UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period
ended
OR
For the transition period from __________ to __________
Commission file number:
(Exact name of registrant in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
212-791-4663
(Issuer’s telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.0001
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.
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
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| Not applicable. |
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
| Class | Outstanding August 16, 2021 | |
| Common Stock, $0.0001 par value per share |
NUKKLEUS INC.
FORM 10-Q
June 30, 2021
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
| As of | ||||||||
| June 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Due from affiliates | ||||||||
| Prepaid expense and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Intangible assets, net | - | |||||||
| TOTAL NON-CURRENT ASSETS | - | |||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Due to affiliates | $ | $ | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Series A redeemable preferred stock liability at $ |
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| TOTAL CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| CONTINGENCY - (Note 13) | ||||||||
| EQUITY (DEFICIT): | ||||||||
| Preferred stock ($ |
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| Common stock ($ |
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| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income - foreign currency translation adjustment | ||||||||
| Total Nukkleus Inc. stockholders’ equity (deficit) | ( | ) | ||||||
| Non-controlling interest | ||||||||
| TOTAL EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
1
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
| For the | For the | For the | For the | ||||||||||||||
| Three Months | Three Months | Nine Months | Nine Months | ||||||||||||||
| Ended | Ended | Ended | Ended | ||||||||||||||
| June 30, | June 30, | June 30, | June 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||
| 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 PROFITS | |||||||||||||||||
| Gross profit - general support services - related party | |||||||||||||||||
| Gross profit - financial services | - | - | |||||||||||||||
| Total gross profits | |||||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||
| Amortization of intangible assets | - | - | |||||||||||||||
| Professional fees | |||||||||||||||||
| Other general and administrative | |||||||||||||||||
| Total operating expenses | |||||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | ( | ) | ( | ) | ( | ) | |||||||||||
| OTHER (EXPENSE) INCOME: | |||||||||||||||||
| Interest expense on redeemable preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Other income | |||||||||||||||||
| Total other (expense) income, net | ( | ) | ( | ) | ( | ) | |||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | |||||||||||
| INCOME TAXES | |||||||||||||||||
| NET (LOSS) INCOME | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | - | |||||||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO NUKKLEUS INC. COMMON STOCKHOLDERS | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| COMPREHENSIVE (LOSS) INCOME: | |||||||||||||||||
| NET (LOSS) INCOME | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| OTHER COMPREHENSIVE INCOME | |||||||||||||||||
| Unrealized foreign currency translation gain | - | - | |||||||||||||||
| COMPREHENSIVE (LOSS) INCOME | ( | ) | ( | ) | ( | ) | |||||||||||
| LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | - | |||||||||||||||
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NUKKLEUS INC. COMMON STOCKHOLDERS | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO NUKKLEUS INC. COMMON STOCKHOLDERS: | |||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |||||||||||||||||
| Basic | |||||||||||||||||
| Diluted | |||||||||||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
2
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the Three and Nine Months Ended June 30, 2021
| NUKKLEUS INC. STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||
| Number of | Number of | Additional Paid-in | Accumulated | Other Comprehensive | Non-controlling | Total Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Interest | (Deficit) | ||||||||||||||||||||||||||||
| Balance as of October 1, 2020 | $ | $ | $ | $ | ( | ) | - | - | $ | ( | ) | |||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2020 | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Net income for the three months ended March 31, 2021 | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock issued in connection with acquisition | ||||||||||||||||||||||||||||||||||||
| Common stock issued for transaction costs | ||||||||||||||||||||||||||||||||||||
| Common stock issued for redeemable preferred stock conversion and related dividend | ||||||||||||||||||||||||||||||||||||
| Non-controlling interest acquired on acquisition | - | - | ||||||||||||||||||||||||||||||||||
| Net (loss) income for the three months ended June 30, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
3
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the Three and Nine Months Ended June 30, 2020
| NUKKLEUS INC. STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| Number of | Number of | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of October 1, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss for the three months ended December 31, 2019 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of December 31, 2019 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income for the three months ended June 30, 2020 | - | - | ||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
4
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the | For the | |||||||
| Nine Months | Nine Months | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of intangible assets | ||||||||
| Gain on digital currency | ( | ) | ||||||
| Bad debt expense | ||||||||
| Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in acquisition: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expense and other current assets | ( | ) | ( | ) | ||||
| Due from affiliates | ( | ) | ||||||
| Due to affiliates | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Accrued liabilities - related party | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Cash acquired on asset acquisition | ||||||||
| Transaction costs of asset acquisition | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ||||||
| NET INCREASE IN CASH | ||||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued in connection with acquisition | $ | $ | ||||||
| Common stock issued for redeemable preferred stock conversion and related dividend | $ | $ | ||||||
| Cost of asset acquisition in accrued liabilities | $ | $ | ||||||
| Investment - digital currency received from affiliates | $ | $ | ||||||
| Investment - digital currency transferred to affiliates | $ | $ | ||||||
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
5
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS
Nukkleus Inc. (f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.
The Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. The Company primarily provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to Triton Capital Markets Ltd. (“TCM”), formerly known as FXDD Malta Limited (“FXDD Malta”). The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by TCM.
Nukkleus Limited, a wholly-owned subsidiary of
the Company, provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions
package under a General Services Agreement (“GSA”) to TCM. TCM is a private limited liability company formed under the laws
of Malta. The GSA provides that TCM will pay Nukkleus Limited at minimum $
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 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.
On May 24, 2021, the Company and the shareholders of Match Financial
Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”) entered into
a Purchase and Sale Agreement (the “Match Agreement”) pursuant to which the Company agreed to acquire
6
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS (continued)
The unaudited condensed consolidated financial
statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern,
which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company
incurred a net loss for the nine months ended June 30, 2021 of $
We cannot be certain that such necessary capital through equity or debt financings will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, Currency Mountain Holdings Bermuda, Limited (“CMH”), which is wholly-owned by an entity that is majority-owned by Mr. Assentato, has committed to inject capital into the Company in order to maintain the ongoing operations of the business.
The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.
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.
NOTE 2 – BASIS OF PRESENTATION
These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020 filed with the Securities and Exchange Commission on December 28, 2020. The consolidated balance sheet as of September 30, 2020 contained herein has been derived from the audited consolidated financial statements as of September 30, 2020, but does not include all disclosures required by U.S. GAAP.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the three and nine months ended June 30, 2021 and 2020 include valuation of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation.
7
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and cash equivalents
At June 30, 2021 and September 30, 2020, the Company’s cash balances by geographic area were as follows:
| Country: | June 30, 2021 | September 30, 2020 | ||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| England | % | - | - | |||||||||||||
| 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 June 30, 2021 and September 30, 2020.
Fair value of financial instruments and fair value measurements
The investment in digital currency as of
September 30, 2020 of $
Credit risk and uncertainties
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 $
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.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable at June 30, 2021. The Company historically has not experienced significant uncollectible accounts receivable.
Prepaid expense and other current assets
Prepaid expense and other current assets primarily
consist of prepaid OTC Markets listing fees, which are recognized as expense over the related listing periods. As of June 30, 2021 and
September 30, 2020, prepaid expense and other current assets amounted to $
8
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets
Intangible assets consist of license and banking
infrastructure, 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. There were no triggering events requiring assessment of impairment as of June 30, 2021. For the nine months ended June 30, 2021 and 2020, no impairment of long-lived assets was recognized.
Revenue recognition
The Company accounts for revenue under the provisions of ASC Topic 606.
The Company’s revenues are derived from providing:
| ● | General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA and these performance obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under the terms of the GSA. Revenue is recorded at gross as the Company is deemed to be a principal in the transactions. |
| ● | Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. |
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 financial services to enable conversion of fiat currencies to cryptocurrencies and vice versa |
In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2021 and 2020:
| Three Months Ended June 30, | Nine Months Ended June 30 | |||||||||||||||
| Revenue Stream | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| General support services | $ | $ | $ | $ | ||||||||||||
| Financial services | - | - | ||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees to be recognized as expense in the statements of operations based on their grant date fair values.
9
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share data
ASC Topic 260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the three and nine months ended June 30, 2021 and 2021, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).
