UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2024

 

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: 001-39341

 

Nukkleus Inc.

(Exact name of registrant as specified in its charter)

 

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

 

525 Washington Boulevard, Jersey City, New Jersey 07310

(Address of principal executive offices, including zip code)

 

212-791-4663

(Registrant’s telephone number, including area code)

 

Brilliant Acquisition Corporation

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 par value per share   NUKK   The Nasdaq Stock Market LLC
         
Warrants, each warrant exercisable for one Share of Common Stock for $11.50 per share   NUKKW   The Nasdaq Stock Market LLC

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Class   Outstanding August 27, 2024
Common Stock, $0.0001 par value per share   16,791,964 shares

 

 

 

 

 

 

NUKKLEUS INC.

FORM 10-Q

June 30, 2024

 

TABLE OF CONTENTS

 

      Page No.
PART I - FINANCIAL INFORMATION    
Item 1.   Interim Financial Statements    
    Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and September 30, 2023   1
    Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended June 30, 2024 and 2023   2
    Unaudited Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the Three and Nine Months Ended June 30, 2024 and 2023   3
    Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2024 and 2023   5
    Notes to Unaudited Condensed Consolidated Financial Statements   6
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   31
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   41
Item 4.   Controls and Procedures   41
Item 5.   Other   41
         
PART II - OTHER INFORMATION    
Item 1.   Legal Proceedings   42
Item 1A.   Risk Factors   42
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   42
Item 3.   Defaults Upon Senior Securities   42
Item 4.   Mine Safety Disclosures   42
Item 5.   Other Information   42
Item 6.   Exhibits   43
Signatures   44

 

i

 

 

FORWARD LOOKING STATEMENTS

 

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

 

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

 

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

 

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

 

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

 

ii

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Interim Financial Statements.

 

NUKKLEUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   September 30, 
   2024   2023 
   (Unaudited)     
ASSETS        
CURRENT ASSETS:        
Cash  $6,138   $19,318 
Customer custodial cash   532,634    672,501 
Customer digital currency assets   7,635    
-
 
Digital assets   5,906    1,973 
Due from affiliates   18,503    2,039,274 
Note receivable - related parties, net   
-
    162,820 
Other current assets   135,631    32,522 
TOTAL CURRENT ASSETS   706,447    2,928,408 
           
NON-CURRENT ASSETS:          
Cost method investment   391,217    391,217 
Intangible assets, net   22,461    33,000 
TOTAL NON-CURRENT ASSETS   413,678    424,217 
           
TOTAL ASSETS  $1,120,125   $3,352,625 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES:          
Accounts payable  $343,542   $138,666 
Customer custodial cash liabilities   882,578    1,443,011 
Customer digital currency liabilities   7,635    
-
 
Convertible promissory note payable, net   29,514    - 
Promissory note payable, net   43,997    
-
 
Due to affiliates   7,944,189    6,808,749 
Loan payable - related parties   681,059    
-
 
Accrued payroll liability and directors’ compensation   551,870    402,241 
Accrued professional fees   1,445,431    160,926 
Accrued liabilities and other payables   197,307    169,872 
TOTAL CURRENT LIABILITIES   12,127,122    9,123,465 
           
NON-CURRENT LIABILITIES:          
Loan payable - related parties   1,192,500    420,619 
Interest payable - related parties   30,633    1,771 
TOTAL NON-CURRENT LIABILITIES   1,223,133    422,390 
           
TOTAL LIABILITIES   13,350,255    9,545,855 
           
COMMITMENTS AND CONTINGENCIES - (Note 14)   
 
    
 
 
           
STOCKHOLDERS’ DEFICIT:          
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at June 30, 2024 and September 30, 2023)   
-
    
-
 
Common stock ($0.0001 par value; 40,000,000 shares authorized; 14,802,414 and 10,074,657 shares issued and outstanding at June 30, 2024 and September 30, 2023, respectively)   1,480    1,007 
Additional paid-in capital   36,764,869    25,543,048 
Accumulated deficit   (48,986,099)   (31,769,244)
Accumulated other comprehensive (loss) income   (10,380)   31,959 
TOTAL STOCKHOLDERS’ DEFICIT   (12,230,130)   (6,193,230)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $1,120,125   $3,352,625 

 

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

 

1

 

 

NUKKLEUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

   For the Three Months Ended   For the Nine Months Ended 
   June 30,   June 30, 
   2024   2023   2024   2023 
REVENUES                
Revenue - general support services - related party  $
-
   $4,800,000   $4,800,000   $14,400,000 
Revenue - financial services   175,214    412,056    877,362    1,822,388 
Total revenues   175,214    5,212,056    5,677,362    16,222,388 
                     
COSTS OF REVENUES                    
 Cost of revenue - general support services - related party   
-
    4,675,000    4,650,000    14,125,000 
 Cost of revenue - financial services   49,738    695,074    246,625    2,162,317 
Total costs of revenues   49,738    5,370,074    4,896,625    16,287,317 
                     
GROSS PROFIT                    
Gross profit - general support services - related party   
-
    125,000    150,000    275,000 
Gross profit (loss) - financial services   125,476    (283,018)   630,737    (339,929)
Total gross profit   125,476    (158,018)   780,737    (64,929)
                     
OPERATING EXPENSES:                    
Advertising and marketing   2,355    1,670    43,941    51,087 
Professional fees   1,109,315    571,761    6,009,832    1,815,200 
Compensation and related benefits   219,589    233,569    743,273    591,361 
Bad debt expense   
-
    
-
    6,145,942    
-
 
Other general and administrative   185,864    247,783    596,474    633,083 
                     
Total operating expenses   1,517,123    1,054,783    13,539,462    3,090,731 
                     
LOSS FROM OPERATIONS   (1,391,647)   (1,212,801)   (12,758,725)   (3,155,660)
                     
OTHER (EXPENSE) INCOME:                    
Interest expense - amortization of debt discount   (36,315)   
-
    (36,315)   
-
 
Interest expense - other   (3,392)   
-
    (3,392)   
-
 
Interest expense - related parties   (23,901)   
-
    (41,671)   
-
 
Loss on debts settlement   (176,399)   
-
    (176,399)   
-
 
Other income   15,413    3,057    42,749    6,345 
                     
Total other (expense) income, net   (224,594)   3,057    (215,028)   6,345 
                     
LOSS BEFORE INCOME TAXES   (1,616,241)   (1,209,744)   (12,973,753)   (3,149,315)
                     
INCOME TAXES   
-
    
-
    
-
    
-
 
                     
NET LOSS  $(1,616,241)  $(1,209,744)  $(12,973,753)  $(3,149,315)
                     
COMPREHENSIVE LOSS:                    
NET LOSS  $(1,616,241)  $(1,209,744)  $(12,973,753)  $(3,149,315)
OTHER COMPREHENSIVE LOSS                    
Unrealized foreign currency translation loss   (5,608)   (20,859)   (42,339)   (51,563)
COMPREHENSIVE LOSS  $(1,621,849)  $(1,230,603)  $(13,016,092)  $(3,200,878)
                     
NET LOSS PER COMMON SHARE:                    
Basic and diluted
  $(0.11)  $(0.12)  $(1.00)  $(0.31)
                     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                    
Basic and diluted
   14,340,876    10,074,657    12,971,216    10,074,657 

 

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

 

2

 

 

NUKKLEUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Three and Nine Months Ended June 30, 2024

(Unaudited)

 

    Preferred Stock     Common Stock     Additional           Accumulated Other     Total  
    Number of           Number of           Paid-in     Accumulated     Comprehensive     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Income (Loss)     Deficit  
                                                 
Balance as of October 1, 2023     -     $ -       10,074,657     $ 1,007     $ 25,543,048     $ (31,769,244 )   $ 31,959     $ (6,193,230 )
                                                                 
Issuance of common stock for services     -       -       425,295       43       2,015,558       -       -       2,015,601  
                                                                 
Conversion of related party debts into common stock     -       -       827,807       83       7,240,643       (4,243,102 )     -       2,997,624  
                                                                 
Issuance of common stock in connection with reverse recapitalization     -       -       2,571,953       257       149,904       -       -       150,161  
                                                                 
Stock-based compensation     -       -       -       -       74,667       -       -       74,667  
                                                                 
Net loss for the three months ended December 31, 2023     -       -       -       -       -       (8,928,095 )     -       (8,928,095 )
                                                                 
Foreign currency translation adjustment     -       -       -       -       -       -       (63,313 )     (63,313 )
                                                                 
Balance as of December 31, 2023     -       -       13,899,712       1,390       35,023,820       (44,940,441 )     (31,354 )     (9,946,585 )
                                                                 
Issuance of common stock for services     -       -       202,702       20       749,980       -       -       750,000  
                                                                 
Stock-based compensation     -       -       -       -       74,668       -       -       74,668  
                                                                 
Net loss for the three months ended March 31, 2024     -       -       -       -       -       (2,429,417 )     -       (2,429,417 )
                                                                 
Foreign currency translation adjustment     -       -       -       -       -       -       26,582       26,582  
                                                                 
Balance as of March 31, 2024     -       -       14,102,414       1,410       35,848,468       (47,369,858 )     (4,772 )     (11,524,752 )
                                                                 
Allocated value of warrants related to issuance of convertible debt     -       -       -       -       237,509       -       -       237,509  
                                                                 
Beneficial conversion feature related to convertible debt     -      
-
       -      
-
       62,491      
-
      
-
       62,491  
                                                                 
Allocated value of warrants related to debt issuance     -       -       -       -       40,804       -       -       40,804  
                                                                 
Issuance of common stock for debts settlement     -       -       700,000       70       500,930       -       -       501,000  
                                                                 
Stock-based compensation     -       -       -       -       74,667       -       -       74,667  
                                                                 
Net loss for the three months ended June 30, 2024     -       -       -       -       -       (1,616,241 )     -       (1,616,241 )
                                                                 
Foreign currency translation adjustment     -       -       -       -       -       -       (5,608 )     (5,608 )
                                                                 
Balance as of June 30, 2024                -     $            -       14,802,414     $ 1,480     $ 36,764,869     $ (48,986,099 )   $ (10,380 )   $ (12,230,130 )

 

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

 

3

 

 

NUKKLEUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended June 30, 2023

(Unaudited)

 

    Preferred Stock     Common Stock     Additional           Accumulated Other     Total  
    Number of           Number of           Paid-in     Accumulated     Comprehensive     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Income     Equity  
                                                 
Balance as of October 1, 2022     -     $ -       10,074,657     $ 1,007     $ 25,172,170     $ (14,340,816 )   $ 58,219     $ 10,890,580  
                                                                 
Stock-based compensation     -       -       -       -       146,876       -       -       146,876  
                                                                 
Net loss for the three months ended December 31, 2022     -       -       -       -       -       (1,133,922 )     -       (1,133,922 )
                                                                 
Foreign currency translation adjustment     -       -       -       -       -       -       (27,983 )     (27,983 )
                                                                 
Balance as of December 31, 2022     -       -       10,074,657       1,007       25,319,046       (15,474,738 )     30,236       9,875,551  
                                                                 
Stock-based compensation     -       -       -       -       74,667       -       -       74,667  
                                                                 
Net loss for the three months ended March 31, 2023     -       -       -       -       -       (805,649 )     -       (805,649 )
                                                                 
Foreign currency translation adjustment     -       -       -       -       -       -       (2,721 )     (2,721 )
                                                                 
Balance as of March 31, 2023     -       -       10,074,657       1,007       25,393,713       (16,280,387 )     27,515       9,141,848  
                                                                 
Stock-based compensation     -       -       -       -       74,667       -       -       74,667  
                                                                 
Net loss for the three months ended June 30, 2023     -       -       -       -       -       (1,209,744 )     -       (1,209,744 )
                                                                 
Foreign currency translation adjustment     -       -       -       -       -       -       (20,859 )     (20,859 )
                                                                 
Balance as of June 30, 2023                -     $            -       10,074,657     $ 1,007     $ 25,468,380     $ (17,490,131 )   $ 6,656     $ 7,985,912  

 

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

 

4

 

 

NUKKLEUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Nine Months Ended 
   June 30, 
   2024   2023 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(12,973,753)  $(3,149,315)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt discount   36,315    
-
 
Amortization of intangible assets   10,364    1,778,675 
Stock-based compensation and service expense   2,989,603    296,210 
Loss on debts settlement   176,399      
Provision for bad debt   6,145,942    
-
 
Bad debt recovery   (4,942)   
-
 
Unrealized foreign currency exchange gain   (2,895)   (441)
Impairment of digital assets   
-
    7,865 
Changes in operating assets and liabilities:          
Customer digital currency assets   (7,586)   270,421 
Accounts receivable   (1,886)   (298)
Digital assets   (3,835)   71,062 
Due from affiliates   (4,128,855)   648,073 
Other current assets   (103,236)   (34,864)
Accounts payable   198,421    45,496 
Customer custodial cash liabilities   (610,352)   (576,514)
Customer digital currency liabilities   7,586    (270,421)
Due to affiliates   3,845,945    506,149 
Accrued payroll liability and directors’ compensation   147,906    126,450 
Accrued professional fees   1,609,098    (111,362)
Accrued liabilities and other payables   50,644    (233,902)
           
NET CASH USED IN OPERATING ACTIVITIES   (2,619,117)   (626,716)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Investment in note receivable   
-
    (154,150)
Purchase of intangible asset   
-
    (41,706)
Proceeds from note receivable – related parties   131,740    
-
 
           
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   131,740    (195,856)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Cash received in reverse recapitalization   150,161    
-
 
Proceeds from loan payable   50,000    
-
 
Repayments of loan payable   (50,000)   
-
 
Proceeds from loan payable - related parties   1,901,629    
-
 
Repayments of loan payable - related parties   (132,967)   
-
 
Proceeds from issuance of convertible debt and warrants   300,000    
-
 
Proceeds from issuance of debt and warrants   78,000    
-
 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   2,296,823    
-
 
           
EFFECT OF EXCHANGE RATE ON CASH   37,507    292,591 
           
NET DECREASE IN CASH   (153,047)   (529,981)
            
Cash - beginning of period   691,819    2,384,417 
           
Cash - end of period  $538,772   $1,854,436 
           
Cash consisted of the following:          
Cash  $6,138   $142,341 
Customer custodial cash   532,634    1,712,095 
Total cash  $538,772   $1,854,436 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid for:          
Interest  $1,425   $
-
 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Conversion of related party debts into common stock  $2,997,624   $
-
 
Allocated value of warrants and beneficial conversion features related to convertible debt  $300,000   $
-
 
Original Issuance Discount  $75,000   $
-
 
Allocated value of warrants related to debt  $40,804   $
-
 
Related party’s note receivable exchange for loan payable  $37,668   $
-
 
Accrued liabilities settled in shares  $324,601   $
-
 

 

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

 

5

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS

 

Nukkleus Inc. (formerly known as, Brilliant Acquisition Corporation) (“Nukkleus”) was formed on May 24, 2019. Nukkleus was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination with one or more businesses or entities. On June 23, 2023, Brilliant Acquisition Corporation, a British Virgin Islands company (prior to the Merger “Brilliant”, and following the Merger, a Delaware corporation “Nukkleus”), entered into an Amended and Restated Agreement and Plan of Merger (as amended by the First Amendment to the Amended and Restated Agreement and Plan of Merger on November 1, 2023, the “Merger Agreement”), by and among Brilliant BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), and Nukkleus Inc., a Delaware corporation (“Old Nukk” or the “Company”). Old Nukk (f/k/a Compliance & Risk Management Solutions Inc.) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.

 

The Merger Agreement provides that, among other things, at the closing (the “Closing”) of the transactions contemplated by the Merger Agreement, Merger Sub merged with and into Old Nukk (the “Merger”), with Old Nukk surviving as a wholly-owned subsidiary of Brilliant. In connection with the Merger, Brilliant changed its name to “Nukkleus Inc.” (“Nukkleus” or “Combined Company”). The Merger and other transactions contemplated by the Merger Agreement are hereinafter referred to as the “Business Combination.” The Business Combination was completed on December 22, 2023 (“Closing Date”). The accompanying financial statements are those of Old Nukk, as adjusted for the reverse recapitalization, as described in Note 2.

 

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

 

Nukkleus Limited, a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a General Services Agreement (“GSA”) to TCM. TCM is a private limited liability company formed under the laws of Malta. The GSA provides that TCM will pay Nukkleus Limited at minimum $1,600,000 per month. Due to non-payment by TCM under the GSA, the Company has advised TCM that the GSA has been terminated effective January 1, 2024. Emil Assentato is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato, who is the Company’s Former Chief Executive Officer (“CEO”) and chairman, is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of TCM.

 

In addition, in order to appropriately service TCM, Nukkleus Limited entered into a GSA with FXDirectDealer LLC (“FXDIRECT”), which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,575,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. Effective May 1, 2023, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. Currency Mountain Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.

 

In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated Markets Direct Technology Group Ltd (“MDTG”), formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer pursue the regulatory licensing necessary to operate an exchange in Malta.

 

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

 

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

 

In order to expand Match’s business into the Federal Republic of Nigeria, on June 28, 2024, Match acquired 255,000,000 ordinary shares of Match Financial Nigeria Limited (“Nigeria”) representing 51% of the issued and outstanding ordinary shares of Nigeria at no cost. Nigeria is a private limited company formed in the Federal Republic of Nigeria. There was no activity for Nigeria since its incorporation through June 30, 2024.

 

6

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 548,767 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin exchange-traded fund (“ETF”). Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s former chief executive officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.

 

On December 30, 2021, Old Nukk and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which Old Nukk acquired 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of shares of common stock, which following the Merger represented 415,733 shares of common stock of the Company (valued at $5,000,000 based on the market price of Old Nukk’s common stock on the acquisition date) (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. In addition, upon the closing of the Merger, the Company agreed to provide an additional $1 million in investment to Digiclear in exchange for 4.545% of additional shares of Digiclear’s capital stock subject to the parties entering a definitive agreement. The Company and Digiclear have not entered into an additional agreement outlining the terms pursuant to which the Company would acquire the additional shares of Digiclear. Digiclear is a company developing a custody and settlement utility operating system.

 

Liquidity and capital resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2024 and September 30, 2023, the Company had cash of approximately $6,000 and $19,000, respectively, exclusive of customer custodial cash.

 

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company had a working capital deficit of approximately $11,421,000 at June 30, 2024 and incurred a net loss and generated negative cash flow from operating activities of approximately $12,974,000 and $2,619,000 for the nine months ended June 30, 2024, respectively. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions, if any.

 

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

Reverse recapitalization

 

Pursuant to the Merger Agreement, the merger between Brilliant and Old Nukk was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (the “Reverse Recapitalization”). Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Old Nukk issuing stock for the net assets of Brilliant, accompanied by a recapitalization. The net assets of Brilliant are stated at historical cost, with no goodwill or other intangible assets recorded.

