0001213900-21-043145.txt : 20210816 0001213900-21-043145.hdr.sgml : 20210816 20210816172013 ACCESSION NUMBER: 0001213900-21-043145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 67 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210816 DATE AS OF CHANGE: 20210816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Nukkleus Inc. CENTRAL INDEX KEY: 0001592782 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 383912845 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55922 FILM NUMBER: 211179884 BUSINESS ADDRESS: STREET 1: 525 WASHINGTON BLVD. CITY: JERSEY CITY STATE: NJ ZIP: 07310 BUSINESS PHONE: (800) 604-1724 MAIL ADDRESS: STREET 1: 525 WASHINGTON BLVD. CITY: JERSEY CITY STATE: NJ ZIP: 07310 FORMER COMPANY: FORMER CONFORMED NAME: Compliance & Risk Management Solutions Inc. DATE OF NAME CHANGE: 20131125 10-Q 1 f10q0621_nukkleusinc.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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

 

For the transition period from __________ to __________

 

Commission file number: 000-55922

 

Nukkleus Inc.

(Exact name of registrant in its charter)

 

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

 

525 Washington Boulevard, Jersey City, New Jersey 07310

(Address of principal executive offices, including zip code)


212-791-4663

(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. Yes ☒ No ☐

 

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

 

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

 

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

  

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

 

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

 

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   302,024,371 shares

 

 

 

 

 

 

NUKKLEUS INC.

FORM 10-Q

June 30, 2021

 

TABLE OF CONTENTS

 

    Page No.
PART I - FINANCIAL INFORMATION
 
Item 1. Interim Financial Statements 1
  Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and September 30, 2020 1
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Nine Months Ended June 30, 2021 and 2020 2
  Unaudited Condensed Consolidated Statements of Changes in Equity (Deficit) for the Three and Nine Months Ended June 30, 2021 and 2020 3
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2021 and 2020 5
  Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 26
Item 5. Other 26
     

PART II - OTHER INFORMATION

     
Item 1. Legal Proceedings 27
Item 1A. Risk Factors 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Mine Safety Disclosures 27
Item 5. Other Information 27
Item 6. Exhibits 28
Signatures   30

 

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  $364,777   $82,849 
Accounts receivable   57,741    
-
 
Due from affiliates   2,617,873    3,709,772 
Prepaid expense and other current assets   19,719    7,010 
           
TOTAL CURRENT ASSETS   3,060,110    3,799,631 
           
NON-CURRENT ASSETS:          
Intangible assets, net   13,940,257    - 
           
TOTAL NON-CURRENT ASSETS   13,940,257    - 
           
TOTAL ASSETS  $17,000,367   $3,799,631 
           
LIABILITIES AND EQUITY (DEFICIT)          
           
CURRENT LIABILITIES:          
Due to affiliates  $3,962,247   $4,732,977 
Accounts payable and accrued liabilities   284,436    212,406 
Series A redeemable preferred stock liability at $10 stated value; 200,000 shares authorized;
25,000 shares issued and outstanding ($250,000 less discount of $1,545)
 
 
 
 
 
-
 
 
 
 
 
 
 
248,455
 
 
           
TOTAL CURRENT LIABILITIES   4,246,683    5,193,838 
           
TOTAL LIABILITIES   4,246,683    5,193,838 
           
CONTINGENCY - (Note 13)   
 
    
 
 
           
EQUITY (DEFICIT):          
Preferred stock ($0.0001 par value; 14,800,000 shares authorized;
0 share issued and outstanding at June 30, 2021 and September 30, 2020)
 
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
Common stock ($0.0001 par value; 900,000,000 shares authorized;
302,024,371 and 230,485,100 shares issued and outstanding  at June 30, 2021 and September 30, 2020)
 
 
 
 
 
 
 
 
30,202
 
 
 
 
 
 
 
 
 
 
 
23,049
 
 
 
Additional paid-in capital   10,235,758    141,057 
Accumulated deficit   (1,715,663)   (1,558,313)
Accumulated other comprehensive income - foreign currency translation adjustment   85    
-
 
Total Nukkleus Inc. stockholders’ equity (deficit)   8,550,382    (1,394,207)
Non-controlling interest   4,203,302    
-
 