The following is a reconciliation of the basic and diluted net (loss) income per share computations for the three and nine months ended June 30, 2021 and 2020:
Basic net (loss) income per share
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | |||||||||||||
| Net (loss) income available to Nukkleus Inc. for basic net (loss) income per share of common stock | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common stock outstanding - basic | ||||||||||||||||
| Net (loss) income per common share attributable to Nukkleus Inc.: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
10
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share data (continued)
Diluted net (loss) income per share
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | |||||||||||||
| Net (loss) income available to Nukkleus Inc. for basic net (loss) income per share of common stock | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Add: interest expense for redeemable preferred stock | - | - | - | |||||||||||||
| Subtract: unamortized debt discount for redeemable preferred stock | - | ( | ) | - | - | |||||||||||
| Net (loss) income available to Nukkleus Inc. for diluted net (loss) income per share of common stock | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common stock outstanding - basic | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Series A preferred stock | - | - | - | |||||||||||||
| Weighted average common stock outstanding - diluted | ||||||||||||||||
| Net (loss) income per common share attributable to Nukkleus Inc.: | ||||||||||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
For the three and nine months ended June 30, 2021
and for the
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 and the functional currency of Match Financial Limited and its subsidiary is the British Pound (“GBP”). 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 shareholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet. 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.
11
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive loss
Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2021 consisted of net loss and unrealized gain from foreign currency translation adjustment.
Non-controlling interest
As of June 30, 2021,
several individuals aggregately owned
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.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The adoption of this guidance as of October 1, 2020 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments in the ASU are effective for the Company on October 1, 2021. The Company does not expect the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2021.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.
12
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITION
As described in Note 1, on May 28, 2021, the Company completed its acquisition of Match in accordance with the terms of the Match Agreement. To determine the accounting for this transaction under ASU 2017-01, an assessment was made as to whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If that screen is met, the set is not a business. In connection with the acquisition, substantially all of the fair value is concentrated in license and banking infrastructure. As such, the acquisition has been treated as an acquisition of Match assets and an assumption of Match liabilities.
Under the
terms of the Match Agreement, the Company issued
The direct transaction costs have been classified as costs of acquisition.
The following summarizes total consideration transferred to the March Stockholders under the acquisition as well as the fair value of the assets acquired and liabilities assumed under the acquisition:
| May 28, 2021 | ||||
| Assets acquired: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Intangible assets | ||||
| Total assets | ||||
| Liabilities assumed: | ||||
| Accounts payable and accrued liabilities | ||||
| Total liabilities | ||||
| Non-controlling interest | ||||
| Purchase price | $ | |||
The fair values of the current assets acquired and the current liabilities assumed were estimated to be equal to the carrying value on the books of the acquired entity. The acquisition cost of all other assets and liabilities acquired were allocated to those individual assets acquired and liabilities assumed, based on their estimated relative fair values. Upon completion of a third party valuation report being prepared in connection with the acquisition, the Company may adjust the estimated allocation to reflect the results of that valuation if there are material differences between the third party valuation and the Company’s estimated allocation.
NOTE 5 – INTANGIBLE ASSETS
In connection with the acquisition of Match (See Note 4), the valuation of identifiable intangible assets acquired, representing license and banking infrastructure. The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value the identifiable intangible assets at the acquisition date. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets. Furthermore, the Company is in the process of having a third-party valuation firm conduct a valuation of the acquisition. As such, the Company’s valuation is preliminary and subject to change pending the results of the third-party valuation report.
13
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – INTANGIBLE ASSETS (continued)
At June 30, 2021, intangible assets consisted of the following:
| Useful Life | June 30, 2021 | |||||
| License and banking infrastructure | $ | |||||
| Less: accumulated amortization | ( | ) | ||||
| $ | ||||||
For the three and nine
months ended June 30, 2021, amortization expense amounted to $
Amortization of intangible assets attributable to future periods is as follows:
| Twelve-month ending June 30: | Amortization amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| $ | ||||
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At June 30, 2021 and September 30, 2020, accounts payable and accrued liabilities consisted of the following:
| June 30, 2021 | September 30, 2020 | |||||||
| Directors’ compensation | $ | $ | ||||||
| Professional fees | ||||||||
| Accounts payable | - | |||||||
| Interest payable | - | |||||||
| Other | - | |||||||
| Total | $ | $ | ||||||
NOTE 7 – SHARE CAPITAL
Preferred stock
The Company’s Board of Directors is
authorized to issue, at any time, without further stockholder approval, up to
Common stock and Series A preferred stock sold for cash
14
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – SHARE CAPITAL (continued)
Common stock and Series A preferred stock sold for cash (continued)
The Series A preferred stock has the following key terms:
| 1) | A stated value of $ |
| 2) | The holder is entitled to receive cumulative dividends at the annual rate of |
| 4) | The Series A preferred stock is non-voting. However, without the affirmative vote of the holders of the shares of the Series A preferred stock then outstanding, the Company may not alter or change adversely the powers, preferences or rights given to the Series A preferred stock or alter or amend the Certificate of Designation except to the extent that such vote relates to the amendment of the Certificate of Designation; |
| 5) | The holders of the Series A preferred stock are not entitled to receive any preference upon the liquidation, dissolution or winding up of the business of the Company. Each holder of Series A preferred stock shall share ratably with the holders of the common stock of the Company. |
The $
The terms of the Series A preferred stock
issued represent mandatory redeemable shares, with a fixed redemption date (in
On June 7, 2021, the outstanding redeemable preferred
stock of $
Common stock issued for acquisition
On May 28, 2021, the Company issued
On May 28, 2021, the Company issued
15
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – RELATED PARTY TRANSACTIONS
Services provided by related parties
The Company uses affiliate employees for various services such as the use of accountants to record the books and accounts of the Company at no charge to the Company, which are considered immaterial.
Office space from related parties
The Company uses office space of affiliate companies, free of rent, which is considered immaterial.
Revenue from related party and cost of revenue from related party
The Company’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.
During the three and nine months ended June 30, 2021 and 2020, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income were as follows:
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | |||||||||||||
| Service provided to: | ||||||||||||||||
| TCM | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
During the three and nine months ended June 30, 2021 and 2020, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income were as follows:
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | |||||||||||||
| Service received from: | ||||||||||||||||
| FXDIRECT | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
Due from affiliates
At June 30, 2021 and September 30, 2020, due from related parties consisted of the following:
| June 30, 2021 | September 30, 2020 | |||||||
| NUKK Capital (*) | $ | $ | ||||||
| TCM | ||||||||
| Total | $ | $ | ||||||
| (*) | An entity controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman. |
The balances of due from NUKK Capital represent the Company’s prior investment in digital currency that was transferred to NUKK Capital in March 2019. The balance of due from TCM represent unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.
16
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – RELATED PARTY TRANSACTIONS (continued)
Management believes that the related parties’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from related parties at June 30, 2021 and September 30, 2020. The Company historically has not experienced uncollectible receivable from the related parties.
Due to affiliates
At June 30, 2021 and September 30, 2020, due to related parties consisted of the following:
| June 30, 2021 | September 30, 2020 | |||||||
| Forexware LLC (*) | $ | $ | ||||||
| FXDIRECT | ||||||||
| CMH | ||||||||
| FXDD Trading (*) | ||||||||
| Total | $ | $ | ||||||
| (*) | Forexware LLC and FXDD Trading are both controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman. |
The balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, and FXDD Trading on behalf of the Company and advances from CMH. The balance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.
The related parties’ payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.
NOTE 9 – INCOME TAXES
The Company recorded no income tax expense for the three and nine months ended June 30, 2021 and 2020 because the estimated annual effective tax rate was zero. As of June 30, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
NOTE 10 – CONCENTRATIONS
Customers
The following table sets forth information as
to each customer that accounted for
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
| Customer | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| A – related party | % | % | % | % | ||||||||||||
One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at June 30, 2021, accounted for 97.7% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at June 30, 2021.
One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at September 30, 2020, accounted for 100.0% of the Company’s total outstanding accounts receivable – related party at September 30, 2020.
17
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 and nine months ended June 30, 2021 and 2020.