 

7

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION (continued)

 

Reverse recapitalization (continued)

 

Old Nukk was determined to be the accounting acquirer based on the following predominant factors:

 

  ● Old Nukk’s existing stockholders have the greatest voting interest in the Combined Company;

 

  ● Old Nukk controls the majority of the board of directors of the Combined Company and, given the board of directors election and retention provisions, Old Nukk holds the ability to maintain control of the board of directors on a go-forward basis; and

 

  ● Old Nukk’s senior management is the senior management of the Combined Company.

 

The condensed consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Old Nukk. The shares and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.

 

Principals of consolidation

 

These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

 

The Company’s condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 filed with the Securities and Exchange Commission on July 12, 2024. The consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023, but does not include all disclosures required by U.S. GAAP.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and nine months ended June 30, 2024 and 2023 include the allowance for doubtful accounts, the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, the fair value of customer digital currency assets and liabilities, and assumptions used to determine fair value of warrants, beneficial conversion feature and embedded conversion features of convertible note payable.

 

8

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Cash and cash equivalents

 

As of June 30, 2024 and September 30, 2023, the Company’s cash balances by geographic area were as follows:

 

Country:  June 30, 2024   September 30, 2023 
United States  $1,773    28.9%  $7,675    39.7%
United Kingdom   4,087    66.6%   11,469    59.4%
Republic of Lithuania   104    1.7%   
-
    
-
 
Malta   174    2.8%   174    0.9%
Total cash  $6,138    100.0%  $19,318    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, 2024 and September 30, 2023. Cash and cash equivalents excludes customer legal tender, which is reported separately as customer custodial cash in the accompanying condensed consolidated balance sheets. Refer to “customer custodial cash and customer custodial cash liabilities” below for further details.

 

Customer custodial cash and customer custodial cash liabilities

 

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

 

Customer digital currency assets and liabilities

 

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

 

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

 

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

 

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

 

9

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair value of financial instruments and fair value measurements

  

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

  ● Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

  ● Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

  ● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

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

 

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

 

The following table provides these assets and liabilities carried at fair value, measured as of June 30, 2024:

 

   Quoted
Price in		   Significant Other   Significant    
   Active
Markets		   Observable
Inputs		   Unobservable
Inputs		   Balance at
June 30,		 
   (Level 1)   (Level 2)   (Level 3)   2024 
Customer digital currency assets  $
  -
   $7,635   $
    -
   $7,635 
Customer digital currency liabilities  $
-
   $7,635   $
-
   $7,635 

 

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

 

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

 

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

 

Digital assets

 

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

 

10

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Credit risk and uncertainties

 

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.

 

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.

 

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances, including customer custodial cash, in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company may also hold cash at digital asset trading platforms and performs a regular assessment of these digital asset trading platforms as part of its risk management process. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2024, there were no balances in excess of the federally-insured limits.

 

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

 

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

 

Note receivable – related parties

 

Note receivable – related parties is presented net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors, including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend. Note receivable is written off after exhaustive efforts at collection. During the nine months ended June 30, 2024, accounts with the amount of approximately $657,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-offs of note receivable – related parties against the allowance for doubtful accounts only impact the balance sheet accounts. At June 30, 2024 and September 30, 2023, the Company has established, based on a review of its outstanding balances, an allowance for doubtful account in the amounts of $0 and $637,072, respectively, for its note receivable – related parties.

 

11

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Other current assets

 

Other current assets primarily consist of prepaid directors and officers’ liability insurance premium, prepaid NASDAQ listing fee, security deposit, and accounts receivable. As of June 30, 2024 and September 30, 2023, other current assets amounted to $135,631 and $32,522, respectively.

 

Variable interest entity (“VIE”)

 

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE.

 

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then the Company consolidates the VIE.

 

The Company analyzes its investment in Jacobi to determine whether it is a VIE and, if so, whether the Company is the primary beneficiary in accordance with ASC 810 Consolidation. The Company determines Jacobi is a VIE since it has insufficient equity to permit it to finance its activities without additional subordinated financial support. In determining whether it is the primary beneficiary, the Company considers whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also considers whether it has the obligation to absorb losses of, or the right to receive benefits from, the VIE. The Company is not the primary beneficiary of Jacobi as it does not have the power to direct the activities that most significantly impact the economic performance of Jacobi, due to Jacobi’ management and board of directors’ structure. As a result, the variable interest entity is not consolidated. Creditors of the Company’s variable interest entity do not have recourse against the general credit of the Company. The Company uses the cost method to account for its investment in Jacobi in which the Company is not deemed to be the primary beneficiary.

 

The Company’s investment in unconsolidated variable interest entity is classified as cost method investment in the condensed consolidated balance sheets. The Company’s assets and liabilities with the variable interest entity are classified as due from/to affiliates.

 

As of June 30, 2024 and September 30, 2023, the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:

 

   June 30,
2024		   September 30,
2023		 
Cost method investment  $391,217   $391,217 
Due from affiliates   
-
    95,274 
Total VIE assets  $391,217   $486,491 
Maximum exposure to loss  $391,217   $486,491 

 

Intangible assets

 

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

 

12

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue recognition

 

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

 

  ● Step 1: Identify the contract with the customer

 

  ● Step 2: Identify the performance obligations in the contract

 

  ● Step 3: Determine the transaction price

 

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

 

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

 

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

 

  ● General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA (including operational reporting and technical support infrastructure, website hosting and marketing solutions, accounting maintenance, risk monitoring services, new account processing and customer care and continued support) and these performance obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under the terms of the GSA. The Company recognizes the full contracted amount each period with no deferred revenue. The nature of the performance obligation is to provide the specified goods or services directly to the customer. The Company engages another party to satisfy the performance obligation on its behalf. The Company’s performance obligation is not to arrange for the provision of the specified good or service by another party. The Company is primarily responsible for fulfilling the promise to provide the specified good or service. Therefore, the Company is deemed to be a principal in the transaction and recognizes revenue for that performance obligation. The Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. Under a GSA, the Company is contractually obligated to provide for the fulfillment software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company’s approximately 2% mark-up to the costs of the services being provided by FXDirect Dealer, LLC.

 

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

 

13

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Disaggregation of revenues

 

The Company’s revenues stream detail are as follows:

 

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

 

In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2024 and 2023:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Revenue Stream  2024   2023   2024   2023 
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total revenues  $175,214   $5,212,056   $5,677,362   $16,222,388 

 

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended June 30, 2024 and 2023 as there was no impairment indicator noted.

 

Beneficial conversion features and warrants

 

The Company evaluates the conversion feature of convertible debt instruments to determine whether the conversion feature was beneficial as described in ASC 470-30, Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants with the convertible instruments using the Black-Scholes valuation model.

 

Under these guidelines, the Company first allocates the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable instruments included in the transaction (such as warrants) on a relative fair value basis. A BCF is then measured as the intrinsic value of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible. The allocated value of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument.

 

Advertising and marketing costs

 

All costs related to advertising and marketing are expensed as incurred. For the three months ended June 30, 2024 and 2023, advertising and marketing costs amounted to $2,355 and $1,670, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2024 and 2023, advertising and marketing costs amounted to $43,941 and $51,087, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

14

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income taxes

 

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

 

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

 

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

 

Foreign currency translation

 

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

 

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

 

Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.7904 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.9329 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 1.3694 CAD and 1.3591 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.7955 GBP and 0.8249 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.9261 EUR and 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and for the period from February 18, 2023 through June 30, 2023 was 1.3597 CAD and 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

 

Comprehensive loss

 

Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2024 and 2023 consisted of net loss and unrealized loss from foreign currency translation adjustment.

 

15

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Stock-based compensation

 

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

 

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

 

Segment reporting

 

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

 

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

 

Per share data

 

ASC Topic 260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

 

Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three and nine months ended June 30, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.

 

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

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Options to purchase common stock   124,286    124,286    124,286    167,143 
Warrants to purchase common stock   8,017,279    
-
    8,017,279    
-
 
Potentially dilutive security   8,141,565    124,286    8,141,565    167,143 

 

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.

 

16

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Merger

 

Old Nukk completed a Business Combination with Brilliant on December 22, 2023. All references in these condensed consolidated financial statements to shares and corresponding capital amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.

 

Recently issued accounting pronouncements

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

 

NOTE 4 – CUSTOMER ASSETS AND LIABILITIES

 

The Company includes customer funds in the condensed consolidated balance sheets as customer custodial cash and includes these cash deposits to be utilized for its contractual obligations to its customers as customer custodial cash liabilities in the condensed consolidated balance sheets. The following table presents customers’ cash and digital positions:

 

   June 30,
2024		   September 30,
2023		 
Customer custodial cash  $532,634   $672,501 
Customer digital currency assets   7,635    
-
 
Total customer assets  $540,269   $672,501 
           
Customer custodial cash liabilities  $882,578   $1,443,011 
Customer digital currency liabilities   7,635    
-
 
Total customer liabilities  $890,213   $1,443,011 

 

The Company controls digital assets for its customers in digital wallets and digital token identifiers necessary to access digital assets on digital asset trading platforms. The Company maintains a record of all assets in digital wallets held on digital asset trading platforms as well as the private keys, which are maintained on behalf of customers. The Company records the assets and liabilities, on the initial recognition and at each reporting date, at the fair value of the digital assets which it controls for its customers. Any loss or theft would impact the measurement of the customer digital currency assets. During the three and nine months ended June 30, 2024 and 2023, no losses have been incurred in connection with customer digital currency assets. The Company also controls the bank accounts holding the customer custodial cash, as reflected on the accompanying condensed consolidated balance sheets.

 

17

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 – CUSTOMER ASSETS AND LIABILITIES (continued)

 

The following table sets forth the fair market value of customer digital currency assets, as shown in the condensed consolidated balance sheets, as customer digital currency assets and customer digital currency liabilities, as of June 30, 2024 and September 30, 2023:

 

   June 30, 2024   September 30, 2023 
   Fair Value   Percentage of Total   Fair Value   Percentage of Total 
Stablecoin/USD Coin  $6,066    79.4%  $
-
    
-
 
Ethereum   1,569    20.6%   
-
    
-
 
Total customer digital currency assets  $7,635    100.0%  $
-
    
-
 

 

NOTE 5 – DIGITAL ASSETS

 

The following table summarizes the Company’s digital asset holdings as of June 30, 2024:

 

Asset  Estimated Useful Life  Cost   Impairment   Digital Assets 
Bitcoin  Indefinite  $1,523   $
        -
   $1,523 
Ethereum  Indefinite   732    
-
    732 
Stablecoin/USD Coin  Indefinite   3,024    
-
    3,024 
Other  Indefinite   627    
-
    627 
Total     $5,906   $
-
   $5,906 

 

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

 

Asset  Estimated Useful Life  Cost   Impairment   Digital Assets 
Bitcoin  Indefinite  $894   $
       -
   $894 
Ethereum  Indefinite   709    
-
    709 
Stablecoin/USD Coin  Indefinite   284    
-
    284 
Other  Indefinite   86    
-
    86 
Total     $1,973   $
-
   $1,973 

 

The Company recorded impairment expense of $0 and $122 for the three months ended June 30, 2024 and 2023, respectively, which was included in other general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

The Company recorded impairment expense of $0 and $7,865 for the nine months ended June 30, 2024 and 2023, respectively, which was included in other general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

NOTE 6 – LOAN PAYABLE

 

In November 2023, the Company entered into a loan agreement with a third party. Pursuant to the loan agreement, the Company borrowed $50,000 from the third party. The loan bore a fixed interest rate of 0% per annum and was payable on demand.

 

In January 2024, this loan was repaid in full.

 

18

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 - CONVERTIBLE PROMISSORY NOTE PAYABLE, NET

 

June 11, 2024 convertible promissory note payable

 

On June 11, 2024 (the “Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “Note”) in the principal amount of $312,500 to X Group Fund of Funds (“X Group”), in consideration of cash proceeds in the amount of $250,000 after an original issue discount of $62,500. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. In addition, the Company issued X Group a Stock Purchase Warrant (“Warrant”) to acquire 1,200,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. X Group shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25.

 

The Company and X Group also entered into a Restructuring Agreement providing that, among other items, X Group, in its sole discretion, will have the right for a period for six months from the Effective Date (the “Investment Period”), to lend the Company an additional $500,000 in consideration of a convertible promissory note that will have a term of two years, bear interest at 12% and will convert into shares of common stock at a per share price of $0.25.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued to X Group are classified as equity in additional paid-in capital.

 

In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.

 

The fair values of the warrants issued to the investor were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 182.23%, risk-free rate of 4.41%, annual dividend yield of 0% and expected life of 5 years.

 

The Company recorded a beneficial conversion feature of $12,491 based on the intrinsic value of the conversion option at June 11, 2024.

 

Therefore, the Company recorded a total debt discount of $312,500 related to the original issue discount, warrants issued to X Group, and beneficial conversion feature, which will be amortized over the term of the Note.

 

June 17, 2024 and June 18, 2024 convertible promissory note payable

 

On June 17, 2024, the Company issued an additional Note in the principal amount of $31,250 to X Group, in consideration of cash proceeds in the amount of $25,000 after an original issue discount of $6,250. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. X Group shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25. The Company recorded a beneficial conversion feature of $25,000 based on the intrinsic value of the conversion option at June 17, 2024.

 

On June 18, 2024, the Company issued an additional Note in the principal amount of $31,250 to X Group, in consideration of cash proceeds in the amount of $25,000 after an original issue discount of $6,250. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. X Group shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25. The Company recorded a beneficial conversion feature of $25,000 based on the intrinsic value of the conversion option at June 18, 2024.

 

Therefore, the Company recorded a total debt discount of $62,500 related to the original issue discounts and beneficial conversion features, which will be amortized over the term of the Note.

 

For the three and nine months ended June 30, 2024, amortization of debt discount and interest expense related to the Note amounted to $29,514 and $2,332, respectively, which have been included in interest expense — amortization of debt discount and interest expense — other on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

19

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 - CONVERTIBLE PROMISSORY NOTE PAYABLE, NET (continued)

 

At June 30, 2024, convertible promissory note payable consisted of the following:

 

   June 30,
2024		 
Principal amount  $375,000 
Less: unamortized debt discount   (345,486)
Convertible promissory note payable, net  $29,514 

 

NOTE 8 - PROMISSORY NOTE PAYABLE, NET

 

On April 30, 2024, the Company issued a promissory note (“April 2024 Loan”) in the principal amount of $78,000 to an investor in consideration of cash proceeds in the amount of $78,000. In addition to the April 2024 Loan, the investor also received a Stock Purchase Warrant (“April 2024 Warrant”) to acquire 116,279 shares of common stock. The April 2024 Warrant is exercisable for three years at an exercise price of $0.86. The April 2024 Loan bears interest of 8.0% per annum and is due and payable on April 30, 2025.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued to the investor are classified as equity in additional paid in-capital.

 

In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.

 

The fair values of the warrants issued to the investor were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 174.03%, risk-free rate of 4.87%, annual dividend yield of 0% and expected life of 3 years.

 

The warrants issued to the investor to purchase 116,279 shares of the Company’s common stock were treated as a discount on the promissory note payable and were valued at $40,804 and will be amortized over the term of the April 2024 Loan.

 

For the three and nine months ended June 30, 2024, amortization of debt discount and interest expense related to the April 2024 Loan amounted to $6,801 and $1,060, respectively, which have been included in interest expense — amortization of debt discount and interest expense — other on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

At June 30, 2024, promissory note payable consisted of the following:

 

   June 30,
2024		 
Principal amount  $78,000 
Less: unamortized debt discount   (34,003)
Promissory note payable, net  $43,997 

 

NOTE 9 – ACCRUED LIABILITIES AND OTHER PAYABLES

 

At June 30, 2024 and September 30, 2023, accrued liabilities and other payables consisted of the following:

 

   June 30,
2024		   September 30,
2023		 
Unearned revenue  $157,276   $151,617 
Interest payable   3,392    
-
 
Interest payable – related parties   10,942    
-
 
Others   25,697    18,255 
Total  $197,307   $169,872 

 

20

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – SHARE CAPITAL

 

Common shares issued for services

 

During the nine months ended June 30, 2024, the Company issued a total of 627,997 shares of its common stock for services rendered. These shares were valued at $2,765,601, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $2,765,601 for the nine months ended June 30, 2024.

 

Common shares issued for related party debts conversion

 

On December 19, 2023, the Company and FXDIRECT, a related party, entered into a Debt Conversion Agreement pursuant to which the outstanding amount of $2,727,061 was converted into 757,678 shares of common stock of the Company. The fair market value of the shares issued exceeded the total amount of the debt converted of $2,727,061 by $3,900,255 which was treated as a distribution transaction due to FXDIRECT’s relationship with the Company.

 

On December 19, 2023, the Company and Emil Assentato, the Company’s former chief executive officer and chairman, entered into a Debt Conversion Agreement pursuant to which the outstanding principal amount of $270,000 and unpaid interest of $563 were converted into 70,129 shares of common stock of the Company (see Note 11 - Loan payable – related parties and interest payable – related parties). The fair market value of the shares issued exceeded the total amount of the debt converted of $270,563 by $342,847 which was treated as a distribution transaction due to Mr. Assentato’s relationship with the Company.

 

Common shares issued pursuant to Settlement Agreement and Stipulation

 

On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (“Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, on May 31, 2024, the Company settled $324,601 debt owed by issuance of the Company’s 660,000 shares of common stock. The 660,000 shares issued had a fair value of $463,716, of which, $324,601 was recorded as a reduction of accrued liabilities and $139,115 of the excess fair value was recorded as loss on debts settlement.

 

Pursuant to the Settlement Agreement, the Company issued 40,000 shares of its common stock as a settlement fee. These shares were valued at $37,284, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded loss on debts settlement of $37,284.

 

Options

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2024:

 

Options Outstanding   Options Exercisable 
Range of
Exercise Price		   Number
Outstanding at
June 30,
2024		   Weighted Average
Remaining
Contractual Life
(Years)		   Weighted
Average
Exercise
Price		   Number
Exercisable at
June 30,
2024		   Weighted
Average
Exercise
Price		 
$ 3.15 – 15.75    95,715    2.51   $4.44    64,286   $4.51 
 87.50    28,571    2.22    87.50    28,571    87.50 
$ 3.15 – 87.50    124,286    2.44   $23.53    92,857   $30.05 

 

Stock option activities for the nine months ended June 30, 2024 were as follows:

 

   Number of
Options		   Weighted
Average
Exercise
Price		 
Outstanding at September 30, 2023   124,286   $23.53 
Granted   
-
    
-
 
Outstanding at June 30, 2024   124,286   $23.53 
Options exercisable at June 30, 2024   92,857   $30.05 
Options expected to vest   31,429   $4.30 

 

21

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – SHARE CAPITAL (continued)

 

Options (continued)

 

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at June 30, 2024 was $0. 

