% of the Company’s total outstanding accounts receivable and due from affiliates at September 30, 2023.
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 months ended December 31, 2023 and 2022.
Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at December 31, 2023, accounted for 82.9% of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at December 31, 2023.
Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at September 30, 2023, accounted for 81.7% of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at September 30, 2023. |
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Segment Information |
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| Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION | NOTE 11 – SEGMENT INFORMATION
For the three months ended December 31, 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 or to digital assets. 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 months ended December 31, 2023 and 2022 was as follows:
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Commitments and Contingencies |
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Dec. 31, 2023 | |
| Commitments and Contingencies [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 12 – 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.
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 had 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. On February 21, 2024, the Company terminated the White Lion Agreement. |
Subsequent Events |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 13 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Common shares issued for services
In January 2024, the Company issued 202,702 shares of its common stock for services rendered. These shares were valued at $750,000, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation expense of $750,000.
Common shares issued for Settlement Agreement and Stipulation
On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, on May 31, 2024, the Company issued 700,000 shares of its common stock.
Financing
On March 6, 2024, the Company and a related party entered into a Facility Agreement, pursuant to which the Company borrowed $500,000 from the related party.
In March 2024, the Company and an individual, who is a shareholder of the Company, entered into a Loan Agreement, pursuant to which the Company can borrow up to GBP395,000 from the individual.
Senior Unsecured Promissory Note – June 2024
On June 11, 2024 (the “Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “Note”) in the principal amount of $312,500 to X Group Fund of Funds, a Michigan limited partnership (the “Lender”) in consideration of cash proceeds in the amount of $250,000. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the Note, the Company issued the Lender a Stock Purchase Warrant (“Warrant”) to acquire 1,200,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The Lender shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25.
The Company and the Lender also entered into a Restructuring Agreement providing that, among other items, the Lender, in its sole discretion, will have the right for a period for six months from the Effective Date (the “Investment Period”), to lend the Company an additional $500,000 in consideration of a convertible promissory note that will have a term of two years, bear interest at 12% and will convert into shares of common stock at a per share price of $0.25. During the Investment Period, the Company may not incur additional debt or enter into any equity financing arrangement without the written consent of the Lender. The Company has agreed, in its good faith, to negotiate the sale of its wholly owned subsidiary, Digital RFQ Ltd. (“Digital”) to Digital’s current management team led by Jamie Khurshid subject to approval of the Company’s Board of Directors and shareholders and subject to compliance with all federal, state and Nasdaq rules. The Lender provided an additional $50,000 following the initial closing, with such funds was disbursed as agreed between the Company and the Lender.
Further, during the Investment Period, the Lender, without any additional compensation, will be exclusive advisor to the Company with respect to potential acquisitions by the Company and the Company will use its reasonable best efforts to consider all proposals by the Lender. Any such acquisition proposal provided by the Lender will be subject to the Lender and such party entering a definitive binding agreement and the Board of Directors and shareholders of the Company approving such acquisition.
In order to induce the Lender to provide the loan contemplated pursuant to the Note, Emil Assentato entered into a Voting Agreement with the Company and the Lender agreeing to vote his shares in support of any transaction provided by the Lender. The Company and the Lender have agreed that 100% of all loan balances including loans payable to Emil Assentato by the Company will be recorded on the books of the Company as a bona fide debt of the Company, of which 30% of such debt will be paid within nine (9) months of the Effective Date and the balance to be repaid within twenty-four (24) months of the Effective Date.
Senior Unsecured Promissory Note – July 2024
On July 29, 2024 (the “Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “East Asia Note”) in the principal amount of $515,094 to East Asia Technology Investments Limited (the “East Asia”) in consideration of cash proceeds in the amount of $412,075. The East Asia Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the East Asia Note, the Company issued East Asia a Stock Purchase Warrant (“Warrant”) to acquire 1,400,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The Lender shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.3125. |
Pay vs Performance Disclosure - USD ($) |
2 Months Ended | 3 Months Ended | |
|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2023 |
Dec. 31, 2022 |
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| Pay vs Performance Disclosure | |||
| Net Income (Loss) | $ (8,928,095) | $ (8,928,095) | $ (1,133,922) |
Insider Trading Arrangements |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Trading Arrangements, by Individual | |
| Rule 10b5-1 Arrangement Adopted | false |
| Non-Rule 10b5-1 Arrangement Adopted | false |
| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
Accounting Policies, by Policy (Policies) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Use of estimates | Use of estimates The preparation of the 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 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 months ended December 31, 2023 and 2022 include the allowance for doubtful accounts, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, and the fair value of customer digital currency assets and liabilities.