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
| Supplier | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| A – related party | % | % | % | % | ||||||||||||
One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at June 30, 2021, accounted for 98.7% of the Company’s total outstanding accounts payable, and accounts payable – related party at June 30, 2021.
One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at September 30, 2020, accounted for 100.0% of the Company’s total outstanding accounts payable – related party at September 30, 2020.
NOTE 11 – NON-CONTROLLING INTEREST
As of June 30, 2021,
several individuals aggregately owned
The following is a summary of non-controlling interest activities in the nine months ended June 30, 2021.
| Amount | ||||
| Non-controlling interest at September 30, 2020 | $ | |||
| Non-controlling interest acquired on acquisition | ||||
| Net income attributable to non-controlling interest | ||||
| Foreign currency translation adjustment attributable to non-controlling interest | ||||
| Non-controlling interest at June 30, 2021 | $ | |||
NOTE 12 – SEGMENT INFORMATION
For the three and nine months ended June 30, 2021, 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 financial services to enable conversion of fiat currencies to cryptocurrencies and vice versa. For the three and nine months ended June 30, 2020, the Company operated in one reportable business segment – the general support services segment. 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.
18
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – SEGMENT INFORMATION (continued)
Information with respect to these reportable business segments for the three and nine months ended June 30, 2021 and 2020 was as follows:
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| General support services | $ | $ | $ | $ | ||||||||||||
| Financial services | - | - | ||||||||||||||
| Total | ||||||||||||||||
| Costs of revenues | ||||||||||||||||
| General support services | ||||||||||||||||
| Financial services | - | - | ||||||||||||||
| Total | ||||||||||||||||
| Gross profit | ||||||||||||||||
| 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 | ||||||||||||||||
| Corporate/Other | - | - | ||||||||||||||
| Total | $ | $ | - | $ | $ | - | ||||||||||
| Total assets at June 30, 2021 and September 30, 2020 | June 30, 2021 | September 30, 2020 | ||||||
| Financial services | $ | $ | - | |||||
| Corporate/Other | ||||||||
| Total | $ | $ | ||||||
19
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – CONTINGENCY
On April 16, 2020, the Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court for the District of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). The Adversary Proceeding is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus Inc., Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. In the Amended Complaint, BT Prime is seeking, amongst other relief, a determination that the Company and the other defendants are liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and is seeking to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence outside of its collective business relationship with certain of the other Defendants, is a continuation of the business of Forexware and is a successor-in-interest to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable for any liability attributable to Forexware or the other Defendants, should the Court eventually find any such liability. The Company maintains that there is no basis for BT Prime’s claim against it and intends to vigorously defend against the claim. The Company, joined by certain other defendants, filed a summary judgment motion seeking, among other things, dismissal of the sole claim against it. That motion was fully submitted on December 4, 2020, and the Court held an oral argument on February 2, 2021. No decision has been issued as of the date of this report.
NOTE 14 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of the filing.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended June 30, 2021 and 2020 should be read in conjunction with our unaudited condensed consolidated financial statements and related notes to those unaudited condensed consolidated financial statements that are included elsewhere in this report.
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:
| ● | our future operating results; |
| ● | our business prospects; |
| ● | any contractual arrangements and relationships with third parties; |
| ● | the dependence of our future success on the general economy; |
| ● | any possible financings; and |
| ● | the adequacy of our cash resources and working capital. |
Impact of COVID-19 on our Operations
The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.
The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic, and governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.
Overview
We are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. We primarily provide our software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by TCM.
We have ownership of FOREXWARE, the primary software suite and technology solution which powers the FXDD brand globally today. We also have ownership of the FOREXWARE brand name. We have also acquired ownership of the customer interface and other software trading solutions being used by FXDD.com. By virtue of our relationship with TCM and FXDIRECT, we provide turnkey software and technology solutions for FXDD.com. We offer the customers of FXDD 24 hours, five days a week direct access to the global over the counter (“OTC”) FX market, which is a decentralized market in which participants trade directly with one another, rather than through a central exchange.
In an FX trade, participants effectively buy one currency and simultaneously sell another currency, with the two currencies that make up the trade being referred to as a “currency pair”. Our software and technology solutions enable FXDD to present its customers with price quotations on over the counter tradeable instruments, including over the counter currency pairs, and also provide our customers the ability to trade FX derivative contracts on currency pairs through a product referred to as Contracts for Difference (“CFD”). Our software solutions also offer other CFD products, including CFDs on metals, such as gold, and on futures linked to other products.
In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated MDTG, formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer pursue the regulatory licensing necessary to operate an exchange in Malta.
21
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.
On May 24, 2021, the Company and the shareholders (the “Match Shareholders”) of Match Financial Limited, a private limited company formed in England and Wales (“Match”) entered into a Purchase and Sale Agreement (the “Match Agreement”) pursuant to which the Company agreed to acquire 1,152 ordinary shares of Match representing 70% of the issued and outstanding ordinary shares of Match in consideration of 70,000,000 shares of common stock of the Company (the “Initial Transaction”). Further, the Match Agreement provided that the Company, in consideration of the issuance of 100,000 shares of common stock of the Company to the Match Shareholders, will have an option during the period from May 29, 2021 through September 30, 2021 to acquire from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. The closing date of the Initial Transaction occurred on May 28, 2021.
Critical Accounting Policies
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from these estimates. Significant estimates during the three and nine months ended June 30, 2021 and 2020 include valuation of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation.
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 accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees to be recognized as expense in the statements of operations based on their grant date fair values.
Non-controlling Interest
As of June 30, 2021, several individuals aggregately owned 30% of the equity interests of Match Financial Limited, which is not under the Company’s control.
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Results of Operations
Summary of Key Results
For the three and nine months ended June 30, 2021 versus the three and nine months ended June 30, 2020
Revenues
For both of the three months ended June 30, 2021 and 2020, we had revenue from general support services rendered to TCM under a GSA of $4,800,000. For both of the nine months ended June 30, 2021 and 2020, we had revenue from general support services rendered to TCM under a GSA of $14,400,000.
We had revenue from financial services commencing in May 2021. For the three and nine months ended June 30, 2021, we had revenue from financial services of $41,602, which represented revenue from May 28, 2021 (the date of acquisition) to June 30, 2021. We expect that our revenue from financial services will increase in the near future.
Costs of Revenues
For both of the three months ended June 30, 2021 and 2020, our cost of general support services was $4,725,000, which represented amount incurred for services rendered by FXDIRECT under a GSA. For both of the nine months ended June 30, 2021 and 2020, our cost of general support services was $14,175,000, which represented amount incurred for services rendered by FXDIRECT under a GSA.
Cost of financial services include consulting costs, banking, and trading fees incurred associated with delivery of our services.
Cost of financial services was $27,636 for the three and nine months ended June 30, 2021, which represented costs from May 28, 2021 (the date of acquisition) to June 30, 2021. There was no comparable revenue nor cost of revenue from our financial services operations prior to the date of acquisition.
Gross Profits
For both of the three months ended June 30, 2021 and 2020, our gross profit from general support services was $75,000, representing gross margin of 1.6%. For both of the nine months ended June 30, 2021 and 2020, our gross profit from general support services was $225,000, representing gross margin of 1.6%.
For the three and nine months ended June 30, 2021, our gross profit from financial services was $13,966, representing gross margin of 33.6%.
Operating Expenses
Operating expenses consisted of amortization of intangible assets, professional fees, and other general and administrative expenses.
Amortization of intangible assets
For the three and nine months ended June 30, 2021, our amortization of intangible assets amounted to $117,145, which represented amortization from May 28, 2021 (the date of acquisition) to June 30, 2021. There was no comparable amortization prior to the date of acquisition.
Professional fees
Professional fees for the three months ended June 30, 2021 versus the three months ended June 30, 2020, were $51,500 and $43,000, respectively. Professional fees for the nine months ended June 30, 2021 versus the nine months ended June 30, 2020, were $189,772 and $145,000, respectively. The increase was primarily attributable to the increase in professional service providers.
Other general and administrative expenses
Other general and administrative expenses primarily consisted of compensation and related benefits and other miscellaneous items.