 

For the three months ended June 30, 2024 and 2023, stock-based compensation expense associated with stock options granted amounted to $74,667 and $74,667, respectively, which was recorded as professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

For the nine months ended June 30, 2024 and 2023, stock-based compensation expense associated with stock options granted amounted to $224,002 and $296,210, respectively, which was recorded as professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

A summary of the status of the Company’s nonvested stock options granted as of June 30, 2024 and changes during the nine months ended June 30, 2024 is presented below:

 

   Number of
Options		   Weighted
Average
Exercise
Price		 
Nonvested at September 30, 2023   34,286   $5.25 
Vested   (2,857)   (15.75)
Nonvested at June 30, 2024   31,429   $4.30 

 

Warrants

 

As a result of the Business Combination which was completed on December 22, 2023, 6,701,000 warrants of Brilliant were converted into 6,701,000 warrants of the Combined Company.

 

Stock warrant activities during the period from Closing Date to June 30, 2024 were as follows:

 

   Number of
Options		   Weighted
Average
Exercise
Price		 
Outstanding at Closing Date   6,701,000   $11.50 
Granted   1,316,279    0.30 
Outstanding and exercisable at June 30, 2024   8,017,279   $9.66 

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2024:

 

Warrants Outstanding   Warrants Exercisable 
Range of Exercise Price   Number Outstanding at June 30, 2024   Weighted Average Remaining Contractual Life (Years)   Weighted Average Exercise Price   Number Exercisable at June 30, 2024   Weighted Average Exercise
Price		 
$11.50    6,701,000    4.49   $11.50    6,701,000   $11.50 
 0.25 – 0.86    1,316,279    4.76    0.30    1,316,279    0.30 
 0.25 – 11.50    8,017,279    4.54   $9.66    8,017,279   $9.66 

 

The aggregate intrinsic value of stock warrants outstanding and stock warrants exercisable at June 30, 2024 was approximately $166,000.

 

22

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

Services provided by related parties

 

From time to time, Oliver Worsley, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $15,130 and $14,942 for the three months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $38,969 and $40,005 for the nine months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

From time to time, Craig Vallis, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $27,230 and $26,017 for the three months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $68,008 and $100,012 for the nine months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

From time to time, Jamal Khurshid, the Company’s former chief executive officer and director, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $38,243 for the three and nine months ended June 30, 2024, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. Jamal Khurshid did not provide any consulting services to the Company for the three and nine months ended June 30, 2023.

 

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. Due to non-payment by TCM under the GSA, the Company had advised TCM that the GSA has been terminated effective January 1, 2024.

 

The Company’s general support services operate under a GSA with FXDIRECT receiving personnel and technical support, marketing, accounting, risk monitoring, documentation processing and customer care and support. The minimum monthly amount payable is $1,575,000. Effective May 1, 2023, the minimum amount payable by the Company to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month.

 

Both of the above entities are affiliates through common ownership.

 

During the three and nine months ended June 30, 2024 and 2023, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Service provided to:                    
TCM  $
-
   $4,800,000   $4,800,000   $14,400,000 
   $
-
   $4,800,000   $4,800,000   $14,400,000 

 

23

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

 

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

 

During the three and nine months ended June 30, 2024 and 2023, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Service received from:                
FXDIRECT  $
-
   $4,675,000   $4,650,000   $14,125,000 
   $
-
   $4,675,000   $4,650,000   $14,125,000 

 

During the three months ended June 30, 2024 and 2023, Digital RFQ earned revenue from related parties in the amount of $7,722 and $29,343, respectively, which was included in revenue – financial services on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

During the nine months ended June 30, 2024 and 2023, Digital RFQ earned revenue from related parties in the amount of $69,050 and $107,859, respectively, which was included in revenue – financial services on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

Due from affiliates

 

At June 30, 2024 and September 30, 2023, due from affiliates consisted of the following:

 

   June 30,
2024		   September 30,
2023		 
Jacobi  $
-
   $95,274 
FXDD Mauritius (1)   6,001    1,500 
TCM   12,502    1,942,500 
Total  $18,503   $2,039,274 

 

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

 

The balances due from Jacobi, FXDD Mauritius, and TCM represent monies that the Company paid on behalf of Jacobi, FXDD Mauritius, and TCM. The balance due from TCM as of September 30, 2023 also included unsettled funds due related to the General Service Agreement.

 

Management believes that the affiliates’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from affiliates at June 30, 2024 and September 30, 2023. 

 

24

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

 

Due to affiliates

 

At June 30, 2024 and September 30, 2023, due to affiliates consisted of the following:

 

   June 30,
2024		   September 30,
2023		 
Forexware LLC (1)  $1,207,201   $1,211,778 
FXDIRECT (2)   6,209,179    5,064,428 
Currency Mountain Holdings Bermuda, Limited (“CMH”)   42,000    42,000 
FXDD Trading (1)   411,585    396,793 
Markets Direct Payments (1)   2,404    2,317 
Match Fintech Limited (3)   48,920    91,433 
Craig Vallis   4,005    
-
 
Jamal Khurshid (4)   18,895    
-
 
Total  $7,944,189   $6,808,749 

 

(1)Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s former chief executive officer and chairman.
(2)The partial outstanding amount of $2,727,061 due to FXDIRECT was converted into 757,678 shares of common stock of the Company in December 2023 (See Note 10 – Common shares issued for related party debts conversion).
(3)Match Fintech Limited is controlled by affiliates of the Company.
(4)Jamal Khurshid is the Company’s former chief executive officer and director.

 

The balances due to affiliates represent expenses paid by Forexware LLC, FXDIRECT, FXDD Trading, Markets Direct Payments, Match Fintech Limited, Craig Vallis, and Jamal Khurshid on behalf of the Company and advances from CMH. The balance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.

 

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

 

Customer digital currency assets and liabilities – related parties

 

At June 30, 2024 and September 30, 2023, related parties’ digital currency, which was controlled by Digital RFQ, amounted to $5,848 and $0, respectively, which was included in customer digital currency assets and liabilities on the accompanying condensed consolidated balance sheets.

 

Note receivable – related parties

 

Promissory note

 

The Company originated a note receivable to a shareholder in the principal amount of $35,000 on September 1, 2022. The note matured with respect to $17,500 on March 1, 2023 and with respect to $17,500 on September 1, 2023. The note bears a fixed interest rate of 5.0% per annum. The principal was funded with cash custodial money. In April 2024, the note was exchanged for loan payable – related parties. 

 

25

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

 

Note receivable – related parties (continued)

 

Line of credit

 

On July 31, 2023, the Company entered into a Credit Deed (the “Credit Deed”) providing a $1 million line of credit (the “Line of Credit”) to a related party company which is a client of Digital RFQ. The Line of Credit allows the related party company to request loans thereunder until amount reaches $1 million. Loan drawn under the Line of Credit bears interest at an annual rate of 8% and will be receivable in installments commencing on December 31, 2023. The Line of Credit was collateralized by 133,514 shares of common stock of the Company.

 

In the nine months ended June 30, 2024, activity recorded for the Line of Credit is summarized in the following table:

 

Outstanding principal under the Line of Credit at September 30, 2023  $127,820 
Repayment of Line of Credit   (127,820)
Outstanding principal under the Line of Credit at June 30, 2024  $
-
 

 

During the nine months ended June 30, 2024, accrued and unpaid interest related to the line of credit with the amount of approximately $10,000 was written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-off of interest receivable against the allowance for doubtful accounts only impact the balance sheet accounts. At June 30, 2024 and September 30, 2023, the Company has established, based on a review of its outstanding interest receivable, an allowance for doubtful account in the amounts of $0 and $10,199, respectively, for the receivable.

 

Loan payable – related parties and interest payable – related parties

 

On July 19, 2023, Digital RFQ issued a promissory note (the “July 2023 Loan”) in the principal amount of $75,619 to Jamal Khurshid, the Company’s former chief executive officer and director, in consideration of cash proceeds in the amount of $75,619. The July 2023 Loan bore interest of 5.0% per annum and was due and payable on July 19, 2026. On November 24, 2023, Digital RFQ borrowed additional GBP 4,000 (approximately $5,000) from Jamal Khurshid. On November 27, 2023, all outstanding balances of principal and accrued interest related to the borrowings from Jamal Khurshid were repaid in full.

 

On August 15, 2023, Digital RFQ issued a promissory note (the “August 2023 Loan”) in the principal amount of $75,000 to Emil Assentato, the Company’s former chief executive officer and chairman, in consideration of cash proceeds in the amount of $75,000. The August 2023 Loan bears interest of 5.0% per annum and is due and payable on August 15, 2026. In January 2024, the Company repaid $50,000. As of June 30, 2024, the outstanding principal balance was $25,000.

 

On September 18, 2023, the Company issued a promissory note (the “September 2023 Loan”) in the principal amount of $270,000 to Emil Assentato, the Company’s former chief executive officer and chairman, in consideration of cash proceeds in the amount of $270,000. The September 2023 Loan bore interest of 5.0% per annum and was due and payable on September 18, 2026. In December 2023, the September 2023 Loan principal of $270,000 and related accrued interest of $563 were converted into 70,129 shares of common stock of the Company (See Note 10 – Common shares issued for related party debts conversion).

 

On March 6, 2024, Digital RFQ entered into a facility agreement with Craig Vallis, a shareholder of the Company, providing Digital RFQ with up to $500,000 loan. The facility allows Digital RFQ to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes. Loans drawn under the facility bear interest at a monthly rate of 4%. This loan will be repaid in according to these installments set out in the facility agreement with the last installment due on July 31, 2024. As of June 30, 2024, the outstanding principal balance was $405,676. As of the date of this report, this loan is still outstanding.

 

On March 12, 2024, Digital RFQ entered into a loan agreement with Oliver Worsley, a shareholder of the Company, providing Digital RFQ with up to GBP 395,000 (approximately $499,000) loan. The loan agreement allows Digital RFQ to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes. Loans drawn under the loan agreement bear interest at an annual rate of 10%. This loan is unsecured and is due and payable on March 31, 2025. In April 2024, a portion of outstanding principal was exchanged for note receivable – related party. As of June 30, 2024, the outstanding principal balance was $275,383.

 

26

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – RELATED PARTY TRANSACTIONS (continued)

 

Loan payable – related parties and interest payable – related parties (continued)

 

During the nine months ended June 30, 2024, the Company issued a few promissory notes in the aggregate principal of $1,167,500 to Emil Assentato and Max Q, in consideration of cash proceeds in the amount of $1,167,500. These loans bear interest of 5.0% per annum and each individual loan will be due and payable three years from the date of issuance. As of June 30, 2024, the outstanding principal balance totaled $1,167,500.

 

For the three and nine months ended June 30, 2024, the interest expense related to related parties’ loans amounted to $23,901 and $41,671, respectively, and has been reflected as interest expense – related parties on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

As of June 30, 2024 and September 30, 2023, the related accrued and unpaid interest for related parties’ loans was $41,575 and $1,771, respectively, of which, $10,942 and $0 was included in accrued liabilities and other payables, and $30,633 and $1,771 was reflected as interest payable – related parties, respectively, on the accompanying condensed consolidated balance sheets.

 

Letter agreement with ClearThink

 

Nukkleus was party to a letter agreement with ClearThink dated as of November 22, 2021, pursuant to which ClearThink was engaged by Nukkleus in connection with the Business Combination.

 

Craig Marshak, a former member of the Board of Directors of the Company, was a managing director of ClearThink, a transaction advisory firm. ClearThink had been engaged by the Company to serve as the exclusive transactional financial advisor, and finder with respect to the Business Combination, to advise the Company with respect to the Business Combination. The letter agreement was terminated on October 27, 2023. The Company paid ClearThink $210,000 as of the date of closing of the Business Combination.

 

NOTE 12 – 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, 2024 and 2023.

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Customer  2024   2023   2024   2023 
A – related party   
*
    92.1%   84.5%   88.8%
B   37.2%   
*
    
*
    
*
 
C   10.1%   
*
    
*
    
*
 

 

*Less than 10%

 

Two related party customers, whose outstanding receivables accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2024, accounted for 87.9% of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2024.

 

One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at September 30, 2023, accounted for 95.2% of the Company’s total outstanding accounts receivable and due from affiliates at September 30, 2023.

 

27

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 12 – 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, 2024 and 2023.

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Supplier  2024   2023   2024   2023 
A – related party   
*
    87.1%   95.0%   86.7%
B   48.9%   
*
    
*
    
*
 
C   20.3%   
*
    
*
    
*
 

 

*Less than 10%

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at June 30, 2024, accounted for 70.8% of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at June 30, 2024.

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at September 30, 2023, accounted for 81.7% of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at September 30, 2023.

 

NOTE 13 – SEGMENT INFORMATION

 

For the three and nine months ended June 30, 2024 and 2023, the Company operated in two reportable business segments - (1) the general support services segment, in which we provide software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party; and (2) the financial services segment, in which we provide payment services from one fiat currency to another or to digital assets. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.

 

28

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 13 – SEGMENT INFORMATION (continued)

 

Information with respect to these reportable business segments for the three and nine months ended June 30, 2024 and 2023 was as follows:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Revenues                
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total   175,214    5,212,056    5,677,362    16,222,388 
                     
Costs of revenues                    
General support services   
-
    4,675,000    4,650,000    14,125,000 
Financial services   49,738    695,074    246,625    2,162,317 
Total   49,738    5,370,074    4,896,625    16,287,317 
                     
Gross profit (loss)                    
General support services   
-
    125,000    150,000    275,000 
Financial services   125,476    (283,018)   630,737    (339,929)
Total   125,476    (158,018)   780,737    (64,929)
                     
Operating expenses                    
Financial services   487,750    558,228    1,482,560    1,595,955 
Corporate/Other   1,029,373    496,555    12,056,902    1,494,776 
Total   1,517,123    1,054,783    13,539,462    3,090,731 
                     
Other income (expense)                    
Financial services   4,230    3,057    29,683    6,345 
Corporate/Other   (228,824)   
-
    (244,711)   
-
 
Total   (224,594)   3,057    (215,028)   6,345 
                     
Net income (loss)                    
General support services   
-
    125,000    150,000    275,000 
Financial services   (358,044)   (838,189)   (822,140)   (1,929,539)
Corporate/Other   (1,258,197)   (496,555)   (12,301,613)   (1,494,776)
Total   (1,616,241)   (1,209,744)   (12,973,753)   (3,149,315)
                     
Amortization                    
Financial services   3,432    591,955    10,364    1,775,865 
Corporate/Other   
-
    937    
-
    2,810 
Total  $3,432   $592,892   $10,364   $1,778,675 

 

Total assets at June 30, 2024 and September 30, 2023  June 30,
2024		   September 30,
2023		 
Financial services  $624,757   $1,004,708 
Corporate/Other   495,368    2,347,917 
Total  $1,120,125   $3,352,625 

 

29

 

 

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 14 – COMMITMENTS AND CONTINGENCIES

 

Digital asset wallets

 

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

 

NOTE 15 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

 

Common shares issued for Settlement Agreement and Stipulation

 

On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, during the period from July 1, 2024 through August 27, 2024, the Company issued an aggregate of 1,189,550 shares of its common stock.

 

Senior Unsecured Promissory Note – August 2024

 

On August 1, 2024 (the “August 2024 Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “August 2024 Note”) in the principal amount of $515,000 to East Asia Technology Investments Limited (the “August 2024 Lender”) in consideration of cash proceeds in the amount of $412,075. The August 2024 Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the August 2024 Note, the Company issued the August 2024 Lender a Stock Purchase Warrant (“Warrant”) to acquire 1,400,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The August 2024 Lender shall have the right to convert the principal and interest payable under the August 2024 Note into shares of common stock of the Company at a per share conversion price of $0.3125.

 

Common Shares Issued for Settlement of Accrued Professional Fees

 

In July 2024, the Company issued 500,000 shares of its common stock to settle accrued and unpaid professional fees.

 

Common Shares Issued for Services

 

In July 2024, the Company issued 300,000 shares of its common stock for services rendered and to be rendered.

 

X Group’s Convertible Promissory Note Payable

 

On September 10, 2024, the Company issued an additional Senior Unsecured Promissory Note (the “September 2024 Note”) in the principal amount of $125,000 to X Group in consideration of cash proceeds in the amount of $100,000, which was funded on September 4, 2024. The September 2024 Note bears interest of 12.0% per annum and is due and payable six months after issuance.

 

Departure of Directors or Certain Officers and Election of Directors or Appointment of Certain Officers

 

On July 24, 2024, Emil Assentato resigned as Chief Executive Officer and from the Board of Directors of the Company. Jamal (Jamie) Khurshid, the Chief Operating Officer and a director of the Company, was appointed as Chief Executive Officer effective July 24, 2024.

 

The Company has been advised that X Group and Emil Assentato and Jamal Khurshid, in a personal capacity, entered into a Settlement Agreement. Pursuant to the Settlement Agreement, Mr. Khurshid advised the Company that he was resigning as Chief Executive Officer and as a director of the Company effective September 4, 2024. Further, in conjunction with Mr. Khurshid’s resignation, the Board increased the size of the Board from six to seven and appointed David Rokach and Menachem Shalom as directors to fill such vacancies. Mr. Shalom was also appointed as Chief Executive Officer of the Company.

 

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

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended June 30, 2024 and 2023 should be read in conjunction with our condensed consolidated financial statements and related notes to those condensed consolidated financial statements that are included elsewhere in this report.

 

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

 

  ● our future operating results;

 

  ● our business prospects;

 

  ● any contractual arrangements and relationships with third parties;

 

  ● the dependence of our future success on the general economy;

 

  ● any possible financings; and

 

  ● the adequacy of our cash resources and working capital.

 

Impact of COVID-19 on Our Operations

 

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption. Due to the nature of our business, the technology we use and offer to our customers, and our employees’ ability to work remotely, there was no material impact of COVID-19 on our business, operations and financial results.

 

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic, and governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.

 

Overview

 

We are now a financial technology company with the aim of providing blockchain-enabled technology solutions.