           
TOTAL EQUITY (DEFICIT)   12,753,684    (1,394,207)
           
TOTAL LIABILITIES AND EQUITY (DEFICIT)  $17,000,367   $3,799,631 

 

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  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Revenue - financial services   41,602    -    41,602    - 
Total revenues   4,841,602    4,800,000    14,441,602    14,400,000 
COSTS OF REVENUES                    
Cost of revenue - general support services - related party   4,725,000    4,725,000    14,175,000    14,175,000 
Cost of revenue - financial services   27,636    -    27,636    - 
Total costs of revenues   4,752,636    4,725,000    14,202,636    14,175,000 
GROSS PROFITS                    
Gross profit - general support services - related party   75,000    75,000    225,000    225,000 
Gross profit - financial services   13,966    -    13,966    - 
Total gross profits   88,966    75,000    238,966    225,000 
                     
OPERATING EXPENSES:                    
Amortization of intangible assets   117,145    -    117,145    - 
Professional fees   51,500    43,000    189,772    145,000 
Other general and administrative   20,069    19,222    82,323    191,241 
                     
Total operating expenses   188,714    62,222    389,240    336,241 
                     
(LOSS) INCOME FROM OPERATIONS   (99,748)   12,778    (150,274)   (111,241)
                     
OTHER (EXPENSE) INCOME:                    
Interest expense on redeemable preferred stock   (750)   (938)   (2,625)   (2,813)
Amortization of debt discount   (400)   (572)   (1,545)   (1,717)
Other income   360    224    360    18,112 
                     
Total other (expense) income, net   (790)   (1,286)   (3,810)   13,582 
                     
(LOSS) INCOME BEFORE INCOME TAXES   (100,538)   11,492    (154,084)   (97,659)
                     
INCOME TAXES   
-
    
-
    
-
    
-
 
NET (LOSS) INCOME  $(100,538)  $11,492   $(154,084)  $(97,659)
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST   3,266    -    3,266    - 
NET (LOSS) INCOME ATTRIBUTABLE TO NUKKLEUS INC. COMMON STOCKHOLDERS  $(103,804)  $11,492   $(157,350)  $(97,659)
COMPREHENSIVE (LOSS) INCOME:                    
NET (LOSS) INCOME  $(100,538)  $11,492   $(154,084)  $(97,659)
OTHER COMPREHENSIVE INCOME                    
Unrealized foreign currency translation gain   121    -    121    - 
COMPREHENSIVE (LOSS) INCOME   (100,417)   11,492    (153,963)   (97,659)
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST   3,302    -    3,302    - 
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NUKKLEUS INC. COMMON STOCKHOLDERS  $(103,719)  $11,492   $(157,265)  $(97,659)
                     
NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO NUKKLEUS INC. COMMON STOCKHOLDERS:                    
Basic  $(0.00)  $0.00   $(0.00)  $(0.00)
Diluted  $(0.00)  $0.00   $(0.00)  $(0.00)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                    
Basic   257,055,897    230,485,100    239,342,032    230,485,100 
Diluted   257,055,897    231,735,100    239,342,032    230,485,100 

 

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   
-
   $
-
    230,485,100   $23,049   $141,057   $(1,558,313)   -    -   $(1,394,207)
                                              
Net loss for the three months ended December 31, 2020   -    
-
    -    
-
    
-
    (53,595)   -    -    (53,595)
                                              
Balance as of December 31, 2020   
-
    
-
    230,485,100    23,049    141,057    (1,611,908)   -    -    (1,447,802)
                                              
Net income for the three months ended March 31, 2021   -    
-
    -    
-
    
-
    49    
-
    
-
    49 
                                              
Balance as of March 31, 2021   
-
    
-
    230,485,100    23,049    141,057    (1,611,859)   
-
    
-
    (1,447,753)
                                              
Common stock issued in connection with acquisition   
-
    
-
    70,000,000    7,000    9,793,000    
-
    
-
    
-
    9,800,000 
                                              
Common stock issued for transaction costs   
-
    
-
    100,000    10    13,990    
-
    
-
    
-
    14,000 
                                              
Common stock issued for redeemable preferred stock conversion and related dividend   
-
    