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| Cash and cash equivalents | Cash and cash equivalents At December 31, 2023 and September 30, 2023, the Company’s cash balances by geographic area were as follows:
For purposes of the 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 December 31, 2023 and September 30, 2023. 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. |
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| 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. |
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| 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 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.
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| 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:
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 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 December 31, 2023:
As of September 30, 2023, the Company did not have any customer digital currency assets and liabilities. 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. |
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| 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 condensed consolidated statements of operations and comprehensive loss. The Company assigns costs to transactions on a first-in, first-out basis.
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| 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 December 31, 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. |
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| Note receivable – related parties | Note receivable – related parties Note receivable – related parties is presented net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors, including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend. Note receivable is written off after exhaustive efforts at collection. During the three months ended December 31, 2023, accounts with the amount of approximately $600,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-offs of note receivable – related parties against the allowance for doubtful accounts only impact the balance sheet accounts. At December 31, 2023 and September 30, 2023, the Company has established, based on a review of its outstanding balances, an allowance for doubtful account in the amounts of $0 and $637,072, respectively, for its note receivable – related parties. |
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| Other current assets | Other current assets Other current assets primarily consist of security deposit, accounts receivable, interest receivable, and prepaid miscellaneous items. As of December 31, 2023 and September 30, 2023, other current assets amounted to $32,927 and $32,522, respectively.
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| Variable interest entity (“VIE”) | Variable interest entity (“VIE”) A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE. To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then the Company consolidates the VIE. The Company analyzes its investment in Jacobi to determine whether it is a VIE and, if so, whether the Company is the primary beneficiary in accordance with ASC 810 Consolidation. The Company determines Jacobi is a VIE since it has insufficient equity to permit it to finance its activities without additional subordinated financial support. In determining whether it is the primary beneficiary, the Company considers whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also considers whether it has the obligation to absorb losses of, or the right to receive benefits from, the VIE. The Company is not the primary beneficiary of Jacobi as it does not have the power to direct the activities that most significantly impact the economic performance of Jacobi, due to Jacobi’ management and board of directors’ structure. As a result, the variable interest entity is not consolidated. Creditors of the Company’s variable interest entity do not have recourse against the general credit of the Company. The Company uses the cost method to account for its investment in Jacobi in which the Company is not deemed to be the primary beneficiary. The Company’s investment in unconsolidated variable interest entity is classified as cost method investment in the condensed consolidated balance sheets. The Company’s assets and liabilities with the variable interest entity are classified as due from/to affiliates. As of December 31, 2023 and September 30, 2023, the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:
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| Intangible assets | Intangible assets Intangible assets consist of regulatory licenses, which are being amortized on a straight-line method over the estimated useful life of 3 years. |
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| 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. The Company did not record any impairment charge for the three months ended December 31, 2023 and 2022 as there was no impairment indicator noted.
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| Revenue recognition | Revenue recognition The Company determines revenue recognition from contracts with customers through the following steps:
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:
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| Disaggregation of revenues | Disaggregation of revenues The Company’s revenues stream detail are as follows:
In the following table, revenues are disaggregated by segment for the three months ended December 31, 2023 and 2022:
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| Advertising and marketing costs | Advertising and marketing costs All costs related to advertising and marketing are expensed as incurred. For the three months ended December 31, 2023 and 2022, advertising and marketing costs amounted to $21,018 and $49,122, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. |
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| 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. |
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| 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.
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| 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 December 31, 2023 and September 30, 2023 were translated at 0.7849 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 0.9046 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 1.3264 CAD and 1.3591 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 three months ended December 31, 2023 and 2022 was 0.8053 GBP and 0.8525 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 and 2022 was 0.9288 EUR and 0.9806 EUR to $1.00. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 was 1.3619 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. |
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| 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 months ended December 31, 2023 and 2022 consisted of net loss and unrealized loss from foreign currency translation adjustment. |
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| 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.