 

Digital RFQ

 

Through our Digital RFQ subsidiary, we aim to provide cross-border payment and transactions solutions to institutional investors, and offer blockchain enabled financial services solutions to institutional investors in a secure, compliant and globally accessible manner. The blockchain-enabled payment gateway we have developed has the capability to deliver global cross-border transfers of fiat currencies using blockchain rails. Digital RFQ currently offers payment and settlement services, including those utilizing blockchain networks, but does not provide custody or wallet services with respect to digital assets, and does not hold digital assets, reducing the risks and regulatory burden on its business. In the future, Digital RFQ plans to offer a white labelled digital bank with end-to-end digital banking solutions for international business. We are uncertain as to when we will be able to offer these products and intend to evaluate potential strategic opportunities for DigiClear which may include the sale of the assets or a joint venture, of which there is no guarantee. Our competitors in this product category are banks and other financial institutions, and we intend to compete by offering faster and more reliable products using more advanced technology. Products and services offered by Digital RFQ are distributed through our website.

 

Digital RFQ is regulated in the United Kingdom by the Financial Conduct Authority and is in good standing and is and has been in the past in material compliance with the applicable laws, rules and regulations promulgated thereby. Digital RFQ is subject to Anti Money Laundering (“AML”) and Counter Terrorist Finance (“CTF”) regulations consistent with our authorization by the Financial Conduct Authority as an Electronic Money Directive Agent, among others. For a discussion of the various laws and regulations Digital RFQ is subject.

 

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The “blockchain technology” used by Digital RFQ in its payment processing business includes only advanced-stage and fully tested, well-established and fully collateralized stablecoins operated on the Bitcoin, Ethereum and Tron networks. However, in future, we will be free to use other blockchain networks if we determine that they offer more sophisticated or secure technology. Based on our risk assessments, we determine the appropriate network to use for a particular transaction or customer. We do not use stablecoins of an algorithmic nature, and in the event that we determine any particular stablecoin presents a threat or risk to the security of our business, customers or the transactions we process, we promptly move to another stablecoin network. We do not accept payment in digital assets and do not hold digital assets for investment or offer digital wallet services. For a description of the risks associated with the use of blockchain technology in financial services generally, and payment processing specifically.

 

DigiClear

 

Through DigiClear, we plan to develop technology that offers a custody and settlement utility operating system aiming to deliver value and a high functioning automated post-trade solution. DigiClear aims to provide clients with the means to transfer underlying assets to alternative custodians at any time. We intend for DigiClear to use hardware security modules to offer technology that can secure client assets to block any unwanted modification of client settlement instructions or transfers. We expect that the transfer process that DigiClear’s technology will offer will be fully automated, monitored and can be processed within milliseconds. We are uncertain as to when we will be able to offer these products and intend to evaluate potential strategic opportunities for DigiClear which may include the sale of the assets or a joint venture, of which there is no guarantee. Our competitors in this product category are banks and other financial institutions and smaller financial technology companies, and we intend to compete by offering faster and more reliable products using more advanced technology. Assuming we offer DigiClear products and services once commercially developed these will be distributed through our website.

 

Nukkleus Technology

 

Our Nukkleus Technology business unit offers a full-service transactions technology and advisory business providing end-to-end transactions technology solutions. We offer an advanced transactions platform for dealing and risk management with global liquidity and customizable leverage, where users have control over quote and liquidity strategies.

 

On May 24, 2016, Nukkleus Limited entered into a General Service Agreement to provide its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to FML Malta Ltd. In December 2017, Nukkleus Limited, FML Malta Ltd. and TCM entered into a letter agreement providing that there was an error in drafting the General Service Agreement and acknowledging that the correct counter-party to Nukkleus Limited in the General Service Agreement is TCM. Accordingly, all references to FML Malta Ltd. have been replaced with TCM. TCM is a private limited liability company formed under the laws of Malta. The General Service Agreement entered with TCM provides that TCM will pay Nukkleus Limited at minimum $2,000,000 per month. On October 17, 2017, Nukkleus Limited entered into an amendment of the General Service Agreement with TCM. In accordance with the amendment, which was effective as of October 1, 2017, the minimum amount payable by TCM to Nukkleus Limited for services was reduced from $2,000,000 per month to $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 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, on May 24, 2016, in order to appropriately service TCM, Nukkleus Limited entered into a General Service Agreement with FXDIRECT, which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,975,000 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. On October 17, 2017, Nukkleus Limited entered into an amendment of the General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Currency Mountain Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC. Due to non-payment by TCM under the GSA, the Company has advised TCM that the GSA has been terminated effective January 1, 2024. The Company has historically generated substantially most of its revenue through the services rendered under the GSA. The Company is repositioning its focus on digital assets as the services generated under the GSA with TCM generated limited net income.

 

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Financial Services Segment’s Key Performance Indicators (KPI)

 

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

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Performance Indicator  2024   2023   2024   2023 
Trading volume  $31,577,721   $67,159,843   $134,036,579   $359,730,350 
Financial services revenue  $175,214   $412,056   $877,362   $1,822,388 
Financial services profit (loss)  $125,476   $(283,018)  $630,737   $(339,929)
Average cost per trade  $158   $443   $214   $577 
Average trade   100,247    42,832    116,049    95,928 
Number of trades   315    1,568    1,155    3,750 
Clients active   47    45    75    172 
Clients removed   5    1    13    8 
Gross trading margin   0.6%   0.6%   0.7%   0.5%
Gross margin   71.6%   (68.7)%   71.9%   (18.7)%

 

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

 

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

 

Financial services profit (loss) is measured as financial services revenue, less costs incurred associated with delivery of our services. For the three and nine months ended June 30, 2023, cost of financial services includes amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.

 

In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three and nine months ended June 30, 2024, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services. We had a financial services profit for the three and nine months ended June 30, 2024 as compared to financial services loss for the three and nine months ended June 30, 2023.

 

Average cost per trade is driven by financial services costs. Our average cost per trade decreased measurably as costs decreased.

 

Active clients for the three months ended June 30, 2024 and 2023 was 47 and 45, respectively. Active clients for the nine months ended June 30, 2024 and 2023 was 75 and 172, respectively.

 

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

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and nine months ended June 30, 2024 and 2023 include the allowance for doubtful accounts, the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, the fair value of customer digital currency assets and liabilities, and assumptions used to determine fair value of warrants, beneficial conversion feature and embedded conversion features of convertible note payable.

 

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Customer Custodial Cash and Customer Custodial Cash Liabilities

 

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

 

Customer Digital Currency Assets and Liabilities

 

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

 

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

 

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

 

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

 

Revenue Recognition

 

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

 

●General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA and these performance obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under the terms of the GSA. Revenue is recorded at gross as the Company is deemed to be a principal in the transactions.

 

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

 

Stock-based Compensation

 

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

 

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

 

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Results of Operations

 

Summary of Key Results

 

For the Three and Nine Months Ended June 30, 2024 Versus the Three and Nine Months Ended June 30, 2023

 

Revenues

 

For the three months ended June 30, 2024, we had revenue from general support services rendered to TCM under a GSA of $0, as compared to $4,800,000 for the three months ended June 30, 2023, a decrease of $4,800,000, or 100.0%. For the nine months ended June 30, 2024, we had revenue from general support services rendered to TCM under a GSA of $4,800,000, as compared to $14,400,000 for the nine months ended June 30, 2023, a decrease of $9,600,000, or 66.7%. Due to non-payment by TCM under the GSA, the Company had advised TCM that the GSA has been terminated effective January 1, 2024. The Company has historically generated substantially most of its revenue through the services rendered under the GSA to TCM, the sole customer in our general support services segment. We did not have any other customers in the three months ended June 30, 2024. We do not expect any revenue from general support services until we are successful in retaining other customers.

 

For the three months ended June 30, 2024, we had revenue from financial services of $175,214, as compared to $412,056 for the three months ended June 30, 2023, a decrease of $236,842, or 57.5%. For the nine months ended June 30, 2024, we had revenue from financial services of $877,362, as compared to $1,822,388 for the nine months ended June 30, 2023, a decrease of $945,026, or 51.9%. The decrease was primarily attributable to the closure of our primary USD Banking rails when Signature and Silvergate closed in March 2023. We expect that our revenue from financial services will remain at its current quarterly level with minimal increase in the near future.

 

Costs of Revenues

 

For the three months ended June 30, 2024, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $0, as compared to $4,675,000 for the three months ended June 30, 2023, a decrease of $4,675,000, or 100.0%. For the nine months ended June 30, 2024, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $4,650,000, as compared to $14,125,000 for the nine months ended June 30, 2023, a decrease of $9,475,000, or 67.1%. The decrease was attributable to the decrease in our revenue from general support services, and, effective May 1, 2023, the amount payable by us to FXDIRECT for services under a GSA was reduced from $1,575,000 per month to $1,550,000 per month.

 

For the three and nine months ended June 30, 2023, cost of financial services includes amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.

  

In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three and nine months ended June 30, 2024, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services.

 

For the three months ended June 30, 2024, cost of financial services amounted to $49,738, as compared to $695,074 for the three months ended June 30, 2023, a decrease of $645,336, or 92.8%. For the nine months ended June 30, 2024, cost of financial services amounted to $246,625, as compared to $2,162,317 for the nine months ended June 30, 2023, a decrease of $1,915,692, or 88.6%. The significant decrease was primarily attributable to decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition in the three and nine months ended June 30, 2024.

 

Gross Profit (Loss)

 

Our gross profit from general support services for the three months ended June 30, 2024 was $0, as compared to $125,000 for the three months ended June 30, 2023, a decrease of $125,000, or 100.0%. Our gross profit from general support services for the nine months ended June 30, 2024 was $150,000, as compared to $275,000 for the nine months ended June 30, 2023, a decrease of $125,000, or 45.5%. Gross margin increased to 3.1% for the nine months ended June 30, 2024 from 1.9% for the nine months ended June 30, 2023. The increase in our gross margin for the general support services segment for the nine months ended June 30, 2024 as compared to the corresponding period of 2023 was attributed to the decrease in our cost of general support services as described above.

 

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Gross profit from financial services for the three months ended June 30, 2024 was $125,476, as compared to gross loss of $283,018 for the three months ended June 30, 2023, a decrease of $408,494, or 144.3%. Gross margin increased to 71.6% for the three months ended June 30, 2024 from (68.7)% for the three months ended June 30, 2023. Gross profit from financial services for the nine months ended June 30, 2024 was $630,737, as compared to gross loss of $339,929 for the nine months ended June 30, 2023, a decrease of $970,666, or 285.5%. Gross margin increased to 71.9% for the nine months ended June 30, 2024 from (18.7)% for the nine months ended June 30, 2023. The increase in our gross margin for the financial services segment for the three and nine months ended June 30, 2024 as compared to the comparable periods of 2023 was primarily attributed to the decrease in cost for financial services driven by decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition. We expect that our gross margin for the financial services segment will remain in its current quarterly level with minimal increase in the near future.

 

Operating Expenses

 

Operating expenses consisted of advertising and marketing, professional fees, compensation and related benefits, bad debt expense, and other general and administrative expenses.

 

Advertising and marketing

 

For the three months ended June 30, 2024, advertising and marketing expense increased by $685, or 41.0%, as compared to the three months ended June 30, 2023. The increase was primarily attributable to our increased advertising and marketing activities in the three months ended June 30, 2024. For the nine months ended June 30, 2024, advertising and marketing expense decreased by $7,146, or 14.0%, as compared to the nine months ended June 30, 2023. The decrease was primarily attributable to our decreased advertising and marketing activities in the nine months ended June 30, 2024. We expect that our advertising and marketing expense will remain in its current quarterly level with minimal increase in the near future.

 

Professional fees

 

Professional fees primarily consisted of audit fees, legal service fees, advisory fees, and consulting fees. For the three months ended June 30, 2024, professional fees increased by $537,554, or 94.0%, as compared to the three months ended June 30, 2023. The increase was primarily attributable to an increase in consulting fees of approximately $623,000 mainly due to the increase in consulting service related to our general business development, offset by a decrease in other miscellaneous items of approximately $85,000. For the nine months ended June 30, 2024, professional fees increased by $4,194,632, or 231.1%, as compared to the nine months ended June 30, 2023. The increase was primarily attributable to a significant increase in advisory service fees of approximately $3,641,000, due to the increase in stock-based compensation of approximately $2,766,000 which reflected the value of common stock granted to advisors and the increase in advisory service fees of approximately $875,000, which were mainly driven by increased advisory service related to our business combination that was completed in December 2023 and related to capital market advice, an increase in legal service fee of approximately $234,000 resulting from the increase in legal service providers, and an increase in consulting fees of approximately $337,000 mainly due to the increase in consulting service related to our general business development, offset by a decrease in other miscellaneous items of approximately $17,000. We expect that our professional fees will decrease in the near future.

 

Compensation and related benefits

 

For the three months ended June 30, 2024, our compensation and related benefits decreased by $13,980 or 6.0%, as compared to the three months ended June 30, 2023. For the nine months ended June 30, 2024, our compensation and related benefits increased by $151,912, or 25.7%, as compared to the nine months ended June 30, 2023. The increase was mainly attributable to increased management in our financial services segment. We expect that our compensation and related benefits will remain in its current quarterly level with minimal increase in the near future.

  

Bad debt expense

 

For the three months ended June 30, 2024 and 2023, our did not record any allowance for doubtful account. For the nine months ended June 30, 2024, our had bad debt expense of $6,145,942. In December 2023, due to non-payment by TCM under the GSA, we had advised TCM that the GSA has been terminated effective January 1, 2024. We made an allowance for doubtful account for the related party’s receivable in the amount of $6,145,942 in December 2023. We did not record any allowance for doubtful account for the nine months ended June 30, 2023.

 

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Other general and administrative expenses

 

Other general and administrative expenses primarily consisted of rent, stock transfer agent service fees, amortization of intangible assets, travel and entertainment, and other miscellaneous items.

 

For the three months ended June 30, 2024, total other general and administrative expenses decreased by $61,919, or 25.0%, as compared to the three months ended June 30, 2023. The decrease was mainly due to a decrease in amortization of intangible assets of approximately $63,000 since we impaired our intangible assets acquired on Match acquisition in September 2023, and a decrease in stock transfer agent service fees of approximately $44,000, offset by and an increase in other miscellaneous items of approximately $45,000. For the nine months ended June 30, 2024, total other general and administrative expenses decreased by $36,609, or 5.8%, as compared to the nine months ended June 30, 2023. The decrease was mainly due to a decrease in amortization of intangible assets of approximately $189,000 since we impaired our intangible assets acquired on Match acquisition in September 2023, and a decrease in other miscellaneous items of approximately $48,000 driven by our efforts at stricter controls on corporate expenditure, offset by an increase in stock transfer agent service fees of approximately $200,000 resulting from our business combination which was completed in December 2023. We expect that other general and administrative expenses will remain in its current quarterly level with minimal decrease in the near future.

 

Other (Expense) Income

 

Other (expense) income includes third party and related party interest expense, loss on debts settlement, and other miscellaneous income.

 

Other expense, net, totaled $224,594 for the three months ended June 30, 2024, as compared to other income, net, of $3,057 for the three months ended June 30, 2023, a decrease of $227,651, or 7,446.9%, which was mainly attributable to an increase in third party interest expense of approximately $39,000, mainly driven by the increase in amortization of debt discount of approximately $36,000 and the increased interest expense of approximately $3,000 from third party debts in the three months ended June 30, 2024, an increase in related party interest expense of approximately $24,000 from related party debts in the three months ended June 30, 2024, and an increase in loss on debts settlement of approximately $176,000, offset by an increase in other income of approximately $12,000.

 

Other expense, net, totaled $215,028 for the nine months ended June 30, 2024, as compared to other income, net, of $6,345 for the nine months ended June 30, 2023, a decrease of $221,373, or 3,488.9%, which was mainly attributable to an increase in third party interest expense of approximately $39,000, mainly driven by the increase in amortization of debt discount of approximately $36,000 and the increased interest expense of approximately $3,000 from third party debts in the nine months ended June 30, 2024, an increase in related party interest expense of approximately $42,000 from related party debts in the nine months ended June 30, 2024, and an increase in loss on debts settlement of approximately $176,000, offset by an increase in other income of approximately $36,000.

 

Net Loss

 

As a result of the factors described above, our net loss was $1,616,241, or $0.11 per share (basic and diluted), for the three months ended June 30, 2024, as compared to $1,209,744, or $0.12 per share (basic and diluted), for the three months ended June 30, 2023, an increase of $406,497 or 33.6%.

 

As a result of the factors described above, our net loss was $12,973,753, or $1.00 per share (basic and diluted), for the nine months ended June 30, 2024, as compared to $3,149,315, or $0.31 per share (basic and diluted), for the nine months ended June 30, 2023, an increase of $9,824,438 or 312.0%.

 

Foreign Currency Translation Adjustment

 

The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. The financial statements of our subsidiaries whose functional currency is the GBP or Euro or CAD are translated to U.S. dollars using period end rates of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $5,608 and $20,859 for the three months ended June 30, 2024 and 2023, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $42,339 and $51,563 for the nine months ended June 30, 2024 and 2023, respectively. This non-cash loss had the effect of increasing our reported comprehensive loss.

 

37

 

 

Comprehensive Loss

 

As a result of our foreign currency translation adjustment, we had comprehensive loss of $1,621,849 and $1,230,603 for the three months ended June 30, 2024 and 2023, respectively.

 

As a result of our foreign currency translation adjustment, we had comprehensive loss of $13,016,092 and $3,200,878 for the nine months ended June 30, 2024 and 2023, 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, 2024 and September 30, 2023, we had cash of approximately $6,000 and $19,000, respectively, exclusive of customer custodial cash. We had working capital deficit of approximately $11,421,000 as of June 30, 2024. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. As described below, we have raised additional capital through the sale of equity and debt and we plan to raise additional capital in the future through the sale of equity or debt to implement our business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, if at all.

 

The following table sets forth a summary of changes in our working capital deficit from September 30, 2023 to June 30, 2024:

 

   June 30,   September 30,   Changes in 
   2024   2023   Amount   Percentage 
Working capital deficit:                
Total current assets  $706,447   $2,928,408   $(2,221,961)   (75.9)%
Total current liabilities   12,127,122    9,123,465    3,003,657    32.9%
Working capital deficit  $(11,420,675)  $(6,195,057)  $(5,225,618)   84.4%

 

Our working capital deficit increased by $5,225,618 to $11,420,675 at June 30, 2024 from $6,195,057 at September 30, 2023. The increase in working capital deficit was primarily attributable to a decrease in customer custodial cash of approximately $140,000 due to the decrease in cash maintained in our bank accounts held for the benefit of our customers, a significant decrease in due from affiliates of approximately $2,021,000 which was primarily attributable to our receivable from TCM was written off after exhaustive efforts at collection in the nine months ended June 30, 2024, a decrease in note receivable – related parties, net, of approximately $163,000 driven by repayments received from note receivable – related parties in the nine months ended June 30, 2024, an increase in accounts payable of approximately $205,000, an increase in due to affiliates of approximately $1,135,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the nine months ended June 30, 2024, an increase in short term loan payable – related parties of approximately $681,000 resulting from issuance of loans to related parties to fund our working capital needs, an increase in accrued payroll liability and directors’ compensation of approximately $150,000 resulting from increased management in our financial services segment, and an increase in accrued professional fees of approximately $1,285,000 mainly due to the increase in professional services related to our business combination which was completed in December 2023, offset by an increase in other current assets of approximately $103,000 mainly due to the increase in prepaid directors and officers’ liability insurance premium and prepaid NASDAQ listing fee, and a decrease in customer custodial cash liabilities of approximately $560,000 resulting from fulfillment of our direct obligations to our customers.