-
    1,439,271    143    287,711    
-
    
-
    
-
    287,854 
                                              
Non-controlling interest acquired on acquisition   -    
-
    -    
-
    
-
    
-
    
-
    4,200,000    4,200,000 
                                              
Net (loss) income for the three months ended June 30, 2021   -    
-
    -    
-
    
-
    (103,804)   
-
    3,266    (100,538)
                                              
Foreign currency translation adjustment   -    
-
    -    
-
    
-
    
-
    85    36    121 
                                              
Balance as of June 30, 2021   
-
   $
-
    302,024,371   $30,202   $10,235,758   $(1,715,663)  $85   $4,203,302   $12,753,684 

 

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   
-
   $
-
    230,485,100   $23,049   $141,057   $(1,457,751)  $(1,293,645)
                                    
Net loss for the three months ended December 31, 2019   -    
-
    -    
-
    
-
    (45,301)   (45,301)
                                    
Balance as of December 31, 2019   
-
    
-
    230,485,100    23,049    141,057    (1,503,052)   (1,338,946)
                                    
Net loss for the three months ended March 31, 2020   -    
-
    -    
-
    
-
    (63,850)   (63,850)
                                    
Balance as of March 31, 2020   
-
    
-
    230,485,100    23,049    141,057    (1,566,902)   (1,402,796)
                                    
Net income for the three months ended June 30, 2020   -    
-
    -    
-
    
-
    11,492    11,492 
                                    
Balance as of June 30, 2020   
-
   $
-
    230,485,100   $23,049   $141,057   $(1,555,410)  $(1,391,304)

 

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  $(154,084)  $(97,659)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization of debt discount   1,545    1,717 
Amortization of intangible assets   117,145    
-
 
Gain on digital currency   
-
    (18,112)
Bad debt expense   12    
-
 
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in acquisition:          
Accounts receivable   (12,054)   
-
 
Prepaid expense and other current assets   (12,581)   (10,401)
Due from affiliates   1,091,899    (714,563)
Due to affiliates   (770,730)   872,735 
Accounts payable and accrued liabilities   30,252    7,976 
Accrued liabilities - related party   
-
    (10,000)
           
Net cash provided by operating activities   291,404    31,693 
           
CASH FLOW FROM INVESTING ACTIVITIES:          
Cash acquired on asset acquisition   21,371    
-
 
Transaction costs of asset acquisition   (30,673)   
-
 
           
Net cash used in investing activities   (9,302)   
-
 
           
EFFECT OF EXCHANGE RATE ON CASH   (174)   
-
 
           
NET INCREASE IN CASH   281,928    31,693 
           
Cash - beginning of period   82,849    23,514 
           
Cash - end of period  $364,777   $55,207 
           
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  $9,814,000   $
-
 
Common stock issued for redeemable preferred stock conversion and related dividend  $287,854   $
-
 
Cost of asset acquisition in accrued liabilities  $2,098   $
-
 
Investment - digital currency received from affiliates  $
-
   $17,197 
Investment - digital currency transferred to affiliates  $
-
   $203,549 

 

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

 

5

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS

 

Nukkleus Inc. (f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.

 

The Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. The Company primarily provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to Triton Capital Markets Ltd. (“TCM”), formerly known as FXDD Malta Limited (“FXDD Malta”). The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by TCM.

 

Nukkleus Limited, a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a General Services Agreement (“GSA”) to TCM. TCM is a private limited liability company formed under the laws of Malta. The GSA provides that TCM will pay Nukkleus Limited at minimum $1,600,000 per month. Emil Assentato is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato, who is our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chairman, is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of TCM.

 

In addition, in order to appropriately service TCM, Nukkleus Limited entered into a GSA with FXDirectDealer LLC (“FXDIRECT”), which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,575,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. 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.

 

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 $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.

 

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  $345,555    94.7%  $82,675    99.8%
England   19,048    5.2%   -    - 
Malta   174    0.1%   174    0.2%
Total cash  $364,777    100.0%  $82,849    100.0%

 

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.