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| 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 months ended December 31, 2023 and 2022, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (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:
|
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| 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. |
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| Merger | Merger Old Nukk completed a Business Combination with Brilliant on December 22, 2023. All references in these condensed consolidated financial statements to shares and corresponding capital amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination. |
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| Recently issued accounting pronouncements | Recently issued accounting pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures. |
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Summary of Significant Accounting Policies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Cash Balances by Geographic Area | At December 31, 2023 and September 30, 2023, the
Company’s cash balances by geographic area were as follows:
|
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| 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 December 31, 2023:
|
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| Schedule of Carrying Value of Assets and Liabilities Recognized | As of December 31, 2023 and September 30, 2023,
the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest
in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:
|
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| Schedule of Revenues are Disaggregated by Segment | In the following table,
revenues are disaggregated by segment for the three months ended December 31, 2023 and 2022:
|
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| 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:
|
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Customer Assets and Liabilities (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer Assets and Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Cash and Digital Positions | The following
table presents customers’ cash and digital positions:
|
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| 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 December 31, 2023 and September 30, 2023:
|
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Digital Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Digital Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Digital Asset | The following
table summarizes the Company's digital asset holdings as of December 31, 2023:
The following table summarizes the Company's digital asset holdings as of September 30, 2023:
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Accrued Liabilities and Other Payables (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Accrued Liabilities and Other Payables [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Liabilities and Other Payables | At December 31, 2023 and September
30, 2023, accrued liabilities and other payables consisted of the following:
|
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Share Capital (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 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 December 31, 2023:
|
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| Schedule of Common Stock Issuable Upon Exercise of Warrants Outstanding | Stock option activities
for the three months ended December 31, 2023 were as follows:
|
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| Schedule of Nonvested Stock Options Granted | A summary of the status
of the Company’s nonvested stock options granted as of December 31, 2023 and changes during the three months ended December 31,
2023 is presented below:
|
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| Schedule of Common Stock Issuable Upon Exercise of Warrants Outstanding | The following table summarizes the shares of the
Company’s common stock issuable upon exercise of warrants outstanding at December 31, 2023:
|
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Related Party Transactions (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of General Support Services Provided to the Related Party | During the three months ended December 31, 2023
and 2022, general support services provided to the related party, which was recorded as revenue – general support services - related
party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:
|
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| Schedule of Due From Affiliates | At December
31, 2023 and September 30, 2023, due from affiliates consisted of the following:
|
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| Schedule of Due to Affiliates | At December
31, 2023 and September 30, 2023, due to affiliates consisted of the following:
|
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| Schedule of Activity Recorded for the Line of Credit | In the three