 

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

 

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Cash Flow for the Nine Months Ended June 30, 2024 Compared to the Nine Months Ended June 30, 2023

 

The following summarizes the key components of our cash flows for the nine months ended June 30, 2024 and 2023:

 

   Nine Months Ended
June 30,		 
   2024   2023 
Net cash used in operating activities  $(2,619,117)  $(626,716)
Net cash provided by (used in) investing activities   131,740    (195,856)
Net cash provided by financing activities   2,296,823    - 
Effect of exchange rate on cash   37,507    292,591 
Net decrease in cash  $(153,047)  $(529,981)

 

Net cash flow used in operating activities for the nine months ended June 30, 2024 was $2,619,117, which primarily reflected our consolidated net loss of approximately $12,974,000, and the changes in operating assets and liabilities, primarily consisting of a significant increase in due from affiliates of approximately $4,129,000 due to the payments made to our affiliates and monies that we paid on behalf of our affiliates in the nine months ended June 30, 2024, an increase in other current assets of approximately $103,000 mainly due to the increase in prepaid directors and officers’ liability insurance premium and prepaid NASDAQ listing fee, and a decrease in customer custodial cash liabilities of approximately $610,000 driven by fulfillment of our direct obligations to our customers in the nine months ended June 30, 2024, offset by an increase in accounts payable of approximately $198,000, a significant increase in due to affiliates of approximately $3,846,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the nine months ended June 30, 2024, an increase in accrued payroll liability and directors’ compensation of approximately $148,000 resulting from increased management in our financial services segment, and an increase in accrued professional fees of approximately $1,609,000 mainly due to the increase in professional services related to our business combination which was completed in December 2023, and the non-cash items adjustment primarily consisting of stock-based compensation and service expense of approximately $2,990,000, a loss on debts settlement of approximately $176,000, and provision for bad debt of approximately $6,146,000.

 

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

 

Net cash flow provided by investing activities was $131,740 for the nine months ended June 30, 2024 as compared to net cash flow used in investing activities of $195,856 for the nine months ended June 30, 2023. During the nine months ended June 30, 2024, we received proceeds from note receivable – related parties of approximately $132,000. During the nine months ended June 30, 2023, we made payment for investment in note receivable of approximately $154,000 and payment for purchase of intangible asset of approximately $42,000.

 

Net cash flow provided by financing activities was $2,296,823 for the nine months ended June 30, 2024. During the nine months ended June 30, 2024, we received cash in reverse recapitalization of approximately $150,000, received proceeds from loan payable from third party and related party of approximately $1,952,000, received proceeds from issuance of convertible debt and warrants of $300,000, and received proceeds from issuance of debt and warrants of $78,000, offset by repayments made for loan payable to third party and related party of approximately $183,000.

 

39

 

 

There was no financing activity during the nine months ended June 30, 2023.

 

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

 

  ● The working capital requirements to finance our current business;

 

  ● The use of capital for development of business opportunities;

 

  ● Addition of personnel as the business grows; and

 

  ● The cost of being a public company.

 

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

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

Foreign Currency Exchange Rate Risk

 

A portion of our operations are in United Kingdom. Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between GBP and US dollars. For the three months ended June 30, 2024 and 2023, we had an unrealized foreign currency translation loss of approximately $6,000 and $21,000, respectively, because of changes in the exchange rates. For the nine months ended June 30, 2024 and 2023, we had an unrealized foreign currency translation loss of approximately $42,000 and $52,000, respectively, because of changes in the exchange rates.

 

Inflation

 

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

 

40

 

 

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, 2024, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Management regularly assesses controls and did so most recently for our financial reporting as of June 30, 2024. This assessment was based on criteria for effective internal control over financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management concluded that our disclosure controls and procedures were not effective as of June 30, 2024 due to the material weaknesses that were previously reported in our Annual Report on Form 10-K for the year ended September 30, 2023 filed with the SEC on July 12, 2024, that have not yet been remediated. Management’s plan to remediate these material weaknesses is described in detail in such Annual Report on Form 10-K for the year ended September 30, 2023.

 

In light of the material weakness, we performed additional analyses and procedures in order to conclude that our condensed consolidated financial statements for the quarter ended June 30, 2024 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weakness, our condensed consolidated financial statements for the quarter ended June 30, 2024 are fairly stated, in all material respects, in accordance with US GAAP.

  

Changes in Internal Control over Financial Reporting

 

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

 

Item 5. Other

 

None.

  

41

 

 

Part II - Other Information

 

Item 1. Legal Proceedings

 

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

  

Item 1A. Risk Factors

 

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

 

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

 

Common shares issued for Settlement Agreement and Stipulation

 

On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, SCC has agreed to purchase certain outstanding payables between the Company and designated vendors of the Company totaling $1,118,953.75 (the “Payables”) and will exchange such Payables for a settlement amount payable in shares of common stock of the Company (the “Settlement Shares”). The Settlement Shares shall be priced at 70% of the average of the three lowest trading prices during the five trading day period prior to a share request, which may not be less than $0.05 per share. In the event the Company’s market price decreases to or below $0.75 per share, then either the Company or SCC may declare a default. SCC has agreed that it will not become the beneficial owner of more than 4.99% of common stock of the Company at any point in time. Further, the Settlement Agreement provides that Settlement Shares may not be issued to SCC if such issuance would exceed 19.9% of the outstanding common stock as of May 23, 2024. The Settlement Agreement and the issuance of the Settlement Shares was approved by the Circuit Court of the Twelfth Judicial Circuit Court for Manatee County, Florida (the “Court”) on May 29, 2024 (Case No. 2024 CA 755). The Court entered an Order confirming the fairness of the terms and conditions of the Settlement Agreement and the issuance of the Settlement Shares.

 

Pursuant to the Settlement Agreement, during the period from July 1, 2024 through August 27, 2024, the Company issued an aggregate of 1,189,550 shares of its common stock.

 

Senior Unsecured Promissory Note – August 2024

 

On August 1, 2024 (the “August 2024 Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “August 2024 Note”) in the principal amount of $515,500 to East Asia Technology Investments Limited (the “August 2024 Lender”) in consideration of cash proceeds in the amount of $412,075. The August 2024 Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the August 2024 Note, the Company issued the August 2024 Lender a Stock Purchase Warrant (“Warrant”) to acquire 1,400,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The August 2024 Lender shall have the right to convert the principal and interest payable under the August 2024 Note into shares of common stock of the Company at a per share conversion price of $0.25.

 

Common Shares Issued for Settlement of Accrued Professional Fees

 

In July 2024, the Company issued 500,000 shares of its common stock to settle accrued and unpaid professional fees.

 

Common Shares Issued for Services

 

In July 2024, the Company issued 300,000 shares of its common stock for services rendered and to be rendered.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

42

 

 

Item 6. Exhibits

 

The following exhibits are incorporated into this Form 10-Q Quarterly Report:

 

      Incorporated by Reference  
Exhibit   Description   Schedule/
Form		   Exhibits   Filing Date
2.1#   Amended and Restated Agreement and Plan of Merger dated as of June 23, 2023, by and among Nukkleus and Brilliant.   Form 8-K   2.1   June 26, 2023
2.2#   First Amendment to Amended and Restated Agreement and Plan of Merger dated as of November 1, 2023, by and among Nukkleus and Brilliant.   Form 8-K   2.2   November 2, 2023
3.1   Amended and Restated Certificate of Incorporation of Nukkleus Inc. (f/k/a Brilliant Acquisition Corp.)   Form 8-K   3.2   January 2, 2024
3.2   Bylaws of Nukkleus Inc.   Form 8-K   3.3   January 2, 2024
4.1   Senior Unsecured Promissory Note dated June 11, 2024 issued to X Group Fund of Funds   Form 8-K   4.1   June 17, 2024
4.2   Common Stock Purchase Warrant issued to X Group Fund of Funds   Form 8-K   4.2   June 17, 2024
4.3   Senior Unsecured Promissory Note dated August 1, 2024 issued to East Asia Technology Investments Limited   Form 8-K   4.1   August 5, 2024
4.4   Common Stock Purchase Warrant issued to East Asia Technology Investments Limited   Form 8-K   4.2   August 5, 2024
10.1*   Nukkleus 2023 Incentive Award Plan.   Form 8-K   10.1   January 2, 2024
10.2   Form of Registration Rights Agreement by and among Nukkleus, Brilliant and certain stockholders.   Form 8-K   10.3   June 26, 2023
10.3   Form of Lock-Up Agreement by and among Nukkleus, Brilliant and certain stockholders.   Form 8-K   10.2   June 26, 2023
10.4   General Service Agreement between Nukkleus Limited and FML Malta Limited dated May 24, 2016   Form 10-K   10.4   July 12, 2024
10.5   General Service Agreement between Nukkleus Limited and FXDirectDealer LLC dated May 24, 2016   Form 10-K   10.5   July 12, 2024
10.6   Amendment No. 1 dated June 3, 2016 to the General Service Agreement between Nukkleus Limited and FXDD Trading Limited   Form 10-K   10.6   July 12, 2024
10.7   Amendment dated October 17, 2017 of that certain General Service Agreement between Nukkleus Limited and FML Malta Limited   Form 10-K   10.7   July 12, 2024
10.8   Letter Agreement entered between FML Malta Ltd., FXDD Malta Limited and Nukkleus Limited   Form 10-K   10.8   July 12, 2024
10.9   Settlement Agreement and Stipulation dated May 28, 2024 by and between Nukkleus Inc. and Silverback Capital Corporation   Form 8-K   10.1   June 4, 2024
10.10   Restructuring Agreement dated June 11, 2024 between Nukkleus Inc. and X Group Fund of Funds   Form 8-K   10.1   June 17, 2024
10.11   Voting Agreement dated June 11, 2024 between Nukkleus Inc. and X Group Fund of Funds   Form 8-K   10.2   June 17, 2024
21.1   List of Subsidiaries   Form 10-K   21.1   July 12, 2024
31.1   Rule 13a-14(a) Certification of the Chief Executive Officer and Principal Financial Officer            
32.1   Section 1350 Certification of Chief Executive Officer and Principal 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 - the cover page XBRL tags are embedded within the Inline XBRL document.            

 

* Indicates management contract or compensatory plan or arrangement.
# Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

 

43

 

 

SIGNATURES

 

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

 

  NUKKLEUS INC.
     
  By: /s/ Menachem Shalom
Dated: September 11, 2024   Menachem Shalom
    Chief Executive Officer (Principal Executive Officer), and Principal Financial and Accounting Officer and Director

 

 

44

 

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Exhibit 31.1

 

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

 

I, Menachem Shalom, 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;

 

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: September 11, 2024 By: /s/ Menachem Shalom
    Menachem Shalom
    Chief Executive Officer (Principal Executive Officer) and Principal Financial and Accounting Officer

 

 

 

 

Exhibit 32.1

 

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

 

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

 

The undersigned, Menachem Shalom, in his capacities as Chief Executive Officer and Principal Financial Officer of Nukkleus Inc. (the “Registrant”) do each hereby certify with respect to the Quarterly Report on Form 10-Q of the Registrant for the period ended June 30, 2024, 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: September 11, 2024 /s/ Menachem Shalom
  Menachem Shalom
  Chief Executive Officer (Principal Executive Officer) and Principal Financial and Accounting Officer

 

v3.24.2.u1
Cover - shares
 9 Months Ended
Jun. 30, 2024
Aug. 27, 2024
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Entity Interactive Data Current Yes  
Amendment Flag false  
Document Period End Date Jun. 30, 2024  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q3  
Entity Information [Line Items]    
Entity Registrant Name Nukkleus Inc.  
Entity Central Index Key 0001787518  
Entity File Number 001-39341  
Entity Tax Identification Number 38-3912845  
Entity Incorporation, State or Country Code DE  
Current Fiscal Year End Date --09-30  
Entity Current Reporting Status No  
Entity Shell Company false  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Contact Personnel [Line Items]    
Entity Address, Address Line One 525 Washington Boulevard  
Entity Address, City or Town Jersey City  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 07310  
Entity Phone Fax Numbers [Line Items]    
City Area Code 212  
Local Phone Number 791-4663  
Entity Listings [Line Items]    
Entity Common Stock, Shares Outstanding   16,791,964
Common Stock, $0.0001 par value per share    
Entity Listings [Line Items]    
Title of 12(b) Security Common Stock, $0.0001 par value per share  
Trading Symbol NUKK  
Security Exchange Name NASDAQ  
Warrants, each warrant exercisable for one Share of Common Stock for $11.50 per share    
Entity Listings [Line Items]    
Title of 12(b) Security Warrants, each warrant exercisable for one Share of Common Stock for $11.50 per share  
Trading Symbol NUKKW  
Security Exchange Name NASDAQ  
v3.24.2.u1
Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2024
Sep. 30, 2023
CURRENT ASSETS:    
Cash $ 6,138 $ 19,318
Customer custodial cash 532,634 672,501
Customer digital currency assets 7,635
Digital assets 5,906 1,973
Due from affiliates 18,503 2,039,274
Other current assets 135,631 32,522
TOTAL CURRENT ASSETS 706,447 2,928,408
NON-CURRENT ASSETS:    
Cost method investment 391,217 391,217
Intangible assets, net 22,461 33,000
TOTAL NON-CURRENT ASSETS 413,678 424,217
TOTAL ASSETS 1,120,125 3,352,625
CURRENT LIABILITIES:    
Accounts payable 343,542 138,666
Customer custodial cash liabilities 882,578 1,443,011
Customer digital currency liabilities 7,635
Convertible promissory note payable, net 29,514  
Promissory note payable, net 43,997
Due to affiliates 7,944,189 6,808,749
Accrued payroll liability and directors’ compensation 551,870 402,241
Accrued professional fees 1,445,431 160,926
Accrued liabilities and other payables 197,307 169,872
TOTAL CURRENT LIABILITIES 12,127,122 9,123,465
NON-CURRENT LIABILITIES:    
Interest payable - related parties 30,633 1,771
TOTAL NON-CURRENT LIABILITIES 1,223,133 422,390
TOTAL LIABILITIES 13,350,255 9,545,855
COMMITMENTS AND CONTINGENCIES - (Note 14)
STOCKHOLDERS’ DEFICIT:    
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at June 30, 2024 and September 30, 2023)
Common stock ($0.0001 par value; 40,000,000 shares authorized; 14,802,414 and 10,074,657 shares issued and outstanding at June 30, 2024 and September 30, 2023, respectively) 1,480 1,007
Additional paid-in capital 36,764,869 25,543,048
Accumulated deficit (48,986,099) (31,769,244)
Accumulated other comprehensive (loss) income (10,380) 31,959
TOTAL STOCKHOLDERS’ DEFICIT (12,230,130) (6,193,230)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT 1,120,125 3,352,625
Related Party    
CURRENT ASSETS:    
Note receivable - related parties, net 162,820
CURRENT LIABILITIES:    
Loan payable - related parties 681,059
NON-CURRENT LIABILITIES:    
Loan payable - related parties $ 1,192,500 $ 420,619
v3.24.2.u1
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares
Jun. 30, 2024
Sep. 30, 2023
Statement of Financial Position [Abstract]    
Preferred stock, par value (in Dollars per share) $ 0.0001 $ 0.0001
Preferred stock, shares authorized 15,000,000 15,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in Dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 14,802,414 10,074,657
Common stock, shares outstanding 14,802,414 10,074,657
v3.24.2.u1
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
REVENUES        
Total revenues $ 175,214 $ 5,212,056 $ 5,677,362 $ 16,222,388
COSTS OF REVENUES        
Total costs of revenues 49,738 5,370,074 4,896,625 16,287,317
GROSS PROFIT        
Total gross profit 125,476 (158,018) 780,737 (64,929)
OPERATING EXPENSES:        
Advertising and marketing 2,355 1,670 43,941 51,087
Professional fees 1,109,315 571,761 6,009,832 1,815,200
Compensation and related benefits 219,589 233,569 743,273 591,361
Bad debt expense 6,145,942
Other general and administrative 185,864 247,783 596,474 633,083
Total operating expenses 1,517,123 1,054,783 13,539,462 3,090,731
LOSS FROM OPERATIONS (1,391,647) (1,212,801) (12,758,725) (3,155,660)
OTHER (EXPENSE) INCOME:        
Interest expense - amortization of debt discount (36,315) (36,315)
Interest expense - other (3,392) (3,392)
Loss on debts settlement (176,399) (176,399)
Other income 15,413 3,057 42,749 6,345
Total other (expense) income, net (224,594) 3,057 (215,028) 6,345
LOSS BEFORE INCOME TAXES (1,616,241) (1,209,744) (12,973,753) (3,149,315)
INCOME TAXES
NET LOSS (1,616,241) (1,209,744) (12,973,753) (3,149,315)
COMPREHENSIVE LOSS:        
NET LOSS (1,616,241) (1,209,744) (12,973,753) (3,149,315)
OTHER COMPREHENSIVE LOSS        
Unrealized foreign currency translation loss (5,608) (20,859) (42,339) (51,563)
COMPREHENSIVE LOSS $ (1,621,849) $ (1,230,603) $ (13,016,092) $ (3,200,878)
NET LOSS PER COMMON SHARE:        
Basic (in Dollars per share) $ (0.11) $ (0.12) $ (1) $ (0.31)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:        
Basic (in Shares) 14,340,876 10,074,657 12,971,216 10,074,657
Related Party        
OTHER (EXPENSE) INCOME:        
Interest expense - related parties $ (23,901) $ (41,671)
General Support Services        
REVENUES        
Total revenues 4,800,000 4,800,000 14,400,000
COSTS OF REVENUES        
Total costs of revenues 4,675,000 4,650,000 14,125,000
GROSS PROFIT        
Total gross profit 125,000 150,000 275,000
Financial Services        
REVENUES        
Total revenues 175,214 412,056 877,362 1,822,388
COSTS OF REVENUES        
Total costs of revenues 49,738 695,074 246,625 2,162,317
GROSS PROFIT        
Total gross profit $ 125,476 $ (283,018) $ 630,737 $ (339,929)
v3.24.2.u1
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Parentheticals) - $ / shares
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Income Statement [Abstract]        
Diluted $ (0.11) $ (0.12) $ (1.00) $ (0.31)
Diluted 14,340,876 10,074,657 12,971,216 10,074,657
v3.24.2.u1
Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) - USD ($)
Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Total
Balance at Oct. 01, 2022 $ 1,007 $ 25,172,170 $ (14,340,816) $ 58,219 $ 10,890,580
Balance (in Shares) at Oct. 01, 2022 10,074,657        
Stock-based compensation 146,876   146,876
Net loss (1,133,922) (1,133,922)
Foreign currency translation adjustment (27,983) (27,983)
Balance at Dec. 31, 2022 $ 1,007 25,319,046 (15,474,738) 30,236 9,875,551
Balance (in Shares) at Dec. 31, 2022 10,074,657        
Stock-based compensation 74,667 74,667
Net loss (805,649) (805,649)
Foreign currency translation adjustment (2,721) (2,721)
Balance at Mar. 31, 2023 $ 1,007 25,393,713 (16,280,387) 27,515 9,141,848
Balance (in Shares) at Mar. 31, 2023 10,074,657        
Stock-based compensation 74,667 74,667
Net loss (1,209,744) (1,209,744)
Foreign currency translation adjustment (20,859) (20,859)
Balance at Jun. 30, 2023 $ 1,007 25,468,380 (17,490,131) 6,656 7,985,912
Balance (in Shares) at Jun. 30, 2023 10,074,657        
Balance at Sep. 30, 2023           (6,193,230)
Net loss           (12,973,753)
Balance at Jun. 30, 2024 $ 1,480 36,764,869 (48,986,099) (10,380) (12,230,130)
Balance (in Shares) at Jun. 30, 2024 14,802,414        
Balance at Oct. 01, 2023 $ 1,007 25,543,048 (31,769,244) 31,959 (6,193,230)
Balance (in Shares) at Oct. 01, 2023 10,074,657        
Issuance of common stock for services $ 43 2,015,558 2,015,601
Issuance of common stock for services (in Shares)   425,295        
Conversion of related party debts into common stock $ 83 7,240,643 (4,243,102) 2,997,624
Conversion of related party debts into common stock (in Shares)   827,807        
Issuance of common stock in connection with reverse recapitalization $ 257 149,904 150,161
Issuance of common stock in connection with reverse recapitalization (in Shares)   2,571,953        
Stock-based compensation 74,667 74,667
Net loss (8,928,095) (8,928,095)
Foreign currency translation adjustment (63,313) (63,313)
Balance at Dec. 31, 2023 $ 1,390 35,023,820 (44,940,441) (31,354) (9,946,585)
Balance (in Shares) at Dec. 31, 2023 13,899,712        
Issuance of common stock for services $ 20 749,980 750,000
Issuance of common stock for services (in Shares) 202,702        
Stock-based compensation 74,668 74,668
Net loss (2,429,417) (2,429,417)
Foreign currency translation adjustment 26,582 26,582
Balance at Mar. 31, 2024 $ 1,410 35,848,468 (47,369,858) (4,772) (11,524,752)
Balance (in Shares) at Mar. 31, 2024 14,102,414        
Allocated value of warrants related to issuance of convertible debt 237,509 237,509
Beneficial conversion feature related to convertible debt 62,491 62,491
Allocated value of warrants related to debt issuance 40,804 40,804
Issuance of common stock for debts settlement $ 70 500,930 501,000
Issuance of common stock for debts settlement (in Shares) 700,000        
Stock-based compensation 74,667 74,667
Net loss (1,616,241) (1,616,241)
Foreign currency translation adjustment (5,608) (5,608)
Balance at Jun. 30, 2024 $ 1,480 $ 36,764,869 $ (48,986,099) $ (10,380) $ (12,230,130)
Balance (in Shares) at Jun. 30, 2024 14,802,414        
v3.24.2.u1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (12,973,753) $ (3,149,315)
Adjustments to reconcile net loss to net cash used in operating activities:    
Amortization of debt discount 36,315
Amortization of intangible assets 10,364 1,778,675
Stock-based compensation and service expense 2,989,603 296,210
Loss on debts settlement 176,399
Provision for bad debt 6,145,942
Bad debt recovery (4,942)
Unrealized foreign currency exchange gain (2,895) (441)
Impairment of digital assets 7,865
Changes in operating assets and liabilities:    
Customer digital currency assets (7,586) 270,421
Accounts receivable (1,886) (298)
Digital assets (3,835) 71,062
Due from affiliates (4,128,855) 648,073
Other current assets (103,236) (34,864)
Accounts payable 198,421 45,496
Customer custodial cash liabilities (610,352) (576,514)
Customer digital currency liabilities 7,586 (270,421)
Due to affiliates 3,845,945 506,149
Accrued payroll liability and directors’ compensation 147,906 126,450
Accrued professional fees 1,609,098 (111,362)
Accrued liabilities and other payables 50,644 (233,902)
NET CASH USED IN OPERATING ACTIVITIES (2,619,117) (626,716)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Investment in note receivable (154,150)
Purchase of intangible asset (41,706)
Proceeds from note receivable – related parties 131,740
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 131,740 (195,856)
CASH FLOWS FROM FINANCING ACTIVITIES    
Cash received in reverse recapitalization 150,161
Proceeds from loan payable 50,000
Repayments of loan payable (50,000)
Proceeds from loan payable - related parties 1,901,629
Repayments of loan payable - related parties (132,967)
Proceeds from issuance of convertible debt and warrants 300,000
Proceeds from issuance of debt and warrants 78,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,296,823
EFFECT OF EXCHANGE RATE ON CASH 37,507 292,591
NET DECREASE IN CASH (153,047) (529,981)
Cash - beginning of period 691,819 2,384,417
Cash - end of period 538,772 1,854,436
Cash consisted of the following:    
Cash 6,138 142,341
Customer custodial cash 532,634 1,712,095
Total cash 538,772 1,854,436
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Interest 1,425
NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Conversion of related party debts into common stock 2,997,624
Allocated value of warrants and beneficial conversion features related to convertible debt 300,000
Original Issuance Discount 75,000
Allocated value of warrants related to debt 40,804
Related party’s note receivable exchange for loan payable 37,668
Accrued liabilities settled in shares $ 324,601
v3.24.2.u1
The Company History and Nature of the Business
 9 Months Ended
Jun. 30, 2024
The Company History and Nature of the Business [Abstract]  
THE COMPANY HISTORY AND NATURE OF THE BUSINESS

NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS

 

Nukkleus Inc. (formerly known as, Brilliant Acquisition Corporation) (“Nukkleus”) was formed on May 24, 2019. Nukkleus was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination with one or more businesses or entities. On June 23, 2023, Brilliant Acquisition Corporation, a British Virgin Islands company (prior to the Merger “Brilliant”, and following the Merger, a Delaware corporation “Nukkleus”), entered into an Amended and Restated Agreement and Plan of Merger (as amended by the First Amendment to the Amended and Restated Agreement and Plan of Merger on November 1, 2023, the “Merger Agreement”), by and among Brilliant BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), and Nukkleus Inc., a Delaware corporation (“Old Nukk” or the “Company”). Old Nukk (f/k/a Compliance & Risk Management Solutions Inc.) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.

 

The Merger Agreement provides that, among other things, at the closing (the “Closing”) of the transactions contemplated by the Merger Agreement, Merger Sub merged with and into Old Nukk (the “Merger”), with Old Nukk surviving as a wholly-owned subsidiary of Brilliant. In connection with the Merger, Brilliant changed its name to “Nukkleus Inc.” (“Nukkleus” or “Combined Company”). The Merger and other transactions contemplated by the Merger Agreement are hereinafter referred to as the “Business Combination.” The Business Combination was completed on December 22, 2023 (“Closing Date”). The accompanying financial statements are those of Old Nukk, as adjusted for the reverse recapitalization, as described in Note 2.

 

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

 

Nukkleus Limited, a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a General Services Agreement (“GSA”) to TCM. TCM is a private limited liability company formed under the laws of Malta. The GSA provides that TCM will pay Nukkleus Limited at minimum $1,600,000 per month. Due to non-payment by TCM under the GSA, the Company has advised TCM that the GSA has been terminated effective January 1, 2024. Emil Assentato is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato, who is the Company’s Former Chief Executive Officer (“CEO”) and chairman, is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of TCM.

 

In addition, in order to appropriately service TCM, Nukkleus Limited entered into a GSA with FXDirectDealer LLC (“FXDIRECT”), which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,575,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. Effective May 1, 2023, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. Currency Mountain Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.

 

In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated Markets Direct Technology Group Ltd (“MDTG”), formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer pursue the regulatory licensing necessary to operate an exchange in Malta.

 

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

 

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

 

In order to expand Match’s business into the Federal Republic of Nigeria, on June 28, 2024, Match acquired 255,000,000 ordinary shares of Match Financial Nigeria Limited (“Nigeria”) representing 51% of the issued and outstanding ordinary shares of Nigeria at no cost. Nigeria is a private limited company formed in the Federal Republic of Nigeria. There was no activity for Nigeria since its incorporation through June 30, 2024.

 

On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 548,767 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin exchange-traded fund (“ETF”). Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s former chief executive officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.

 

On December 30, 2021, Old Nukk and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which Old Nukk acquired 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of shares of common stock, which following the Merger represented 415,733 shares of common stock of the Company (valued at $5,000,000 based on the market price of Old Nukk’s common stock on the acquisition date) (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. In addition, upon the closing of the Merger, the Company agreed to provide an additional $1 million in investment to Digiclear in exchange for 4.545% of additional shares of Digiclear’s capital stock subject to the parties entering a definitive agreement. The Company and Digiclear have not entered into an additional agreement outlining the terms pursuant to which the Company would acquire the additional shares of Digiclear. Digiclear is a company developing a custody and settlement utility operating system.

 

Liquidity and capital resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2024 and September 30, 2023, the Company had cash of approximately $6,000 and $19,000, respectively, exclusive of customer custodial cash.

 

The condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company had a working capital deficit of approximately $11,421,000 at June 30, 2024 and incurred a net loss and generated negative cash flow from operating activities of approximately $12,974,000 and $2,619,000 for the nine months ended June 30, 2024, respectively. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that the Company will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. The Company plans on raising capital through the sale of equity to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to the Company on satisfactory terms and conditions, if any.

 

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
v3.24.2.u1
Basis of Presentation and Principles of Consolidation
 9 Months Ended
Jun. 30, 2024
Basis of Presentation and Principles of Consolidation [Abstract]  
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

NOTE 2 – BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

Reverse recapitalization

 

Pursuant to the Merger Agreement, the merger between Brilliant and Old Nukk was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (the “Reverse Recapitalization”). Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Old Nukk issuing stock for the net assets of Brilliant, accompanied by a recapitalization. The net assets of Brilliant are stated at historical cost, with no goodwill or other intangible assets recorded.

 

Old Nukk was determined to be the accounting acquirer based on the following predominant factors:

 

  ● Old Nukk’s existing stockholders have the greatest voting interest in the Combined Company;

 

  ● Old Nukk controls the majority of the board of directors of the Combined Company and, given the board of directors election and retention provisions, Old Nukk holds the ability to maintain control of the board of directors on a go-forward basis; and

 

  ● Old Nukk’s senior management is the senior management of the Combined Company.

 

The condensed consolidated assets, liabilities, and results of operations prior to the Reverse Recapitalization are those of Old Nukk. The shares and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.

 

Principals of consolidation

 

These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

 

The Company’s condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 filed with the Securities and Exchange Commission on July 12, 2024. The consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023, but does not include all disclosures required by U.S. GAAP.
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Summary of Significant Accounting Policies
 9 Months Ended
Jun. 30, 2024
Summary of Significant Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

 

Significant estimates during the three and nine months ended June 30, 2024 and 2023 include the allowance for doubtful accounts, the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, the fair value of customer digital currency assets and liabilities, and assumptions used to determine fair value of warrants, beneficial conversion feature and embedded conversion features of convertible note payable.

 

Cash and cash equivalents

 

As of June 30, 2024 and September 30, 2023, the Company’s cash balances by geographic area were as follows:

 

Country:  June 30, 2024   September 30, 2023 
United States  $1,773    28.9%  $7,675    39.7%
United Kingdom   4,087    66.6%   11,469    59.4%
Republic of Lithuania   104    1.7%   
-
    
-
 
Malta   174    2.8%   174    0.9%
Total cash  $6,138    100.0%  $19,318    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, 2024 and September 30, 2023. Cash and cash equivalents excludes customer legal tender, which is reported separately as customer custodial cash in the accompanying condensed consolidated balance sheets. Refer to “customer custodial cash and customer custodial cash liabilities” below for further details.

 

Customer custodial cash and customer custodial cash liabilities

 

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

 

Customer digital currency assets and liabilities

 

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

 

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

 

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

 

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

 

Fair value of financial instruments and fair value measurements

  

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

  ● Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

  ● Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

  ● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

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

 

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

 

The following table provides these assets and liabilities carried at fair value, measured as of June 30, 2024:

 

   Quoted
Price in		   Significant Other   Significant    
   Active
Markets		   Observable
Inputs		   Unobservable
Inputs		   Balance at
June 30,		 
   (Level 1)   (Level 2)   (Level 3)   2024 
Customer digital currency assets  $
  -
   $7,635   $
    -
   $7,635 
Customer digital currency liabilities  $
-
   $7,635   $
-
   $7,635 

 

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

 

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

 

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

 

Digital assets

 

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

 

Credit risk and uncertainties

 

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.

 

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.

 

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances, including customer custodial cash, in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company may also hold cash at digital asset trading platforms and performs a regular assessment of these digital asset trading platforms as part of its risk management process. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2024, there were no balances in excess of the federally-insured limits.

 

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

 

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

 

Note receivable – related parties

 

Note receivable – related parties is presented net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors, including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend. Note receivable is written off after exhaustive efforts at collection. During the nine months ended June 30, 2024, accounts with the amount of approximately $657,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-offs of note receivable – related parties against the allowance for doubtful accounts only impact the balance sheet accounts. At June 30, 2024 and September 30, 2023, the Company has established, based on a review of its outstanding balances, an allowance for doubtful account in the amounts of $0 and $637,072, respectively, for its note receivable – related parties.

 

Other current assets

 

Other current assets primarily consist of prepaid directors and officers’ liability insurance premium, prepaid NASDAQ listing fee, security deposit, and accounts receivable. As of June 30, 2024 and September 30, 2023, other current assets amounted to $135,631 and $32,522, respectively.

 

Variable interest entity (“VIE”)

 

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE.

 

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then the Company consolidates the VIE.

 

The Company analyzes its investment in Jacobi to determine whether it is a VIE and, if so, whether the Company is the primary beneficiary in accordance with ASC 810 Consolidation. The Company determines Jacobi is a VIE since it has insufficient equity to permit it to finance its activities without additional subordinated financial support. In determining whether it is the primary beneficiary, the Company considers whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also considers whether it has the obligation to absorb losses of, or the right to receive benefits from, the VIE. The Company is not the primary beneficiary of Jacobi as it does not have the power to direct the activities that most significantly impact the economic performance of Jacobi, due to Jacobi’ management and board of directors’ structure. As a result, the variable interest entity is not consolidated. Creditors of the Company’s variable interest entity do not have recourse against the general credit of the Company. The Company uses the cost method to account for its investment in Jacobi in which the Company is not deemed to be the primary beneficiary.

 

The Company’s investment in unconsolidated variable interest entity is classified as cost method investment in the condensed consolidated balance sheets. The Company’s assets and liabilities with the variable interest entity are classified as due from/to affiliates.

 

As of June 30, 2024 and September 30, 2023, the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:

 

   June 30,
2024		   September 30,
2023		 
Cost method investment  $391,217   $391,217 
Due from affiliates   
-
    95,274 
Total VIE assets  $391,217   $486,491 
Maximum exposure to loss  $391,217   $486,491 

 

Intangible assets

 

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

 

Revenue recognition

 

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

 

  ● Step 1: Identify the contract with the customer

 

  ● Step 2: Identify the performance obligations in the contract

 

  ● Step 3: Determine the transaction price

 

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

 

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

 

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

 

  ● General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA (including operational reporting and technical support infrastructure, website hosting and marketing solutions, accounting maintenance, risk monitoring services, new account processing and customer care and continued support) and these performance obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under the terms of the GSA. The Company recognizes the full contracted amount each period with no deferred revenue. The nature of the performance obligation is to provide the specified goods or services directly to the customer. The Company engages another party to satisfy the performance obligation on its behalf. The Company’s performance obligation is not to arrange for the provision of the specified good or service by another party. The Company is primarily responsible for fulfilling the promise to provide the specified good or service. Therefore, the Company is deemed to be a principal in the transaction and recognizes revenue for that performance obligation. The Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. Under a GSA, the Company is contractually obligated to provide for the fulfillment software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company’s approximately 2% mark-up to the costs of the services being provided by FXDirect Dealer, LLC.

 

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

 

Disaggregation of revenues

 

The Company’s revenues stream detail are as follows:

 

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

 

In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2024 and 2023:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Revenue Stream  2024   2023   2024   2023 
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total revenues  $175,214   $5,212,056   $5,677,362   $16,222,388 

 

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended June 30, 2024 and 2023 as there was no impairment indicator noted.

 

Beneficial conversion features and warrants

 

The Company evaluates the conversion feature of convertible debt instruments to determine whether the conversion feature was beneficial as described in ASC 470-30, Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants with the convertible instruments using the Black-Scholes valuation model.

 

Under these guidelines, the Company first allocates the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable instruments included in the transaction (such as warrants) on a relative fair value basis. A BCF is then measured as the intrinsic value of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible. The allocated value of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument.

 

Advertising and marketing costs

 

All costs related to advertising and marketing are expensed as incurred. For the three months ended June 30, 2024 and 2023, advertising and marketing costs amounted to $2,355 and $1,670, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2024 and 2023, advertising and marketing costs amounted to $43,941 and $51,087, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

Income taxes

 

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

 

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

 

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

 

Foreign currency translation

 

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

 

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

 

Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.7904 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.9329 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 1.3694 CAD and 1.3591 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.7955 GBP and 0.8249 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.9261 EUR and 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and for the period from February 18, 2023 through June 30, 2023 was 1.3597 CAD and 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

 

Comprehensive loss

 

Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2024 and 2023 consisted of net loss and unrealized loss from foreign currency translation adjustment.

 

Stock-based compensation

 

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

 

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

 

Segment reporting

 

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

 

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

 

Per share data

 

ASC Topic 260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

 

Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three and nine months ended June 30, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.