 

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 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:

 

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  $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 

 

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  $(103,804)  $11,492   $(157,350)  $(97,659)
Weighted average common stock outstanding - basic   257,055,897    230,485,100    239,342,032    230,485,100 
Net (loss) income per common share attributable to Nukkleus Inc.:                    
Basic  $(0.00)  $0.00   $(0.00)  $(0.00)

 

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  $(103,804)  $11,492   $(157,350)  $(97,659)
Add: interest expense for redeemable preferred stock   -    938    -    - 
Subtract: unamortized debt discount for redeemable preferred stock   -    (2,118)   -    - 
Net (loss) income available to Nukkleus Inc. for diluted net (loss) income per share of common stock  $(103,804)  $10,312   $(157,350)  $(97,659)
Weighted average common stock outstanding - basic   257,055,897    230,485,100    239,342,032    230,485,100 
Effect of dilutive securities:                    
Series A preferred stock   -    1,250,000    -    - 
Weighted average common stock outstanding - diluted   257,055,897    231,735,100    239,342,032    230,485,100 
Net (loss) income per common share attributable to Nukkleus Inc.:                    
Diluted  $(0.00)  $0.00   $(0.00)  $(0.00)

 

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.

 

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 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.

 

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 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:

 

   May 28,
2021
 
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 

 

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  10 Years  $14,057,402 
Less: accumulated amortization      (117,145)
      $13,940,257 

 

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:

 

Twelve-month ending June 30:  Amortization amount 
2022  $1,405,740 
2023   1,405,740 
2024   1,405,740 
2025   1,405,740 
2026 and thereafter   8,317,297 
   $13,940,257 

 

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  $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 

 

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.

 

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 $10 per share;

 

2)The holder is entitled to receive cumulative dividends at the annual rate of 1.5% of stated value payable semi-annually on June 30 and December 31;

 

3)The preferred stock must be redeemed at the stated value plus any unpaid dividends in 5 years (on or before June 7, 2021);

 

4)The Series A preferred stock is non-voting. However, without the affirmative vote of the holders of the shares of the Series A preferred stock then outstanding, the Company may not alter or change adversely the powers, preferences or rights given to the Series A preferred stock or alter or amend the Certificate of Designation except to the extent that such vote relates to the amendment of the Certificate of Designation;

 

5)The holders of the Series A preferred stock are not entitled to receive any preference upon the liquidation, dissolution or winding up of the business of the Company. Each holder of Series A preferred stock shall share ratably with the holders of the common stock of the Company.

 

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.

 

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 $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:

 

   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  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
   $4,800,000   $4,800,000   $14,400,000   $14,400,000 

 

During the three and nine months ended June 30, 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  $4,725,000   $4,725,000   $14,175,000   $14,175,000 
   $4,725,000   $4,725,000   $14,175,000   $14,175,000 

 

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 (*)  $144,696   $144,696 
TCM   2,473,177    3,565,076 
Total  $2,617,873   $3,709,772 

 

(*)An entity controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.

 

The balances of due from NUKK Capital represent the Company’s prior investment in digital currency that was transferred to NUKK Capital in March 2019. The balance of due from TCM represent unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.

 

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 (*)  $579,229   $579,229 
FXDIRECT   3,340,547    4,111,277 
CMH   42,000    42,000 
FXDD Trading (*)   471    471 
Total  $3,962,247   $4,732,977 

 

(*)Forexware LLC and FXDD Trading are both controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.

 

The balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, and FXDD Trading on behalf of the Company and advances from CMH. The balance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.

 

The related parties’ payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.

 

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 10% or more of the Company’s revenues for the three and nine months ended June 30, 2021 and 2020.

 

   Three Months Ended June 30,   Nine Months Ended June 30, 
Customer  2021   2020   2021   2020 
A – related party   99.1%   100%   99.7%   100%

 

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   99.4%   100%   99.8%   100%

 

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 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.