Total other general and administrative expenses for the three months ended June 30, 2021 versus the three months ended June 30, 2020, were $20,069 versus $19,222, respectively.
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Total other general and administrative expenses for the nine months ended June 30, 2021 versus the nine months ended June 30, 2020, were $82,323 versus $191,241, respectively. The significant decrease was mainly due to the decrease in compensation and related benefits of approximately $114,000 resulting from the resignation of the director of crypto management on December 15, 2019.
Other (Expense) Income
Other (expense) income mainly included interest expense on redeemable preferred stock, amortization of debt discount, and gain recognized from investment – digital currency.
Other expense, net, totaled $790 for the three months ended June 30, 2021, as compared to $1,286 for the three months ended June 30, 2020, a change of $496.
Other expense, net, totaled $3,810 for the nine months ended June 30, 2021, as compared to other income, net, of $13,582 for the nine months ended June 30, 2020, a change of $17,392. The change for the nine months ended June 30, 2021 as compared to the nine months ended June 30, 2020 was primarily due to the gain recognized from digital currency asset.
Net (Loss) Income
As a result of the factors described above, our net loss was $(100,538) for the three months ended June 30, 2021, as compared with net income of $11,492 for the three months ended June 30, 2020, a change of $112,030, or 974.9%.
As a result of the factors described above, our net loss was $(154,084) for the nine months ended June 30, 2021, as compared with $(97,659) for the nine months ended June 30, 2020, a change of $56,425, or 57.8%.
Net Loss Attributable to Nukkleus Inc. Common Stockholders
The net loss attributable to Nukkleus Inc. common stockholders was $(103,804) or $(0.00) per share (basic and diluted) for the three months ended June 30, 2021, as compared with net income attributable to Nukkleus Inc. common stockholders of $11,492, or $0.00 per share (basic and diluted) for the three months ended June 30, 2020, a change of $115,296 or 1,003.3%.
The net loss attributable to Nukkleus Inc. common stockholders was $(157,350) or $(0.00) per share (basic and diluted) for the nine months ended June 30, 2021, as compared with $(97,659), or $(0.00) per share (basic and diluted) for the nine months ended June 30, 2020, a change of $59,691 or 61.1%.
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 and the functional currency of Match Financial Limited and its subsidiary is the British Pound (“GBP”). The financial statements of our subsidiaries whose functional currency is the GBP 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 gain of $121 and $0 for the three months ended June 30, 2021 and 2020, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $121 and $0 for the nine months ended June 30, 2021 and 2020, respectively. This non-cash gain had the effect of decreasing/increasing our reported comprehensive loss/income.
Comprehensive (Loss) Income
As a result of our foreign currency translation adjustment, we had comprehensive loss of $100,417 and comprehensive income of $11,492 for the three months ended June 30, 2021 and 2020, respectively. As a result of our foreign currency translation adjustment, we had comprehensive loss of $153,963 and $97,659 for the nine months ended June 30, 2021 and 2020, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2021 and September 30, 2020, we had cash balances of $364,777 and $82,849, respectively.
24
We had working capital deficit and accumulated deficit of $1,186,573 and $1,715,663, respectively, as of June 30, 2021.
Our ability to continue as a going concern is dependent upon the management of expenses and our ability to obtain the necessary financing to meet our obligations and pay our liabilities arising from normal business operations when they come due, and upon profitable operations.
We need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, CMH has committed to inject capital into the Company in order to maintain the ongoing operations of the business.
Cash Flow for the Nine Months Ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020
Net cash flow provided by operating activities was $291,404 for the nine months ended June 30, 2021. These included changes in operating assets and liabilities, net of assets acquired and liabilities assumed in acquisition, totaling approximately $327,000, and the non-cash item mainly consisting of amortization of intangible assets of approximately $117,000, offset by consolidated net loss of approximately $154,000.
Net cash flow provided by operating activities was $31,693 for the nine months ended June 30, 2020. These included changes in operating assets and liabilities totaling approximately $146,000, offset by net loss of approximately $98,000 and the non-cash item mainly consisting of a gain on digital currency of approximately $18,000.
Net cash flow used in investing activities was $9,302 for the nine months ended June 30, 2021. During the nine months ended June 30, 2021, we made payments for acquisition of approximately $31,000, offset by cash acquired on acquisition of approximately $21,000.
There was no investing activity during the nine months ended June 30, 2020.
Our operations will require additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of revenue and reduce our costs, we expect to finance future cash needs through public and/or private offerings of equity securities and/or debt financings. We do not currently have any committed future funding. To the extent we raise additional capital by issuing equity securities, our stockholders could at that time experience substantial dilution. Any debt financing we are able to obtain may involve operating covenants that restrict our business. Our capital requirements for the next twelve months primarily relate to mergers, acquisitions and the development of business opportunities. In addition, we expect to use cash to pay fees related to professional services. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:
| ● | The working capital requirements to finance our current business; |
| ● | The use of capital for mergers, acquisitions and the development of business opportunities; |
| ● | Addition of personnel as the business grows; and |
| ● | The cost of being a public company. |
We need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
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.
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Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
As of June 30, 2021, we had no material contractual obligations.
Off-Balance Sheet Arrangements
We had no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Pronouncements
For information about recently issued accounting standards, refer to Note 3 to our Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
In connection with the preparation of the quarterly report on Form 10-Q for the quarter ended June 30, 2021, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our CEO and our CFO is the same person.
During evaluation of disclosure controls and procedures as of June 30, 2021, our CEO/CFO conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Item 5. Other
None.
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Part II - Other Information
Item 1. Legal Proceedings
From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to any material legal proceedings, except as set forth below.
On April 16, 2020, the Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court for the District of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). The Adversary Proceeding is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus Inc., Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. In the Amended Complaint, BT Prime is seeking, amongst other relief, a determination that the Company and the other defendants are liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and is seeking to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence outside of its collective business relationship with certain of the other Defendants, is a continuation of the business of Forexware and is a successor-in-interest to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable for any liability attributable to Forexware or the other Defendants, should the Court eventually find any such liability. The Company maintains that there is no basis for BT Prime’s claim against it and intends to vigorously defend against the claim. The Company, joined by certain other defendants, filed a summary judgment motion seeking, among other things, dismissal of the sole claim against it. That motion was fully submitted on December 4, 2020, and the Court held an oral argument on February 2, 2021. No decision has been issued as of the date of this report.
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 stock issued for redeemable preferred stock conversion and related dividend
On June 7, 2021, the outstanding redeemable preferred stock of $250,000 and related accrued dividend of $37,854 were exchanged for 1,439,271 shares of the Company’s common stock.
Common stock issued for acquisition
On May 28, 2021, the Company issued 70,000,000 shares of its common stock to Match Shareholders for acquisition of 70% equity interest of Match. These shares were valued at $9,800,000, the fair market value on the grant date using the reported closing share price on the date of grant.