months ended December 31, 2023, activity recorded for the Line of Credit is summarized in the following table:
|
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Concentrations (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentrations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Customer 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 months ended
December 31, 2023 and 2022.
|
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Segment Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reportable Business Segments | Information with respect to these reportable business
segments for the three months ended December 31, 2023 and 2022 was as follows:
|
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Basis of Presentation and Principles of Consolidation (Details) |
3 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Basis of Presentation and Principles of Consolidation [Abstract] | |
| Shares reflecting exchange ratio | 36.44532 |
Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Sep. 30, 2023 |
|
| Summary of Significant Accounting Policies [Abstract] | |||
| Federally-insured limits | $ 250,000 | ||
| Federal deposit insurance corporation insurance limit | 250,000 | ||
| Allowance for doubtful account after exhaustive efforts | 600,000 | ||
| Allowance for doubtful account | 0 | $ 637,072 | |
| Other current assets | $ 32,927 | $ 32,522 | |
| Estimated useful life | 3 years | ||
| Services cost percentage | 2.00% | ||
| Advertising and marketing costs | $ 21,018 | $ 49,122 | |
| Foreign currency translation description | Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 0.7849 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 0.9046 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at December 31, 2023 and September 30, 2023 were translated at 1.3264 CAD and 1.3591 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 three months ended December 31, 2023 and 2022 was 0.8053 GBP and 0.8525 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 and 2022 was 0.9288 EUR and 0.9806 EUR to $1.00. The average translation rate applied to the statement of operations for the three months ended December 31, 2023 was 1.3619 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. | ||
| Shares reflecting exchange ratio | 36.44532 | ||
Summary of Significant Accounting Policies (Details) - Schedule of Cash Balances by Geographic Area - USD ($) |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Dec. 31, 2023 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Schedule of Cash Balances by Geographic Area [Line Items] | |||
| Total cash | $ 204,148 | $ 19,318 | $ 279,728 |
| Cash percentage | 100.00% | 100.00% | |
| United States [Member] | |||
| Schedule of Cash Balances by Geographic Area [Line Items] | |||
| Total cash | $ 51,207 | $ 7,675 | |
| Cash percentage | 25.10% | 39.70% | |
| United Kingdom [Member] | |||
| Schedule of Cash Balances by Geographic Area [Line Items] | |||
| Total cash | $ 13,068 | $ 11,469 | |
| Cash percentage | 6.40% | 59.40% | |
| Republic of Lithuania [Member] | |||
| Schedule of Cash Balances by Geographic Area [Line Items] | |||
| Total cash | $ 139,699 | ||
| Cash percentage | 68.40% | ||
| Malta [Member] | |||
| Schedule of Cash Balances by Geographic Area [Line Items] | |||
| Total cash | $ 174 | $ 174 | |
| Cash percentage | 0.10% | 0.90% |
Summary of Significant Accounting Policies (Details) - Schedule of Assets and Liabilities Carried at Fair Value Measured - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items] | ||
| Customer digital currency assets | $ 996,113 | |
| Customer digital currency liabilities | 996,113 | |
| Quoted Price in Active Markets (Level 1) [Member] | ||
| Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items] | ||
| 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 [Line Items] | ||
| Customer digital currency assets | 996,113 | |
| Customer digital currency liabilities | 996,113 | |
| Significant Unobservable Inputs (Level 3) [Member] | ||
| Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items] | ||
| Customer digital currency assets | ||
| Customer digital currency liabilities |
Summary of Significant Accounting Policies (Details) - Schedule of Carrying Value of Assets and Liabilities Recognized - VIE [Member] - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule of Carrying Value of Assets and Liabilities Recognized [Line Items] | ||
| Cost method investment | $ 391,217 | $ 391,217 |
| Due from affiliates | 95,274 | |
| Total VIE assets | 391,217 | 486,491 |
| Maximum exposure to loss | $ 391,217 | $ 486,491 |
Summary of Significant Accounting Policies (Details) - Schedule of Revenues are Disaggregated by Segment - USD ($) |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Schedule of Revenues Are Disaggregated By Segment [Line Items] | ||
| Total revenues | $ 5,242,391 | $ 5,376,388 |
| General support services [Member] | ||
| Schedule of Revenues Are Disaggregated By Segment [Line Items] | ||
| Total revenues | 4,800,000 | 4,800,000 |
| Financial services [Member] | ||
| Schedule of Revenues Are Disaggregated By Segment [Line Items] | ||