 

   Amount 
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 
Foreign currency translation adjustment attributable to non-controlling interest   36 
Non-controlling interest at June 30, 2021  $4,203,302 

 

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  $4,800,000   $4,800,000   $14,400,000   $14,400,000 
Financial services   41,602    -    41,602    - 
Total   4,841,602    4,800,000    14,441,602    14,400,000 
                     
Costs of revenues                    
General support services   4,725,000    4,725,000    14,175,000    14,175,000 
Financial services   27,636    -    27,636    - 
Total   4,752,636    4,725,000    14,202,636    14,175,000 
                     
Gross profit                    
General support services   75,000    75,000    225,000    225,000 
Financial services   13,966    -    13,966    - 
Total   88,966    75,000    238,966    225,000 
                     
Operating expenses                    
Financial services   3,439    -    3,439    - 
Corporate/Other   185,275    62,222    385,801    336,241 
Total   188,714    62,222    389,240    336,241 
                     
Other income (expense)                    
Financial services   360    -    360    - 
Corporate/Other   (1,150)   (1,286)   (4,170)   13,582 
Total   (790)   (1,286)   (3,810)   13,582 
                     
Net income (loss)                    
General support services   75,000    75,000    225,000    225,000 
Financial services   10,887    -    10,887    - 
Corporate/Other   (186,425)   (63,508)   (389,971)   (322,659)
Total   (100,538)   11,492    (154,084)   (97,659)
                     
Amortization                    
Corporate/Other   117,145    -    117,145    - 
Total  $117,145   $-   $117,145   $- 

 

Total assets at June 30, 2021 and September 30, 2020  June 30,
2021
   September 30,
2020
 
Financial services  $76,927   $- 
Corporate/Other   16,923,440    3,799,631 
Total  $17,000,367   $3,799,631 

 

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.

 

22

 

 

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.

 

23

 

 

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.

 

25

 

 

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.

 

26

 

 

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.

 

27

 

 

Item 6. Exhibits

 

Exhibit    
Number   Description
3.1   Certificate of Amendment to the Certificate of Incorporation filed June 3, 2016 (2)
     
3.2   Statement of Designation, Powers, Preferences and Rights of Series A Preferred Stock (2)
     
3.3   Amended and Restated By-laws of Nukkleus Inc. (3)
     
4.1   Securities Purchase Agreement between Nukkleus Inc. and Currency Mountain Holdings Bermuda, Limited dated June 3, 2016 (2)
     
10.1   Purchase and Sale Agreement by and between Nukkleus, Inc. and Michael Stephen Greenacre; Nicholas Aaron Gregory; Jamal Khurshid; Travers David Lee; Azam Shah; Craig Iain Vallis; Bertram Bartholomew Worsley; and Oliver James Worsley dated May 24, 2021 (10)
     
10.2   General Service Agreement between Nukkleus Limited and FML Malta Limited dated May 24, 2016 (4)
     
10.3   General Service Agreement between Nukkleus Limited and FXDirectDealer LLC dated May 24, 2016 (1)
     
10.4   Stock Purchase Agreement dated May 27, 2016 among Nukkleus Inc., IBIH Limited, the shareholders of IBIH Limited and Currency Mountain Holdings LLC (2)
     
10.5   Amendment No. 1 dated June 2, 2016 to the Asset Purchase Agreement by and between Nukkleus Inc., its majority shareholder Charms Investments Ltd., and its wholly-owned subsidiary, Nukkleus Limited and Currency Mountain Holdings Bermuda, Limited (2)
     
10.6      Amendment No. 1 dated June 3, 2016 to the General Service Agreement between Nukkleus Limited and FXDD Trading Limited (2)
     
10.7   Letter Agreement between Nukkleus Inc. and IBIH Limited dated June 3, 2016 (2)
     
10.8   Director Agreement by and between Nukkleus Inc. and Craig Marshak dated August 1, 2016 (3)
     
10.9   Amendment dated October 17, 2017 of that certain General Service Agreement between Nukkleus Limited and FML Malta Limited (5)
     
10.10   Amendment dated October 17, 2017 of that certain General Service Agreement between Nukkleus Limited and FXDirectDealer LLC (5)
     
10.11   Settlement Agreement and Mutual Release between Nukkleus Inc., IBIH Limited, Terra (FX) Offshore Limited, Ludico Investments Limited, Currency Mountain Holdings LLC and the IBIH Shareholders dated November 17, 2017 (6)

 

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 

 

 

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EX-31.1 2 f10q0621ex31-1_nukkleusinc.htm CERTIFICATION

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)

EX-32.1 3 f10q0621ex32-1_nukkleusinc.htm CERTIFICATION

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)

 

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