On May 28, 2021, the Company issued 100,000 shares of its common stock to Match Shareholders as consideration of an option commencing any time after the closing of the Initial Transaction to acquire from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. The 100,000 shares of the Company’s common stock were valued at $14,000, the fair market value on the grant date using the reported closing share price on the date of grant and were included in the costs of acquisition.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
28
| 10.12 | Letter Agreement entered between FML Malta Ltd., FXDD Malta Limited and Nukkleus Limited (7) | |
| 10.13 | Stock Redemption Agreement dated February 13, 2018 between Nukkleus Inc. and Currency Mountain Holdings Bermuda, Limited (8) | |
| 21.1 | List of Subsidiaries (9) | |
| 31.1* | Rule 13a-14(a) Certification of the Chief Executive and Financial Officer | |
| 32.1* | Section 1350 Certification of Chief Executive and Financial Officer | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed along with this document |
| (1) | Incorporated by reference to the Form 8K Current Report filed with the SEC on May 31, 2016. |
| (2) | Incorporated by reference to the Form 8K Current Report filed with the SEC on June 3, 2016. |
| (3) | Incorporated by reference to the Form 8K Current Report filed with the SEC on August 9, 2016. |
| (4) | Incorporated by reference to the Form 8K Current Report filed with the SEC on October 25, 2016. |
| (5) | Incorporated by reference to the Form 8K Current Report filed with the SEC on October 19, 2017. |
| (6) | Incorporated by reference to the Form 8K Current Report filed with the SEC on December 5, 2017. |
| (7) | Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 27, 2017. |
| (8) | Incorporated by reference to the Form 10Q Quarterly Report filed with the SEC on February 13, 2018. |
| (9) | Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 28. 2020. |
| (10) | Incorporated by reference to the Form 8K Current Report filed with the SEC on June 3, 2021. |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NUKKLEUS INC. | ||
| (Registrant) | ||
| Date: August 16, 2021 | By: | /s/ Emil Assentato |
| Emil Assentato | ||
Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) and Chairman | ||
30
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Emil Assentato, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (the “report”) of Nukkleus Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | As sole executive officer of the Registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | As sole executive officer of the Registrant, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 16, 2021 | By: | /s/ Emil Assentato |
| Emil Assentato | ||
| Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
The undersigned, Emil Assentato, in his capacities as Chief Executive Officer and Chief Financial Officer of Nukkleus Inc. (the “Registrant”) do each hereby certify with respect to the Quarterly Report on Form 10-Q of the Registrant for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that, to the best of its knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in this Report. |
| Date: August 16, 2021 | /s/ Emil Assentato |
| Emil Assentato | |
| Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Series A redeemable preferred stock, stated value (in Dollars per share) | $ 10 | $ 10 |
| Series A redeemable preferred stock, authorized | 200,000 | 200,000 |
| Series A redeemable preferred stock, issued | 25,000 | 25,000 |
| Series A redeemable preferred stock, outstanding | 25,000 | 25,000 |
| Series A redeemable preferred stock, gross (in Dollars) | $ 250,000 | $ 250,000 |
| Series A redeemable preferred stock, discount (in Dollars) | $ 1,545 | $ 1,545 |
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 14,800,000 | 14,800,000 |
| Preferred stock, share issued | 0 | 0 |
| Preferred stock, share outstanding | 0 | 0 |
| Common stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 900,000,000 | 900,000,000 |
| Common stock, shares issued | 302,024,371 | 230,485,100 |
| Common stock, shares outstanding | 302,024,371 | 230,485,100 |
The Company History and Nature of The Business |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Accounting Policies [Abstract] | |
| THE COMPANY HISTORY AND NATURE OF THE BUSINESS | NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS
Nukkleus Inc. (f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.
The Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. The Company primarily provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to Triton Capital Markets Ltd. (“TCM”), formerly known as FXDD Malta Limited (“FXDD Malta”). The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by TCM.
Nukkleus Limited, a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a General Services Agreement (“GSA”) to TCM. TCM is a private limited liability company formed under the laws of Malta. The GSA provides that TCM will pay Nukkleus Limited at minimum $1,600,000 per month. Emil Assentato is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato, who is our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chairman, is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of TCM.
In addition, in order to appropriately service TCM, Nukkleus Limited entered into a GSA with FXDirectDealer LLC (“FXDIRECT”), which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,575,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. 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 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.
On May 24, 2021, the Company and the shareholders of Match Financial Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”) entered into a Purchase and Sale Agreement (the “Match Agreement”) pursuant to which the Company agreed to acquire 1,152 ordinary shares of Match representing 70% of the issued and outstanding ordinary shares of Match in consideration of 70,000,000 shares of common stock of the Company (the “Initial Transaction”). Further, the Match Agreement provided that the Company, in consideration of the issuance of 100,000 shares of common stock of the Company to the Match Shareholders, will have an option during the period from May 29, 2021 through September 30, 2021 to acquire from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. The closing date of the Initial Transaction occurred on May 28, 2021.
The unaudited condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company incurred a net loss for the nine months ended June 30, 2021 of $154,084, and had a working capital deficit of $1,186,573 at June 30, 2021. The Company’s ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.
We cannot be certain that such necessary capital through equity or debt financings will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, Currency Mountain Holdings Bermuda, Limited (“CMH”), which is wholly-owned by an entity that is majority-owned by Mr. Assentato, has committed to inject capital into the Company in order to maintain the ongoing operations of the business.
The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.
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. |
Basis of Presentation |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Accounting Policies [Abstract] | |
| BASIS OF PRESENTATION | NOTE 2 – BASIS OF PRESENTATION
These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020 filed with the Securities and Exchange Commission on December 28, 2020. The consolidated balance sheet as of September 30, 2020 contained herein has been derived from the audited consolidated financial statements as of September 30, 2020, but does not include all disclosures required by U.S. GAAP. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the three and nine months ended June 30, 2021 and 2020 include valuation of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation.
Cash and cash equivalents
At June 30, 2021 and September 30, 2020, 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 June 30, 2021 and September 30, 2020.
Fair value of financial instruments and fair value measurements
The investment in digital currency as of September 30, 2020 of $12 is recorded with prepaid expense and other current assets on the condensed consolidated balance sheet. The carrying values of cash, accounts receivable, prepaid expense and other current assets, due from affiliates, due to affiliates, and accounts payable and accrued liabilities in the Company’s condensed consolidated balance sheets approximated their fair values as of June 30, 2021 and September 30, 2020 due to their short-term nature.
Credit risk and uncertainties
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 in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2021, the Company’s cash balances in United States bank accounts had approximately $96,000 in excess of the federally-insured limits.
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.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable at June 30, 2021. The Company historically has not experienced significant uncollectible accounts receivable.
Prepaid expense and other current assets
Prepaid expense and other current assets primarily consist of prepaid OTC Markets listing fees, which are recognized as expense over the related listing periods. As of June 30, 2021 and September 30, 2020, prepaid expense and other current assets amounted to $19,719 and $7,010, respectively.
Intangible assets
Intangible assets consist of license and banking infrastructure, which are being amortized on a straight-line method over the estimated useful life of 10 years.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of June 30, 2021. For the nine months ended June 30, 2021 and 2020, no impairment of long-lived assets was recognized.
Revenue recognition
The Company accounts for revenue under the provisions of ASC Topic 606.
The Company’s revenues are derived from providing:
Disaggregation of revenues
The Company’s revenues stream detail are as follows:
In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2021 and 2020:
Stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees to be recognized as expense in the statements of operations based on their grant date fair values.
Per share data
ASC Topic 260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the three and nine months ended June 30, 2021 and 2021, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).
The following is a reconciliation of the basic and diluted net (loss) income per share computations for the three and nine months ended June 30, 2021 and 2020:
Basic net (loss) income per share
Diluted net (loss) income per share
For the three and nine months ended June 30, 2021 and for the nine months ended June 30, 2020, a total of 1,250,000 shares of common stock from the assumed redemption of the Series A convertible redeemable preferred stock at the contractual floor of $0.20 per share have been excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact.
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 and the functional currency of Match Financial Limited and its subsidiary is the British Pound (“GBP”). 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 shareholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Most of the Company’s revenue transactions are transacted in the functional currency of the Company. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. Asset and liability accounts at June 30, 2021 were translated at 0.7246 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the period from May 28, 2021 through June 30, 2021 was 0.7133 GBP to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.
Comprehensive loss
Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2021 consisted of net loss and unrealized gain from foreign currency translation adjustment.
Non-controlling interest
As of June 30, 2021, several individuals aggregately owned 30% of the equity interests of Match Financial Limited, which is not under the Company’s control.
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.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The adoption of this guidance as of October 1, 2020 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments in the ASU are effective for the Company on October 1, 2021. The Company does not expect the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2021.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures. |
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Acquisition |
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| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITION | NOTE 4 - ACQUISITION
As described in Note 1, on May 28, 2021, the Company completed its acquisition of Match in accordance with the terms of the Match Agreement. To determine the accounting for this transaction under ASU 2017-01, an assessment was made as to whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If that screen is met, the set is not a business. In connection with the acquisition, substantially all of the fair value is concentrated in license and banking infrastructure. As such, the acquisition has been treated as an acquisition of Match assets and an assumption of Match liabilities.