 

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

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Options to purchase common stock   124,286    124,286    124,286    167,143 
Warrants to purchase common stock   8,017,279    
-
    8,017,279    
-
 
Potentially dilutive security   8,141,565    124,286    8,141,565    167,143 

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.

 

Merger

 

Old Nukk completed a Business Combination with Brilliant on December 22, 2023. All references in these condensed consolidated financial statements to shares and corresponding capital amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.

 

Recently issued accounting pronouncements

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
v3.24.2.u1
Customer Assets and Liabilities
 9 Months Ended
Jun. 30, 2024
Customer Assets and Liabilities [Abstract]  
CUSTOMER ASSETS AND LIABILITIES

NOTE 4 – CUSTOMER ASSETS AND LIABILITIES

 

The Company includes customer funds in the condensed consolidated balance sheets as customer custodial cash and includes these cash deposits to be utilized for its contractual obligations to its customers as customer custodial cash liabilities in the condensed consolidated balance sheets. The following table presents customers’ cash and digital positions:

 

   June 30,
2024		   September 30,
2023		 
Customer custodial cash  $532,634   $672,501 
Customer digital currency assets   7,635    
-
 
Total customer assets  $540,269   $672,501 
           
Customer custodial cash liabilities  $882,578   $1,443,011 
Customer digital currency liabilities   7,635    
-
 
Total customer liabilities  $890,213   $1,443,011 

 

The Company controls digital assets for its customers in digital wallets and digital token identifiers necessary to access digital assets on digital asset trading platforms. The Company maintains a record of all assets in digital wallets held on digital asset trading platforms as well as the private keys, which are maintained on behalf of customers. The Company records the assets and liabilities, on the initial recognition and at each reporting date, at the fair value of the digital assets which it controls for its customers. Any loss or theft would impact the measurement of the customer digital currency assets. During the three and nine months ended June 30, 2024 and 2023, no losses have been incurred in connection with customer digital currency assets. The Company also controls the bank accounts holding the customer custodial cash, as reflected on the accompanying condensed consolidated balance sheets.

 

The following table sets forth the fair market value of customer digital currency assets, as shown in the condensed consolidated balance sheets, as customer digital currency assets and customer digital currency liabilities, as of June 30, 2024 and September 30, 2023:

 

   June 30, 2024   September 30, 2023 
   Fair Value   Percentage of Total   Fair Value   Percentage of Total 
Stablecoin/USD Coin  $6,066    79.4%  $
-
    
-
 
Ethereum   1,569    20.6%   
-
    
-
 
Total customer digital currency assets  $7,635    100.0%  $
-
    
-
 
v3.24.2.u1
Digital Assets
 9 Months Ended
Jun. 30, 2024
Digital Assets [Abstract]  
DIGITAL ASSETS

NOTE 5 – DIGITAL ASSETS

 

The following table summarizes the Company’s digital asset holdings as of June 30, 2024:

 

Asset  Estimated Useful Life  Cost   Impairment   Digital Assets 
Bitcoin  Indefinite  $1,523   $
        -
   $1,523 
Ethereum  Indefinite   732    
-
    732 
Stablecoin/USD Coin  Indefinite   3,024    
-
    3,024 
Other  Indefinite   627    
-
    627 
Total     $5,906   $
-
   $5,906 

 

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

 

Asset  Estimated Useful Life  Cost   Impairment   Digital Assets 
Bitcoin  Indefinite  $894   $
       -
   $894 
Ethereum  Indefinite   709    
-
    709 
Stablecoin/USD Coin  Indefinite   284    
-
    284 
Other  Indefinite   86    
-
    86 
Total     $1,973   $
-
   $1,973 

 

The Company recorded impairment expense of $0 and $122 for the three months ended June 30, 2024 and 2023, respectively, which was included in other general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

The Company recorded impairment expense of $0 and $7,865 for the nine months ended June 30, 2024 and 2023, respectively, which was included in other general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.
v3.24.2.u1
Loan Payable
 9 Months Ended
Jun. 30, 2024
Loan Payable [Abstract]  
LOAN PAYABLE

NOTE 6 – LOAN PAYABLE

 

In November 2023, the Company entered into a loan agreement with a third party. Pursuant to the loan agreement, the Company borrowed $50,000 from the third party. The loan bore a fixed interest rate of 0% per annum and was payable on demand.

 

In January 2024, this loan was repaid in full.
v3.24.2.u1
Convertible Promissory Note Payable, Net
 9 Months Ended
Jun. 30, 2024
Convertible Promissory Note Payable, Net [Abstract]  
CONVERTIBLE PROMISSORY NOTE PAYABLE, NET

NOTE 7 - CONVERTIBLE PROMISSORY NOTE PAYABLE, NET

 

June 11, 2024 convertible promissory note payable

 

On June 11, 2024 (the “Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “Note”) in the principal amount of $312,500 to X Group Fund of Funds (“X Group”), in consideration of cash proceeds in the amount of $250,000 after an original issue discount of $62,500. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. In addition, the Company issued X Group a Stock Purchase Warrant (“Warrant”) to acquire 1,200,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. X Group shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25.

 

The Company and X Group also entered into a Restructuring Agreement providing that, among other items, X Group, in its sole discretion, will have the right for a period for six months from the Effective Date (the “Investment Period”), to lend the Company an additional $500,000 in consideration of a convertible promissory note that will have a term of two years, bear interest at 12% and will convert into shares of common stock at a per share price of $0.25.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued to X Group are classified as equity in additional paid-in capital.

 

In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.

 

The fair values of the warrants issued to the investor were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 182.23%, risk-free rate of 4.41%, annual dividend yield of 0% and expected life of 5 years.

 

The Company recorded a beneficial conversion feature of $12,491 based on the intrinsic value of the conversion option at June 11, 2024.

 

Therefore, the Company recorded a total debt discount of $312,500 related to the original issue discount, warrants issued to X Group, and beneficial conversion feature, which will be amortized over the term of the Note.

 

June 17, 2024 and June 18, 2024 convertible promissory note payable

 

On June 17, 2024, the Company issued an additional Note in the principal amount of $31,250 to X Group, in consideration of cash proceeds in the amount of $25,000 after an original issue discount of $6,250. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. X Group shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25. The Company recorded a beneficial conversion feature of $25,000 based on the intrinsic value of the conversion option at June 17, 2024.

 

On June 18, 2024, the Company issued an additional Note in the principal amount of $31,250 to X Group, in consideration of cash proceeds in the amount of $25,000 after an original issue discount of $6,250. The Note bears interest of 12.0% per annum and is due and payable six months after issuance. X Group shall have the right to convert the principal and interest payable under the Note into shares of common stock of the Company at a per share conversion price of $0.25. The Company recorded a beneficial conversion feature of $25,000 based on the intrinsic value of the conversion option at June 18, 2024.

 

Therefore, the Company recorded a total debt discount of $62,500 related to the original issue discounts and beneficial conversion features, which will be amortized over the term of the Note.

 

For the three and nine months ended June 30, 2024, amortization of debt discount and interest expense related to the Note amounted to $29,514 and $2,332, respectively, which have been included in interest expense — amortization of debt discount and interest expense — other on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

At June 30, 2024, convertible promissory note payable consisted of the following:

 

   June 30,
2024		 
Principal amount  $375,000 
Less: unamortized debt discount   (345,486)
Convertible promissory note payable, net  $29,514 
v3.24.2.u1
Promissory Note Payable, Net
 9 Months Ended
Jun. 30, 2024
Promissory Note Payable, Net [Abstract]  
PROMISSORY NOTE PAYABLE, NET

NOTE 8 - PROMISSORY NOTE PAYABLE, NET

 

On April 30, 2024, the Company issued a promissory note (“April 2024 Loan”) in the principal amount of $78,000 to an investor in consideration of cash proceeds in the amount of $78,000. In addition to the April 2024 Loan, the investor also received a Stock Purchase Warrant (“April 2024 Warrant”) to acquire 116,279 shares of common stock. The April 2024 Warrant is exercisable for three years at an exercise price of $0.86. The April 2024 Loan bears interest of 8.0% per annum and is due and payable on April 30, 2025.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued to the investor are classified as equity in additional paid in-capital.

 

In accordance with ASC 470-20-25-2, proceeds from the sale of a debt instrument with stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are accounted for as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction.

 

The fair values of the warrants issued to the investor were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 174.03%, risk-free rate of 4.87%, annual dividend yield of 0% and expected life of 3 years.

 

The warrants issued to the investor to purchase 116,279 shares of the Company’s common stock were treated as a discount on the promissory note payable and were valued at $40,804 and will be amortized over the term of the April 2024 Loan.

 

For the three and nine months ended June 30, 2024, amortization of debt discount and interest expense related to the April 2024 Loan amounted to $6,801 and $1,060, respectively, which have been included in interest expense — amortization of debt discount and interest expense — other on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

At June 30, 2024, promissory note payable consisted of the following:

 

   June 30,
2024		 
Principal amount  $78,000 
Less: unamortized debt discount   (34,003)
Promissory note payable, net  $43,997 
v3.24.2.u1
Accrued Liabilities and Other Payables
 9 Months Ended
Jun. 30, 2024
Accrued Liabilities and Other Payables [Abstract]  
ACCRUED LIABILITIES AND OTHER PAYABLES

NOTE 9 – ACCRUED LIABILITIES AND OTHER PAYABLES

 

At June 30, 2024 and September 30, 2023, accrued liabilities and other payables consisted of the following:

 

   June 30,
2024		   September 30,
2023		 
Unearned revenue  $157,276   $151,617 
Interest payable   3,392    
-
 
Interest payable – related parties   10,942    
-
 
Others   25,697    18,255 
Total  $197,307   $169,872 
v3.24.2.u1
Share Capital
 9 Months Ended
Jun. 30, 2024
Share Capital [Abstract]  
SHARE CAPITAL

NOTE 10 – SHARE CAPITAL

 

Common shares issued for services

 

During the nine months ended June 30, 2024, the Company issued a total of 627,997 shares of its common stock for services rendered. These shares were valued at $2,765,601, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $2,765,601 for the nine months ended June 30, 2024.

 

Common shares issued for related party debts conversion

 

On December 19, 2023, the Company and FXDIRECT, a related party, entered into a Debt Conversion Agreement pursuant to which the outstanding amount of $2,727,061 was converted into 757,678 shares of common stock of the Company. The fair market value of the shares issued exceeded the total amount of the debt converted of $2,727,061 by $3,900,255 which was treated as a distribution transaction due to FXDIRECT’s relationship with the Company.

 

On December 19, 2023, the Company and Emil Assentato, the Company’s former chief executive officer and chairman, entered into a Debt Conversion Agreement pursuant to which the outstanding principal amount of $270,000 and unpaid interest of $563 were converted into 70,129 shares of common stock of the Company (see Note 11 - Loan payable – related parties and interest payable – related parties). The fair market value of the shares issued exceeded the total amount of the debt converted of $270,563 by $342,847 which was treated as a distribution transaction due to Mr. Assentato’s relationship with the Company.

 

Common shares issued pursuant to Settlement Agreement and Stipulation

 

On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (“Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, on May 31, 2024, the Company settled $324,601 debt owed by issuance of the Company’s 660,000 shares of common stock. The 660,000 shares issued had a fair value of $463,716, of which, $324,601 was recorded as a reduction of accrued liabilities and $139,115 of the excess fair value was recorded as loss on debts settlement.

 

Pursuant to the Settlement Agreement, the Company issued 40,000 shares of its common stock as a settlement fee. These shares were valued at $37,284, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded loss on debts settlement of $37,284.

 

Options

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2024:

 

Options Outstanding   Options Exercisable 
Range of
Exercise Price		   Number
Outstanding at
June 30,
2024		   Weighted Average
Remaining
Contractual Life
(Years)		   Weighted
Average
Exercise
Price		   Number
Exercisable at
June 30,
2024		   Weighted
Average
Exercise
Price		 
$ 3.15 – 15.75    95,715    2.51   $4.44    64,286   $4.51 
 87.50    28,571    2.22    87.50    28,571    87.50 
$ 3.15 – 87.50    124,286    2.44   $23.53    92,857   $30.05 

 

Stock option activities for the nine months ended June 30, 2024 were as follows:

 

   Number of
Options		   Weighted
Average
Exercise
Price		 
Outstanding at September 30, 2023   124,286   $23.53 
Granted   
-
    
-
 
Outstanding at June 30, 2024   124,286   $23.53 
Options exercisable at June 30, 2024   92,857   $30.05 
Options expected to vest   31,429   $4.30 

 

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at June 30, 2024 was $0. 

 

For the three months ended June 30, 2024 and 2023, stock-based compensation expense associated with stock options granted amounted to $74,667 and $74,667, respectively, which was recorded as professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

For the nine months ended June 30, 2024 and 2023, stock-based compensation expense associated with stock options granted amounted to $224,002 and $296,210, respectively, which was recorded as professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

A summary of the status of the Company’s nonvested stock options granted as of June 30, 2024 and changes during the nine months ended June 30, 2024 is presented below:

 

   Number of
Options		   Weighted
Average
Exercise
Price		 
Nonvested at September 30, 2023   34,286   $5.25 
Vested   (2,857)   (15.75)
Nonvested at June 30, 2024   31,429   $4.30 

 

Warrants

 

As a result of the Business Combination which was completed on December 22, 2023, 6,701,000 warrants of Brilliant were converted into 6,701,000 warrants of the Combined Company.

 

Stock warrant activities during the period from Closing Date to June 30, 2024 were as follows:

 

   Number of
Options		   Weighted
Average
Exercise
Price		 
Outstanding at Closing Date   6,701,000   $11.50 
Granted   1,316,279    0.30 
Outstanding and exercisable at June 30, 2024   8,017,279   $9.66 

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2024:

 

Warrants Outstanding   Warrants Exercisable 
Range of Exercise Price   Number Outstanding at June 30, 2024   Weighted Average Remaining Contractual Life (Years)   Weighted Average Exercise Price   Number Exercisable at June 30, 2024   Weighted Average Exercise
Price		 
$11.50    6,701,000    4.49   $11.50    6,701,000   $11.50 
 0.25 – 0.86    1,316,279    4.76    0.30    1,316,279    0.30 
 0.25 – 11.50    8,017,279    4.54   $9.66    8,017,279   $9.66 

 

The aggregate intrinsic value of stock warrants outstanding and stock warrants exercisable at June 30, 2024 was approximately $166,000.
v3.24.2.u1
Related Party Transactions
 9 Months Ended
Jun. 30, 2024
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 11 – RELATED PARTY TRANSACTIONS

 

Services provided by related parties

 

From time to time, Oliver Worsley, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $15,130 and $14,942 for the three months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $38,969 and $40,005 for the nine months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

From time to time, Craig Vallis, a shareholder of the Company, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $27,230 and $26,017 for the three months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. As compensation for professional services provided, the Company recognized consulting expenses of $68,008 and $100,012 for the nine months ended June 30, 2024 and 2023, respectively, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

From time to time, Jamal Khurshid, the Company’s former chief executive officer and director, provides consulting services to the Company. As compensation for professional services provided, the Company recognized consulting expenses of $38,243 for the three and nine months ended June 30, 2024, which have been included in professional fees on the accompanying condensed consolidated statements of operations and comprehensive loss. Jamal Khurshid did not provide any consulting services to the Company for the three and nine months ended June 30, 2023.

 

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. Due to non-payment by TCM under the GSA, the Company had advised TCM that the GSA has been terminated effective January 1, 2024.

 

The Company’s general support services operate under a GSA with FXDIRECT receiving personnel and technical support, marketing, accounting, risk monitoring, documentation processing and customer care and support. The minimum monthly amount payable is $1,575,000. Effective May 1, 2023, the minimum amount payable by the Company to FXDIRECT for services was reduced from $1,575,000 per month to $1,550,000 per month.

 

Both of the above entities are affiliates through common ownership.

 

During the three and nine months ended June 30, 2024 and 2023, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Service provided to:                    
TCM  $
-
   $4,800,000   $4,800,000   $14,400,000 
   $
-
   $4,800,000   $4,800,000   $14,400,000 

 

During the three and nine months ended June 30, 2024 and 2023, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Service received from:                
FXDIRECT  $
-
   $4,675,000   $4,650,000   $14,125,000 
   $
-
   $4,675,000   $4,650,000   $14,125,000 

 

During the three months ended June 30, 2024 and 2023, Digital RFQ earned revenue from related parties in the amount of $7,722 and $29,343, respectively, which was included in revenue – financial services on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

During the nine months ended June 30, 2024 and 2023, Digital RFQ earned revenue from related parties in the amount of $69,050 and $107,859, respectively, which was included in revenue – financial services on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

Due from affiliates

 

At June 30, 2024 and September 30, 2023, due from affiliates consisted of the following:

 

   June 30,
2024		   September 30,
2023		 
Jacobi  $
-
   $95,274 
FXDD Mauritius (1)   6,001    1,500 
TCM   12,502    1,942,500 
Total  $18,503   $2,039,274 

 

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

 

The balances due from Jacobi, FXDD Mauritius, and TCM represent monies that the Company paid on behalf of Jacobi, FXDD Mauritius, and TCM. The balance due from TCM as of September 30, 2023 also included unsettled funds due related to the General Service Agreement.

 

Management believes that the affiliates’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from affiliates at June 30, 2024 and September 30, 2023. 

 

Due to affiliates

 

At June 30, 2024 and September 30, 2023, due to affiliates consisted of the following:

 

   June 30,
2024		   September 30,
2023		 
Forexware LLC (1)  $1,207,201   $1,211,778 
FXDIRECT (2)   6,209,179    5,064,428 
Currency Mountain Holdings Bermuda, Limited (“CMH”)   42,000    42,000 
FXDD Trading (1)   411,585    396,793 
Markets Direct Payments (1)   2,404    2,317 
Match Fintech Limited (3)   48,920    91,433 
Craig Vallis   4,005    
-
 
Jamal Khurshid (4)   18,895    
-
 
Total  $7,944,189   $6,808,749 

 

(1)Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s former chief executive officer and chairman.
(2)The partial outstanding amount of $2,727,061 due to FXDIRECT was converted into 757,678 shares of common stock of the Company in December 2023 (See Note 10 – Common shares issued for related party debts conversion).
(3)Match Fintech Limited is controlled by affiliates of the Company.
(4)Jamal Khurshid is the Company’s former chief executive officer and director.

 

The balances due to affiliates represent expenses paid by Forexware LLC, FXDIRECT, FXDD Trading, Markets Direct Payments, Match Fintech Limited, Craig Vallis, and Jamal Khurshid on behalf of the Company and advances from CMH. The balance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.

 

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

 

Customer digital currency assets and liabilities – related parties

 

At June 30, 2024 and September 30, 2023, related parties’ digital currency, which was controlled by Digital RFQ, amounted to $5,848 and $0, respectively, which was included in customer digital currency assets and liabilities on the accompanying condensed consolidated balance sheets.