| Total revenues | $ 442,391 | $ 576,388 |
Summary of Significant Accounting Policies (Details) - Schedule of Diluted Per Share - shares |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Schedule of Diluted Per Share [Abstract] | ||
| Potentially dilutive securities | 6,825,286 | 167,143 |
| Options to purchase common stock [Member] | ||
| Schedule of Diluted Per Share [Abstract] | ||
| Potentially dilutive securities | 124,286 | 167,143 |
| Warrants to purchase common stock [Member] | ||
| Schedule of Diluted Per Share [Abstract] | ||
| Potentially dilutive securities | 6,701,000 | |
Customer Assets and Liabilities (Details) - Schedule of Cash and Digital Positions - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule of Cash and Digital Positions [Abstract] | ||
| Customer custodial cash | $ 659,462 | $ 672,501 |
| Customer digital currency assets | 996,113 | |
| Total customer assets | 1,655,575 | 672,501 |
| Customer custodial cash liabilities | 1,331,330 | 1,443,011 |
| Customer digital currency liabilities | 996,113 | |
| Total customer liabilities | $ 2,327,443 | $ 1,443,011 |
Customer Assets and Liabilities (Details) - Schedule of Fair Market Value of Customer Digital Currency Assets - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule of Fair Market Value of Customer Digital Currency Assets [Line Items] | ||
| Fair Value | $ 996,113 | |
| Percentage of Total | 100.00% | |
| Stablecoin/USD Coin [Member] | ||
| Schedule of Fair Market Value of Customer Digital Currency Assets [Line Items] | ||
| Fair Value | $ 993,895 | |
| Percentage of Total | 99.80% | |
| Ethereum [Member] | ||
| Schedule of Fair Market Value of Customer Digital Currency Assets [Line Items] | ||
| Fair Value | $ 2,218 | |
| Percentage of Total | 0.20% |
Digital Assets (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Digital Assets [Abstract] | ||
| Impairment expense | $ 7,610 | |
Digital Assets (Details) - Schedule of Digital Asset - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Dec. 31, 2023 |
Sep. 30, 2023 |
|
| Schedule of Digital Asset [Line Items] | ||
| Cost | $ 2,945 | $ 1,973 |
| Impairment | ||
| Digital Assets, net | $ 2,945 | $ 1,973 |
| Bitcoin [Member] | ||
| Schedule of Digital Asset [Line Items] | ||
| Estimated Useful Life | Indefinite | Indefinite |
| Cost | $ 1,584 | $ 894 |
| Impairment | ||
| Digital Assets, net | $ 1,584 | $ 894 |
| Ethereum [Member] | ||
| Schedule of Digital Asset [Line Items] | ||
| Estimated Useful Life | Indefinite | Indefinite |
| Cost | $ 478 | $ 709 |
| Impairment | ||
| Digital Assets, net | $ 478 | $ 709 |
| Stablecoin/USD Coin [Member] | ||
| Schedule of Digital Asset [Line Items] | ||
| Estimated Useful Life | Indefinite | Indefinite |
| Cost | $ 680 | $ 284 |
| Impairment | ||
| Digital Assets, net | $ 680 | $ 284 |
| Other [Member] | ||
| Schedule of Digital Asset [Line Items] | ||
| Estimated Useful Life | Indefinite | Indefinite |
| Cost | $ 203 | $ 86 |
| Impairment | ||
| Digital Assets, net | $ 203 | $ 86 |
Note Payable (Details) - USD ($) |
Dec. 31, 2023 |
Nov. 30, 2023 |
|---|---|---|
| Note Payable (Details) [Line Items] | ||
| Outstanding principal balance | $ 50,000 | |
| Third Party [Member] | ||
| Note Payable (Details) [Line Items] | ||
| Borrowed loan | $ 50,000 | |
| Bears a fixed interest rate | 0.00% |
Accrued Liabilities and Other Payables (Details) - Schedule of Accrued Liabilities and Other Payables - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|
| Schedule of Accrued Liabilities and Other Payables [Abstract] | ||
| Unearned revenue | $ 158,378 | $ 151,617 |
| Others | 11,367 | 18,255 |
| Total | $ 169,745 | $ 169,872 |
Share Capital (Details) - Schedule of Stock Option Activities |
3 Months Ended |
|---|---|
|
Dec. 31, 2023
$ / shares
shares
| |
| Schedule of Stock Option Activities [Abstract] | |
| Number of Options, Outstanding | shares | 124,286 |
| Weighted Average Exercise Price outstanding, Outstanding | $ / shares | $ 23.53 |
| Number of Options, Granted | shares | |
| Weighted Average Exercise Price, Granted | $ / shares | |
| Number of Options, Outstanding | shares | 124,286 |
| Weighted Average Exercise Price, Outstanding | $ / shares | $ 23.53 |
| Number of Options, exercisable | shares | 90,000 |
| Weighted Average Exercise Price Options, exercisable | $ / shares | $ 30.5 |
| Number of Options, expected to vest | shares | 34,286 |
| Weighted Average Exercise Price Options, expected to vest | $ / shares | $ 5.25 |
Share Capital (Details) - Schedule of Nonvested Stock Options Granted |
3 Months Ended |
|---|---|
|
Dec. 31, 2023
$ / shares
shares
| |
| Schedule of Nonvested Stock Options Granted [Abstract] | |
| Number of Options, Nonvested outstanding Beginning | shares | 34,286 |
| Weighted Average Exercise Price, Nonvested outstanding Beginning | $ / shares | $ 5.25 |
| Number of Options, Vested | shares | |
| Weighted Average Exercise Price, Vested | $ / shares | |
| Number of Options, Nonvested outstanding Ending | shares | 34,286 |