Under the terms of the Match Agreement, the Company issued 70,000,000 shares of its common stock to the Match Shareholders to acquire 1,152 ordinary shares of Match representing 70% of the issued and outstanding ordinary shares of Match (the “Initial Transaction”). Also, in conjunction with the acquisition, the Company issued 100,000 shares of common stock to the Match Shareholders as consideration of an option during the period from May 29, 2021 through September 30, 2021 to acquire from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. The shares of common stock issued to the Match stockholders have been valued at $0.14 per share which was the closing price of the Company’s common stock on May 28, 2021, the date the acquisition closed.
The direct transaction costs have been classified as costs of acquisition.
The following summarizes total consideration transferred to the March Stockholders under the acquisition as well as the fair value of the assets acquired and liabilities assumed under the acquisition:
The fair values of the current assets acquired and the current liabilities assumed were estimated to be equal to the carrying value on the books of the acquired entity. The acquisition cost of all other assets and liabilities acquired were allocated to those individual assets acquired and liabilities assumed, based on their estimated relative fair values. Upon completion of a third party valuation report being prepared in connection with the acquisition, the Company may adjust the estimated allocation to reflect the results of that valuation if there are material differences between the third party valuation and the Company’s estimated allocation. |
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Intangible assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | NOTE 5 – INTANGIBLE ASSETS
In connection with the acquisition of Match (See Note 4), the valuation of identifiable intangible assets acquired, representing license and banking infrastructure. The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value the identifiable intangible assets at the acquisition date. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets. Furthermore, the Company is in the process of having a third-party valuation firm conduct a valuation of the acquisition. As such, the Company’s valuation is preliminary and subject to change pending the results of the third-party valuation report.
At June 30, 2021, intangible assets consisted of the following:
For the three and nine months ended June 30, 2021, amortization expense amounted to $117,145, which represented amortization from May 28, 2021 (the date of acquisition) to June 30, 2021. There was no comparable amortization prior to the date of acquisition.
Amortization of intangible assets attributable to future periods is as follows:
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Accounts Payable and Accrued Liabilities |
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At June 30, 2021 and September 30, 2020, accounts payable and accrued liabilities consisted of the following:
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Share Capital |
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| Equity [Abstract] | ||||||||||||||||
| SHARE CAPITAL | NOTE 7 – SHARE CAPITAL
Preferred stock
The Company’s Board of Directors is authorized to issue, at any time, without further stockholder approval, up to 15,000,000 shares of preferred stock. The Board of Directors has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.
Common stock and Series A preferred stock sold for cash
On June 7, 2016, the Company sold to CMH 15,450,000 shares of common stock and 100,000 shares of Series A preferred stock for $1,000,000. The common stock was recorded as equity and the Series A preferred stock was recorded as a liability. On February 13, 2018, 75,000 of the preferred shares were redeemed and cancelled.
The Series A preferred stock has the following key terms:
The $1,000,000 of proceeds received was allocated to the common stock and Series A preferred stock according to their relative fair values determined at the time of issuance, and as a result, the Company recorded a total discount of $45,793 on the Series A preferred stock, which is being amortized to interest expense to the date of redemption. For the three months ended June 30, 2021 and 2020, amortization of debt discount amounted to $400 and $572, respectively. For the nine months ended June 30, 2021 and 2020, amortization of debt discount amounted to $1,545 and $1,717, respectively.
The terms of the Series A preferred stock issued represent mandatory redeemable shares, with a fixed redemption date (in 5 years) and the Company has a choice of redeeming the instrument either in cash or a variable number of shares of common stock based on a formula in the certificate of designation. The conversion price has a floor of $0.20 per share. As such, all dividends accrued and/or paid and any accretions are classified as part of interest expense. For the three months ended June 30, 2021 and 2020, dividends on redeemable preferred stock amounted to $750 and $938, respectively. For the nine months ended June 30, 2021 and 2020, dividends on redeemable preferred stock amounted to $2,625 and $2,813, respectively.
On June 7, 2021, the outstanding redeemable preferred stock of $250,000 and related accrued dividend of $37,854 were exchanged for 1,439,271 shares of the Company’s common stock.
Common stock issued for acquisition
On May 28, 2021, the Company issued 70,000,000 shares of its common stock to Match Shareholders for acquisition of 70% equity interest of Match. These shares were valued at $9,800,000, the fair market value on the grant date using the reported closing share price on the date of grant.
On May 28, 2021, the Company issued 100,000 shares of its common stock to Match Shareholders as consideration of an option commencing any time after the closing of the Initial Transaction to acquire from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. The 100,000 shares of the Company’s common stock were valued at $14,000, the fair market value on the grant date using the reported closing share price on the date of grant and were included in the costs of acquisition. |
Related Party Transactions |
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| RELATED PARTY TRANSACTIONS | NOTE 8 – RELATED PARTY TRANSACTIONS
Services provided by related parties
The Company uses affiliate employees for various services such as the use of accountants to record the books and accounts of the Company at no charge to the Company, which are considered immaterial.
Office space from related parties
The Company uses office space of affiliate companies, free of rent, which is considered immaterial.
Revenue from related party and cost of revenue from related party
The Company’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.
Both of the above entities are affiliates through common ownership.
During the three and nine months ended June 30, 2021 and 2020, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income were as follows:
During the three and nine months ended June 30, 2021 and 2020, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income were as follows:
Due from affiliates
At June 30, 2021 and September 30, 2020, due from related parties consisted of the following:
The balances of due from NUKK Capital represent the Company’s prior investment in digital currency that was transferred to NUKK Capital in March 2019. The balance of due from TCM represent unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.
Management believes that the related parties’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from related parties at June 30, 2021 and September 30, 2020. The Company historically has not experienced uncollectible receivable from the related parties.
Due to affiliates
At June 30, 2021 and September 30, 2020, due to related parties consisted of the following:
The balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, and FXDD Trading on behalf of the Company and advances from CMH. The balance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.
The related parties’ payables are short-term in nature, non-interest bearing, unsecured and repayable on demand. |
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Income Taxes |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | NOTE 9 – INCOME TAXES
The Company recorded no income tax expense for the three and nine months ended June 30, 2021 and 2020 because the estimated annual effective tax rate was zero. As of June 30, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized. |
Concentrations |
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| Risks and Uncertainties [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 and nine months ended June 30, 2021 and 2020.
One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at June 30, 2021, accounted for 97.7% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at June 30, 2021.
One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at September 30, 2020, accounted for 100.0% of the Company’s total outstanding accounts receivable – related party at September 30, 2020.
Suppliers
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s costs of revenues for the three and nine months ended June 30, 2021 and 2020.
One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at June 30, 2021, accounted for 98.7% of the Company’s total outstanding accounts payable, and accounts payable – related party at June 30, 2021.
One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at September 30, 2020, accounted for 100.0% of the Company’s total outstanding accounts payable – related party at September 30, 2020. |
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Non-Controlling Interest |
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| Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||
| NON-CONTROLLING INTEREST | NOTE 11 – NON-CONTROLLING INTEREST
As of June 30, 2021, several individuals aggregately owned 30% of the equity interests of Match, which is not under the Company’s control.
The following is a summary of non-controlling interest activities in the nine months ended June 30, 2021.
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Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION | NOTE 12 – SEGMENT INFORMATION
For the three and nine months ended June 30, 2021, 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 financial services to enable conversion of fiat currencies to cryptocurrencies and vice versa. For the three and nine months ended June 30, 2020, the Company operated in one reportable business segment – the general support services segment. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.
Information with respect to these reportable business segments for the three and nine months ended June 30, 2021 and 2020 was as follows:
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Contingency |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| CONTINGENCY | NOTE 13 – CONTINGENCY
On April 16, 2020, the Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court for the District of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). The Adversary Proceeding is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus Inc., Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. In the Amended Complaint, BT Prime is seeking, amongst other relief, a determination that the Company and the other defendants are liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and is seeking to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence outside of its collective business relationship with certain of the other Defendants, is a continuation of the business of Forexware and is a successor-in-interest to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable for any liability attributable to Forexware or the other Defendants, should the Court eventually find any such liability. The Company maintains that there is no basis for BT Prime’s claim against it and intends to vigorously defend against the claim. The Company, joined by certain other defendants, filed a summary judgment motion seeking, among other things, dismissal of the sole claim against it. That motion was fully submitted on December 4, 2020, and the Court held an oral argument on February 2, 2021. No decision has been issued as of the date of this report. |
Subsequent Events |
6 Months Ended |
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Mar. 31, 2021 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 14 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of the filing. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Use of estimates | Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the three and nine months ended June 30, 2021 and 2020 include valuation of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation.
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| Cash and cash equivalents | Cash and cash equivalents
At June 30, 2021 and September 30, 2020, 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 June 30, 2021 and September 30, 2020.
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| Fair value of financial instruments and fair value measurements | Fair value of financial instruments and fair value measurements
The investment in digital currency as of September 30, 2020 of $12 is recorded with prepaid expense and other current assets on the condensed consolidated balance sheet. The carrying values of cash, accounts receivable, prepaid expense and other current assets, due from affiliates, due to affiliates, and accounts payable and accrued liabilities in the Company’s condensed consolidated balance sheets approximated their fair values as of June 30, 2021 and September 30, 2020 due to their short-term nature.
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| Credit risk and uncertainties | Credit risk and uncertainties
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 in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2021, the Company’s cash balances in United States bank accounts had approximately $96,000 in excess of the federally-insured limits.
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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| Accounts receivable and allowance for doubtful accounts | Accounts receivable and allowance for doubtful accounts
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Management believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable at June 30, 2021. The Company historically has not experienced significant uncollectible accounts receivable.
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| Prepaid expense and other current assets | Prepaid expense and other current assets
Prepaid expense and other current assets primarily consist of prepaid OTC Markets listing fees, which are recognized as expense over the related listing periods. As of June 30, 2021 and September 30, 2020, prepaid expense and other current assets amounted to $19,719 and $7,010, respectively.
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| Intangible assets | Intangible assets
Intangible assets consist of license and banking infrastructure, which are being amortized on a straight-line method over the estimated useful life of 10 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. There were no triggering events requiring assessment of impairment as of June 30, 2021. For the nine months ended June 30, 2021 and 2020, no impairment of long-lived assets was recognized.
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| Revenue recognition | Revenue recognition
The Company accounts for revenue under the provisions of ASC Topic 606.
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 and nine months ended June 30, 2021 and 2020:
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| Stock-based compensation | Stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees to be recognized as expense in the statements of operations based on their grant date fair values.
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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. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the three and nine months ended June 30, 2021 and 2021, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).
The following is a reconciliation of the basic and diluted net (loss) income per share computations for the three and nine months ended June 30, 2021 and 2020:
Basic net (loss) income per share
Diluted net (loss) income per share
For the three and nine months ended June 30, 2021 and for the nine months ended June 30, 2020, a total of 1,250,000 shares of common stock from the assumed redemption of the Series A convertible redeemable preferred stock at the contractual floor of $0.20 per share have been excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact.
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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 and the functional currency of Match Financial Limited and its subsidiary is the British Pound (“GBP”). 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 shareholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Most of the Company’s revenue transactions are transacted in the functional currency of the Company. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. Asset and liability accounts at June 30, 2021 were translated at 0.7246 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the period from May 28, 2021 through June 30, 2021 was 0.7133 GBP to $1.00, respectively. 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 and nine months ended June 30, 2021 consisted of net loss and unrealized gain from foreign currency translation adjustment.
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| Non-controlling interest | Non-controlling interest
As of June 30, 2021, several individuals aggregately owned 30% of the equity interests of Match Financial Limited, which is not under the Company’s control.
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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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| 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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| Recently issued accounting pronouncements | Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. ASU 2016-13 is effective for annual period beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The adoption of this guidance as of October 1, 2020 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments in the ASU are effective for the Company on October 1, 2021. The Company does not expect the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2021.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures. |
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Summary of Significant Accounting Policies (Tables) |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of cash balances by geographic area |
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| Schedule of revenues are disaggregated by segment |
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| Schedule of basic and diluted net income (loss) per share |
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Acquisition (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of summarizes total consideration transferred |
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Intangible assets (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
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| Amortization of intangible assets attributable to future periods |
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Accounts Payable and Accrued Liabilities (Tables) |
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts payable and accrued liabilities |
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Related Party Transactions (Tables) |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of related party transaction |
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| Schedule of due from affiliates |
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| Schedule of due to affiliates |
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Concentrations (Tables) |
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of revenue customer |
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| Schedule of revenue supplier |
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Non-Controlling Interest (Tables) |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||
| Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||
| Schedule of non-controlling interest activities |
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Segment Information (Tables) |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reportable business segments |
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| Schedule of total assets |
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Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2021 |
Sep. 30, 2020 |
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| Summary of Significant Accounting Policies (Details) [Line Items] | |||
| Prepaid expenses | $ 12 | $ 12 | |
| Federally-insured limits | 250,000 | 250,000 | |
| Cash | 96,000 | 96,000 | |
| Other current assets | $ 19,719 | $ 19,719 | $ 7,010 |
| Estimated useful life | 10 years | ||
| Foreign Currency Translation Description | The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. Asset and liability accounts at June 30, 2021 were translated at 0.7246 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the period from May 28, 2021 through June 30, 2021 was 0.7133 GBP to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate | ||
| Noncontrolling Interest, Equity Interest | 30.00% | ||
| Redeemable Convertible Preferred Stock [Member] | |||
| Summary of Significant Accounting Policies (Details) [Line Items] | |||
| Number of shares antidilutive excluded from computation (in Shares) | 1,250,000 | 9 | |
| Preferred stock conversion rate (in Dollars per share) | $ 0.20 |
Summary of Significant Accounting Policies (Details) - Schedule of cash balances by geographic area - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Sep. 30, 2020 |
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| Summary of Significant Accounting Policies (Details) - Schedule of cash balances by geographic area [Line Items] | ||
| Total cash | $ 364,777 | $ 82,849 |
| Cash percentage | 100.00% | 100.00% |
| United States [Member] | ||
| Summary of Significant Accounting Policies (Details) - Schedule of cash balances by geographic area [Line Items] | ||
| Total cash | $ 345,555 | $ 82,675 |