| Weighted Average Exercise Price, Nonvested outstanding Ending | $ / shares | $ 5.25 |
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Warrants Outstanding - Warrant [Member] |
3 Months Ended |
|---|---|
|
Dec. 31, 2023
$ / shares
shares
| |
| Class of Warrant or Right [Line Items] | |
| Warrants Outstanding, Exercise Price | $ / shares | $ 11.5 |
| Warrants Outstanding, Number Outstanding | shares | 6,701,000 |
| Warrants Outstanding, Remaining Contractual Life (Years) | 4 years 11 months 26 days |
| Warrants Exercisable, Number Exercisable | shares | 6,701,000 |
| Warrants Exercisable, Exercise Price | $ / shares | $ 11.5 |
Related Party Transactions (Details) - Schedule of General Support Services Provided to the Related Party - General Support Services [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Service provided to: | ||
| Service provided to related parties | $ 4,800,000 | $ 4,800,000 |
| Service received from: | ||
| Service received from related parties | 4,650,000 | 4,725,000 |
| TCM [Member] | ||
| Service provided to: | ||
| Service provided to related parties | 4,800,000 | 4,800,000 |
| FXDIRECT [Member] | ||
| Service received from: | ||
| Service received from related parties | $ 4,650,000 | $ 4,725,000 |
Related Party Transactions (Details) - Schedule of Due From Affiliates - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
||||
|---|---|---|---|---|---|---|
| Schedule of Due From Affiliates [Line Items] | ||||||
| Due from related parties | $ 29,491 | $ 2,039,274 | ||||
| Jacobi [Member] | ||||||
| Schedule of Due From Affiliates [Line Items] | ||||||
| Due from related parties | 95,274 | |||||
| FXDD Mauritius [Member] | ||||||
| Schedule of Due From Affiliates [Line Items] | ||||||
| Due from related parties | [1] | 3,002 | 1,500 | |||
| TCM [Member] | ||||||
| Schedule of Due From Affiliates [Line Items] | ||||||
| Due from related parties | 1,942,500 | |||||
| Craig Vallis [Member] | ||||||
| Schedule of Due From Affiliates [Line Items] | ||||||
| Due from related parties | 11,917 | |||||
| Jamal Khurshid [Member] | ||||||
| Schedule of Due From Affiliates [Line Items] | ||||||
| Due from related parties | [2] | $ 14,572 | ||||
| ||||||
Related Party Transactions (Details) - Schedule of Due to Affiliates - USD ($) |
Dec. 31, 2023 |
Sep. 30, 2023 |
||||||
|---|---|---|---|---|---|---|---|---|
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | $ 8,178,726 | $ 6,808,749 | ||||||
| Forexware LLC [Member] | ||||||||
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | [1] | 1,210,273 | 1,211,778 | |||||
| FXDIRECT [Member] | ||||||||
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | [2] | 6,457,373 | 5,064,428 | |||||
| Currency Mountain Holdings Bermuda, Limited (“CMH”) [Member] | ||||||||
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | 42,000 | 42,000 | ||||||
| FXDD Trading [Member] | ||||||||
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | [1] | 414,466 | 396,793 | |||||
| Markets Direct Payments [Member] | ||||||||
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | [1] | 2,421 | 2,317 | |||||
| Match Fintech Limited [Member] | ||||||||
| Schedule of Due to Affiliates Consisted [Line Items] | ||||||||
| Due to related parties | [3] | $ 52,193 | $ 91,433 | |||||
| ||||||||
Related Party Transactions (Details) - Schedule of Activity Recorded for the Line of Credit |
3 Months Ended |
|---|---|
|
Dec. 31, 2023
USD ($)
| |
| Schedule of Activity Recorded for the Line of Credit [Abstract] | |
| Outstanding principal under the Line of Credit | $ 127,820 |
| Repayment of Line of Credit | (127,820) |
| Outstanding principal under the Line of Credit |
Concentrations (Details) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Dec. 31, 2023 |
Sep. 30, 2023 |
|
| Customer Concentration Risk [Member] | Related Party Customer One [Member] | Accounts Receivable [Member] | ||
| Concentrations [Line Items] | ||
| Concentration risk percentage | 84.30% | 95.20% |
| Supplier Concentration Risk [Member] | Accounts Payable [Member] | Related Party Supplier Two [Member] | ||
| Concentrations [Line Items] | ||
| Concentration risk percentage | 82.90% | 81.70% |
Concentrations (Details) - Schedule of Customer Revenues |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Customer Concentration Risk [Member] | Customer A [Member] | Revenue Benchmark [Member] | ||
| Schedule of Customer Revenues [Line Items] | ||
| Concentration Risk, Percentage | 91.60% | 89.30% |
| Supplier Concentration Risk [Member] | Costs of revenues [Member] | Supplier A [Member] | ||
| Schedule of Customer Revenues [Line Items] | ||
| Concentration Risk, Percentage | 97.20% | 87.00% |
Segment Information (Details) |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Segment Information [Line Items] | ||
| Reportable business segments | 2 | 2 |
Commitments and Contingencies (Details) |
May 17, 2022
USD ($)
|
|---|---|
| Common Stock [Member] | |
| Commitments and Contingencies [Line Items] | |
| Common stock up to a maximum amount | $ 75,000,000 |
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