| Cash percentage | 94.70% | 99.80% |
| England [Member] | ||
| Summary of Significant Accounting Policies (Details) - Schedule of cash balances by geographic area [Line Items] | ||
| Total cash | $ 19,048 | |
| Cash percentage | 5.20% | |
| Malta [Member] | ||
| Summary of Significant Accounting Policies (Details) - Schedule of cash balances by geographic area [Line Items] | ||
| Total cash | $ 174 | $ 174 |
| Cash percentage | 0.10% | 0.20% |
Summary of Significant Accounting Policies (Details) - Schedule of revenues are disaggregated by segment - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Schedule of revenues are disaggregated by segment [Abstract] | ||||
| General support services | $ 4,800,000 | $ 4,800,000 | $ 14,400,000 | $ 14,400,000 |
| Financial services | 41,602 | 41,602 | ||
| Total revenues | $ 4,841,602 | $ 4,800,000 | $ 14,441,602 | $ 14,400,000 |
Acquisition (Details) - Schedule of summarizes total consideration transferred |
May 28, 2021
USD ($)
|
|---|---|
| Assets acquired: | |
| Cash | $ 21,370 |
| Accounts receivable | 46,602 |
| Other current assets | 142 |
| Intangible assets | 14,057,402 |
| Total assets | 14,125,516 |
| Liabilities assumed: | |
| Accounts payable and accrued liabilities | 78,745 |
| Total liabilities | 78,745 |
| Non-controlling interest | 4,200,000 |
| Purchase price | $ 9,846,771 |
Intangible assets (Details) |
9 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| Amortization expenses | $ 117,145 |
Intangible assets (Details) - Schedule of intangible assets |
9 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Schedule of intangible assets [Abstract] | |
| Useful Life | 10 years |
| Intangible asset | $ 14,057,402 |
| Less: accumulated amortization | (117,145) |
| Total Intangible asset | $ 13,940,257 |
Intangible assets (Details) - Amortization of intangible assets attributable to future periods |
Jun. 30, 2021
USD ($)
|
|---|---|
| Amortization of intangible assets attributable to future periods [Abstract] | |
| 2022 | $ 1,405,740 |
| 2023 | 1,405,740 |
| 2024 | 1,405,740 |
| 2025 | 1,405,740 |
| 2026 and thereafter | 8,317,297 |
| Total | $ 13,940,257 |
Accounts Payable and Accrued Liabilities (Details) - Schedule of accounts payable and accrued liabilities - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| Schedule of accounts payable and accrued liabilities [Abstract] | ||
| Directors’ compensation | $ 160,537 | $ 130,537 |
| Professional fees | 49,023 | 46,640 |
| Accounts payable | 44,568 | |
| Interest payable | 35,229 | |
| Other | 30,308 | |
| Total | $ 284,436 | $ 212,406 |
Related Party Transactions (Details) - GSA [Member] |
Mar. 31, 2021
USD ($)
|
|---|---|
| TCM [Member] | |
| Related Party Transactions (Details) [Line Items] | |
| Minimum monthly amount received | $ 1,600,000 |
| FXDirectDealer [Member] | |
| Related Party Transactions (Details) [Line Items] | |
| Minimum monthly amount payable | $ 1,575,000 |
Related Party Transactions (Details) - Schedule of related party transaction - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Service provided to: | ||||
| Service provided to related parties | $ 4,800,000 | $ 4,800,000 | $ 14,400,000 | $ 14,400,000 |
| Service received from: | ||||
| Service received from related parties | 4,725,000 | 4,725,000 | 14,175,000 | 14,175,000 |
| TCM [Member] | ||||
| Service provided to: | ||||
| Service provided to related parties | 4,800,000 | 4,800,000 | 14,400,000 | 14,400,000 |
| FXDIRECT [Member] | ||||
| Service received from: | ||||
| Service received from related parties | $ 4,725,000 | $ 4,725,000 | $ 14,175,000 | $ 14,175,000 |
Related Party Transactions (Details) - Schedule of due from affiliates - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
||
|---|---|---|---|---|
| Related Party Transactions (Details) - Schedule of due from affiliates [Line Items] | ||||
| Due from related parties | $ 2,617,873 | $ 3,709,772 | ||
| NUKK Capital [Member] | ||||
| Related Party Transactions (Details) - Schedule of due from affiliates [Line Items] | ||||
| Due from related parties | [1] | 144,696 | 144,696 | |
| TCM [Member] | ||||
| Related Party Transactions (Details) - Schedule of due from affiliates [Line Items] | ||||
| Due from related parties | $ 2,473,177 | $ 3,565,076 | ||
| ||||
Related Party Transactions (Details) - Schedule of due to affiliates - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
||
|---|---|---|---|---|
| Variable Interest Entity [Line Items] | ||||
| Due to related parties | $ 3,962,247 | $ 4,732,977 | ||
| Forexware LLC [Member] | ||||
| Variable Interest Entity [Line Items] | ||||
| Due to related parties | [1] | 579,229 | 579,229 | |
| FXDIRECT [Member] | ||||
| Variable Interest Entity [Line Items] | ||||
| Due to related parties | 3,340,547 | 4,111,277 | ||
| CMH [Member] | ||||
| Variable Interest Entity [Line Items] | ||||
| Due to related parties | 42,000 | 42,000 | ||
| FXDD Trading [Member] | ||||
| Variable Interest Entity [Line Items] | ||||
| Due to related parties | [1] | $ 471 | $ 471 | |
| ||||
Concentrations (Details) |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Risks and Uncertainties [Abstract] | |
| Percentage of revenue | 10.00% |
| Accounts Receivable Outstanding Description | One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at June 30, 2021, accounted for 97.7% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at June 30, 2021. One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at September 30, 2020, accounted for 100.0% of the Company’s total outstanding accounts receivable – related party at September 30, 2020. |
| Accounts Payable Outstanding Description | One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at June 30, 2021, accounted for 98.7% of the Company’s total outstanding accounts payable, and accounts payable – related party at June 30, 2021. One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at September 30, 2020, accounted for 100.0% of the Company’s total outstanding accounts payable – related party at September 30, 2020. |
Concentrations (Details) - Schedule of revenue customer |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Customer [Member] | ||||
| Revenue, Major Customer [Line Items] | ||||
| A – related party | 99.10% | 100.00% | 99.70% | 100.00% |
Concentrations (Details) - Schedule of revenue supplier |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Supplier [Member] | ||||
| Concentrations (Details) - Schedule of revenue supplier [Line Items] | ||||
| A – related party | 99.40% | 100.00% | 99.80% | 100.00% |
Non-Controlling Interest (Details) |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Noncontrolling Interest [Abstract] | |
| Equity interests | 30.00% |
Non-Controlling Interest (Details) - Schedule of non-controlling interest activities - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2021 |
|
| Schedule of non-controlling interest activities [Abstract] | ||
| Non-controlling interest at September 30, 2020 | ||
| Non-controlling interest acquired on acquisition | 4,200,000 | |
| Net income attributable to non-controlling interest | $ 3,266 | 3,266 |
| Foreign currency translation adjustment attributable to non-controlling interest | 36 | |
| Non-controlling interest at June 30, 2021 | $ 4,203,302 | $ 4,203,302 |
Segment Information (Details) - Schedule of reportable business segments - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Revenues | ||||
| Revenues | $ 4,841,602 | $ 4,800,000 | $ 14,441,602 | $ 14,400,000 |
| Costs of revenues | ||||
| Costs of revenues | 4,752,636 | 4,725,000 | 14,202,636 | 14,175,000 |
| Gross profit | ||||
| Gross profit | 88,966 | 75,000 | 238,966 | 225,000 |
| Operating expenses | ||||
| Operating expenses | 188,714 | 62,222 | 389,240 | 336,241 |
| Other income (expense) | ||||
| Other income (expense) | (790) | (1,286) | (3,810) | 13,582 |
| Net income (loss) | ||||
| Net income (loss) | (100,538) | 11,492 | (154,084) | (97,659) |
| Amortization | ||||
| Amortization | 117,145 | 117,145 | ||
| General Support Services [Member] | ||||
| Revenues | ||||
| Revenues | 4,800,000 | 4,800,000 | 14,400,000 | 14,400,000 |
| Costs of revenues | ||||
| Costs of revenues | 4,725,000 | 4,725,000 | 14,175,000 | 14,175,000 |
| Gross profit | ||||
| Gross profit | 75,000 | 75,000 | 225,000 | 225,000 |
| Net income (loss) | ||||
| Net income (loss) | 75,000 | 75,000 | 225,000 | 225,000 |
| Financial Services [Member] | ||||
| Revenues | ||||
| Revenues | 41,602 | 41,602 | ||
| Costs of revenues | ||||
| Costs of revenues | 27,636 | 27,636 | ||
| Gross profit | ||||
| Gross profit | 13,966 | 13,966 | ||
| Operating expenses | ||||
| Operating expenses | 3,439 | 3,439 | ||
| Other income (expense) | ||||
| Other income (expense) | 360 | 360 | ||
| Net income (loss) | ||||
| Net income (loss) | 10,887 | 10,887 | ||
| Corporate and Other [Member] | ||||
| Operating expenses | ||||
| Operating expenses | 185,275 | 62,222 | 385,801 | 336,241 |
| Other income (expense) | ||||
| Other income (expense) | (1,150) | (1,286) | (4,170) | 13,582 |
| Net income (loss) | ||||
| Net income (loss) | (186,425) | $ (63,508) | (389,971) | $ (322,659) |
| Amortization | ||||
| Amortization | $ 117,145 | $ 117,145 | ||
Segment Information (Details) - Schedule of total assets - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| Segment Information (Details) - Schedule of total assets [Line Items] | ||
| Total | $ 17,000,367 | $ 3,799,631 |
| Financial Service [Member] | ||
| Segment Information (Details) - Schedule of total assets [Line Items] | ||
| Total | 76,927 | |
| Corporate and Other [Member] | ||
| Segment Information (Details) - Schedule of total assets [Line Items] | ||
| Total | $ 16,923,440 | $ 3,799,631 |
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