 

Note receivable – related parties

 

Promissory note

 

The Company originated a note receivable to a shareholder in the principal amount of $35,000 on September 1, 2022. The note matured with respect to $17,500 on March 1, 2023 and with respect to $17,500 on September 1, 2023. The note bears a fixed interest rate of 5.0% per annum. The principal was funded with cash custodial money. In April 2024, the note was exchanged for loan payable – related parties. 

 

Line of credit

 

On July 31, 2023, the Company entered into a Credit Deed (the “Credit Deed”) providing a $1 million line of credit (the “Line of Credit”) to a related party company which is a client of Digital RFQ. The Line of Credit allows the related party company to request loans thereunder until amount reaches $1 million. Loan drawn under the Line of Credit bears interest at an annual rate of 8% and will be receivable in installments commencing on December 31, 2023. The Line of Credit was collateralized by 133,514 shares of common stock of the Company.

 

In the nine months ended June 30, 2024, activity recorded for the Line of Credit is summarized in the following table:

 

Outstanding principal under the Line of Credit at September 30, 2023  $127,820 
Repayment of Line of Credit   (127,820)
Outstanding principal under the Line of Credit at June 30, 2024  $
-
 

 

During the nine months ended June 30, 2024, accrued and unpaid interest related to the line of credit with the amount of approximately $10,000 was written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-off of interest receivable against the allowance for doubtful accounts only impact the balance sheet accounts. At June 30, 2024 and September 30, 2023, the Company has established, based on a review of its outstanding interest receivable, an allowance for doubtful account in the amounts of $0 and $10,199, respectively, for the receivable.

 

Loan payable – related parties and interest payable – related parties

 

On July 19, 2023, Digital RFQ issued a promissory note (the “July 2023 Loan”) in the principal amount of $75,619 to Jamal Khurshid, the Company’s former chief executive officer and director, in consideration of cash proceeds in the amount of $75,619. The July 2023 Loan bore interest of 5.0% per annum and was due and payable on July 19, 2026. On November 24, 2023, Digital RFQ borrowed additional GBP 4,000 (approximately $5,000) from Jamal Khurshid. On November 27, 2023, all outstanding balances of principal and accrued interest related to the borrowings from Jamal Khurshid were repaid in full.

 

On August 15, 2023, Digital RFQ issued a promissory note (the “August 2023 Loan”) in the principal amount of $75,000 to Emil Assentato, the Company’s former chief executive officer and chairman, in consideration of cash proceeds in the amount of $75,000. The August 2023 Loan bears interest of 5.0% per annum and is due and payable on August 15, 2026. In January 2024, the Company repaid $50,000. As of June 30, 2024, the outstanding principal balance was $25,000.

 

On September 18, 2023, the Company issued a promissory note (the “September 2023 Loan”) in the principal amount of $270,000 to Emil Assentato, the Company’s former chief executive officer and chairman, in consideration of cash proceeds in the amount of $270,000. The September 2023 Loan bore interest of 5.0% per annum and was due and payable on September 18, 2026. In December 2023, the September 2023 Loan principal of $270,000 and related accrued interest of $563 were converted into 70,129 shares of common stock of the Company (See Note 10 – Common shares issued for related party debts conversion).

 

On March 6, 2024, Digital RFQ entered into a facility agreement with Craig Vallis, a shareholder of the Company, providing Digital RFQ with up to $500,000 loan. The facility allows Digital RFQ to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes. Loans drawn under the facility bear interest at a monthly rate of 4%. This loan will be repaid in according to these installments set out in the facility agreement with the last installment due on July 31, 2024. As of June 30, 2024, the outstanding principal balance was $405,676. As of the date of this report, this loan is still outstanding.

 

On March 12, 2024, Digital RFQ entered into a loan agreement with Oliver Worsley, a shareholder of the Company, providing Digital RFQ with up to GBP 395,000 (approximately $499,000) loan. The loan agreement allows Digital RFQ to request loans thereunder and to use the proceeds of such loans for working capital and operating expense purposes. Loans drawn under the loan agreement bear interest at an annual rate of 10%. This loan is unsecured and is due and payable on March 31, 2025. In April 2024, a portion of outstanding principal was exchanged for note receivable – related party. As of June 30, 2024, the outstanding principal balance was $275,383.

 

During the nine months ended June 30, 2024, the Company issued a few promissory notes in the aggregate principal of $1,167,500 to Emil Assentato and Max Q, in consideration of cash proceeds in the amount of $1,167,500. These loans bear interest of 5.0% per annum and each individual loan will be due and payable three years from the date of issuance. As of June 30, 2024, the outstanding principal balance totaled $1,167,500.

 

For the three and nine months ended June 30, 2024, the interest expense related to related parties’ loans amounted to $23,901 and $41,671, respectively, and has been reflected as interest expense – related parties on the accompanying condensed consolidated statements of operations and comprehensive loss.

 

As of June 30, 2024 and September 30, 2023, the related accrued and unpaid interest for related parties’ loans was $41,575 and $1,771, respectively, of which, $10,942 and $0 was included in accrued liabilities and other payables, and $30,633 and $1,771 was reflected as interest payable – related parties, respectively, on the accompanying condensed consolidated balance sheets.

 

Letter agreement with ClearThink

 

Nukkleus was party to a letter agreement with ClearThink dated as of November 22, 2021, pursuant to which ClearThink was engaged by Nukkleus in connection with the Business Combination.

 

Craig Marshak, a former member of the Board of Directors of the Company, was a managing director of ClearThink, a transaction advisory firm. ClearThink had been engaged by the Company to serve as the exclusive transactional financial advisor, and finder with respect to the Business Combination, to advise the Company with respect to the Business Combination. The letter agreement was terminated on October 27, 2023. The Company paid ClearThink $210,000 as of the date of closing of the Business Combination.
v3.24.2.u1
Concentrations
 9 Months Ended
Jun. 30, 2024
Concentrations [Abstract]  
CONCENTRATIONS

NOTE 12 – 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, 2024 and 2023.

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Customer  2024   2023   2024   2023 
A – related party   
*
    92.1%   84.5%   88.8%
B   37.2%   
*
    
*
    
*
 
C   10.1%   
*
    
*
    
*
 

 

*Less than 10%

 

Two related party customers, whose outstanding receivables accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2024, accounted for 87.9% of the Company’s total outstanding accounts receivable and due from affiliates at June 30, 2024.

 

One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable and due from affiliates at September 30, 2023, accounted for 95.2% of the Company’s total outstanding accounts receivable and due from affiliates at September 30, 2023.

 

Suppliers

 

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s costs of revenues for the three and nine months ended June 30, 2024 and 2023.

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Supplier  2024   2023   2024   2023 
A – related party   
*
    87.1%   95.0%   86.7%
B   48.9%   
*
    
*
    
*
 
C   20.3%   
*
    
*
    
*
 

 

*Less than 10%

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at June 30, 2024, accounted for 70.8% of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at June 30, 2024.

 

Two related party suppliers, whose outstanding payables accounted for 10% or more of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at September 30, 2023, accounted for 81.7% of the Company’s total outstanding accounts payable, accrued liabilities and other payables, and due to affiliates at September 30, 2023.
v3.24.2.u1
Segment Information
 9 Months Ended
Jun. 30, 2024
Segment Information [Abstract]  
SEGMENT INFORMATION

NOTE 13 – SEGMENT INFORMATION

 

For the three and nine months ended June 30, 2024 and 2023, the Company operated in two reportable business segments - (1) the general support services segment, in which we provide software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party; and (2) the financial services segment, in which we provide payment services from one fiat currency to another or to digital assets. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.

 

Information with respect to these reportable business segments for the three and nine months ended June 30, 2024 and 2023 was as follows:

 

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Revenues                
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total   175,214    5,212,056    5,677,362    16,222,388 
                     
Costs of revenues                    
General support services   
-
    4,675,000    4,650,000    14,125,000 
Financial services   49,738    695,074    246,625    2,162,317 
Total   49,738    5,370,074    4,896,625    16,287,317 
                     
Gross profit (loss)                    
General support services   
-
    125,000    150,000    275,000 
Financial services   125,476    (283,018)   630,737    (339,929)
Total   125,476    (158,018)   780,737    (64,929)
                     
Operating expenses                    
Financial services   487,750    558,228    1,482,560    1,595,955 
Corporate/Other   1,029,373    496,555    12,056,902    1,494,776 
Total   1,517,123    1,054,783    13,539,462    3,090,731 
                     
Other income (expense)                    
Financial services   4,230    3,057    29,683    6,345 
Corporate/Other   (228,824)   
-
    (244,711)   
-
 
Total   (224,594)   3,057    (215,028)   6,345 
                     
Net income (loss)                    
General support services   
-
    125,000    150,000    275,000 
Financial services   (358,044)   (838,189)   (822,140)   (1,929,539)
Corporate/Other   (1,258,197)   (496,555)   (12,301,613)   (1,494,776)
Total   (1,616,241)   (1,209,744)   (12,973,753)   (3,149,315)
                     
Amortization                    
Financial services   3,432    591,955    10,364    1,775,865 
Corporate/Other   
-
    937    
-
    2,810 
Total  $3,432   $592,892   $10,364   $1,778,675 

 

Total assets at June 30, 2024 and September 30, 2023  June 30,
2024		   September 30,
2023		 
Financial services  $624,757   $1,004,708 
Corporate/Other   495,368    2,347,917 
Total  $1,120,125   $3,352,625 
v3.24.2.u1
Commitments and Contingencies
 9 Months Ended
Jun. 30, 2024
Commitments and Contingencies [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 14 – COMMITMENTS AND CONTINGENCIES

 

Digital asset wallets

 

Digital RFQ has committed to safeguard all digital assets and digital token identifiers on behalf of its customers. As such, Digital RFQ may be liable to its customers for losses arising from theft or loss of customer private keys. Digital RFQ has no reason to believe it will incur any expense associated with such potential liability because (i) it has no known or historical experience of claims to use as a basis of measurement, (ii) it accounts for and continually verifies the amount of digital assets within its control, and (iii) it engages third parties, which are digital asset trading platforms, to provide certain custodial services, including holding its customers’ digital token identifiers, securing its customers’ digital assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft. Its third-party digital asset trading platforms hold the digital assets in accounts in Digital RFQ’s name for the benefit of Digital RFQ’s customers.
v3.24.2.u1
Subsequent Events
 9 Months Ended
Jun. 30, 2024
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 15 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

 

Common shares issued for Settlement Agreement and Stipulation

 

On May 28, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, during the period from July 1, 2024 through August 27, 2024, the Company issued an aggregate of 1,189,550 shares of its common stock.

 

Senior Unsecured Promissory Note – August 2024

 

On August 1, 2024 (the “August 2024 Effective Date”), the Company issued a Senior Unsecured Promissory Note (the “August 2024 Note”) in the principal amount of $515,000 to East Asia Technology Investments Limited (the “August 2024 Lender”) in consideration of cash proceeds in the amount of $412,075. The August 2024 Note bears interest of 12.0% per annum and is due and payable six months after issuance. As an additional inducement to provide the loan as outlined under the August 2024 Note, the Company issued the August 2024 Lender a Stock Purchase Warrant (“Warrant”) to acquire 1,400,000 shares of common stock at a per share price of $0.25 for a term of five years that may be exercised on a cash or cashless basis. The August 2024 Lender shall have the right to convert the principal and interest payable under the August 2024 Note into shares of common stock of the Company at a per share conversion price of $0.3125.

 

Common Shares Issued for Settlement of Accrued Professional Fees

 

In July 2024, the Company issued 500,000 shares of its common stock to settle accrued and unpaid professional fees.

 

Common Shares Issued for Services

 

In July 2024, the Company issued 300,000 shares of its common stock for services rendered and to be rendered.

 

X Group’s Convertible Promissory Note Payable

 

On September 10, 2024, the Company issued an additional Senior Unsecured Promissory Note (the “September 2024 Note”) in the principal amount of $125,000 to X Group in consideration of cash proceeds in the amount of $100,000, which was funded on September 4, 2024. The September 2024 Note bears interest of 12.0% per annum and is due and payable six months after issuance.

 

Departure of Directors or Certain Officers and Election of Directors or Appointment of Certain Officers

 

On July 24, 2024, Emil Assentato resigned as Chief Executive Officer and from the Board of Directors of the Company. Jamal (Jamie) Khurshid, the Chief Operating Officer and a director of the Company, was appointed as Chief Executive Officer effective July 24, 2024.

 

The Company has been advised that X Group and Emil Assentato and Jamal Khurshid, in a personal capacity, entered into a Settlement Agreement. Pursuant to the Settlement Agreement, Mr. Khurshid advised the Company that he was resigning as Chief Executive Officer and as a director of the Company effective September 4, 2024. Further, in conjunction with Mr. Khurshid’s resignation, the Board increased the size of the Board from six to seven and appointed David Rokach and Menachem Shalom as directors to fill such vacancies. Mr. Shalom was also appointed as Chief Executive Officer of the Company.
v3.24.2.u1
Pay vs Performance Disclosure - USD ($)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Mar. 31, 2024
Dec. 31, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Jun. 30, 2024
Jun. 30, 2023
Pay vs Performance Disclosure                
Net Income (Loss) $ (1,616,241) $ (2,429,417) $ (8,928,095) $ (1,209,744) $ (805,649) $ (1,133,922) $ (12,973,753) $ (3,149,315)
v3.24.2.u1
Insider Trading Arrangements
 3 Months Ended
Jun. 30, 2024
Trading Arrangements, by Individual  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
v3.24.2.u1
Accounting Policies, by Policy (Policies)
 9 Months Ended
Jun. 30, 2024
Summary of Significant Accounting Policies [Abstract]  
Use of estimates

Use of estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the condensed consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

Significant estimates during the three and nine months ended June 30, 2024 and 2023 include the allowance for doubtful accounts, the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, the fair value of customer digital currency assets and liabilities, and assumptions used to determine fair value of warrants, beneficial conversion feature and embedded conversion features of convertible note payable.

 
Cash and cash equivalents

Cash and cash equivalents

As of June 30, 2024 and September 30, 2023, the Company’s cash balances by geographic area were as follows:

Country:  June 30, 2024   September 30, 2023 
United States  $1,773    28.9%  $7,675    39.7%
United Kingdom   4,087    66.6%   11,469    59.4%
Republic of Lithuania   104    1.7%   
-
    
-
 
Malta   174    2.8%   174    0.9%
Total cash  $6,138    100.0%  $19,318    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, 2024 and September 30, 2023. Cash and cash equivalents excludes customer legal tender, which is reported separately as customer custodial cash in the accompanying condensed consolidated balance sheets. Refer to “customer custodial cash and customer custodial cash liabilities” below for further details.
Customer custodial cash and customer custodial cash liabilities

Customer custodial cash and customer custodial cash liabilities

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

Customer digital currency assets and liabilities

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

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

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

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

 
Fair value of financial instruments and fair value measurements

Fair value of financial instruments and fair value measurements

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

  ● Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
  ● Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
  ● Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

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

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

The following table provides these assets and liabilities carried at fair value, measured as of June 30, 2024:

   Quoted
Price in		   Significant Other   Significant    
   Active
Markets		   Observable
Inputs		   Unobservable
Inputs		   Balance at
June 30,		 
   (Level 1)   (Level 2)   (Level 3)   2024 
Customer digital currency assets  $
  -
   $7,635   $
    -
   $7,635 
Customer digital currency liabilities  $
-
   $7,635   $
-
   $7,635 

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

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

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

Digital assets

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

 
Credit risk and uncertainties

Credit risk and uncertainties

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally-insured limits of $250,000. The Company manages this credit risk by concentrating its cash balances, including customer custodial cash, in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits. The Company may also hold cash at digital asset trading platforms and performs a regular assessment of these digital asset trading platforms as part of its risk management process. The Company has not experienced any losses in such bank accounts and believes it is not exposed to any risks on its cash in bank accounts. At June 30, 2024, there were no balances in excess of the federally-insured limits.

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

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

Note receivable – related parties

Note receivable – related parties is presented net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors, including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend. Note receivable is written off after exhaustive efforts at collection. During the nine months ended June 30, 2024, accounts with the amount of approximately $657,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The writes-offs of note receivable – related parties against the allowance for doubtful accounts only impact the balance sheet accounts. At June 30, 2024 and September 30, 2023, the Company has established, based on a review of its outstanding balances, an allowance for doubtful account in the amounts of $0 and $637,072, respectively, for its note receivable – related parties.

 
Other current assets

Other current assets

Other current assets primarily consist of prepaid directors and officers’ liability insurance premium, prepaid NASDAQ listing fee, security deposit, and accounts receivable. As of June 30, 2024 and September 30, 2023, other current assets amounted to $135,631 and $32,522, respectively.
Variable interest entity (“VIE”)

Variable interest entity (“VIE”)

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then the Company consolidates the VIE.

The Company analyzes its investment in Jacobi to determine whether it is a VIE and, if so, whether the Company is the primary beneficiary in accordance with ASC 810 Consolidation. The Company determines Jacobi is a VIE since it has insufficient equity to permit it to finance its activities without additional subordinated financial support. In determining whether it is the primary beneficiary, the Company considers whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The Company also considers whether it has the obligation to absorb losses of, or the right to receive benefits from, the VIE. The Company is not the primary beneficiary of Jacobi as it does not have the power to direct the activities that most significantly impact the economic performance of Jacobi, due to Jacobi’ management and board of directors’ structure. As a result, the variable interest entity is not consolidated. Creditors of the Company’s variable interest entity do not have recourse against the general credit of the Company. The Company uses the cost method to account for its investment in Jacobi in which the Company is not deemed to be the primary beneficiary.

The Company’s investment in unconsolidated variable interest entity is classified as cost method investment in the condensed consolidated balance sheets. The Company’s assets and liabilities with the variable interest entity are classified as due from/to affiliates.

As of June 30, 2024 and September 30, 2023, the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:

   June 30,
2024		   September 30,
2023		 
Cost method investment  $391,217   $391,217 
Due from affiliates   
-
    95,274 
Total VIE assets  $391,217   $486,491 
Maximum exposure to loss  $391,217   $486,491 
Intangible assets

Intangible assets

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

 
Revenue recognition

Revenue recognition

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

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

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

  ● General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA (including operational reporting and technical support infrastructure, website hosting and marketing solutions, accounting maintenance, risk monitoring services, new account processing and customer care and continued support) and these performance obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under the terms of the GSA. The Company recognizes the full contracted amount each period with no deferred revenue. The nature of the performance obligation is to provide the specified goods or services directly to the customer. The Company engages another party to satisfy the performance obligation on its behalf. The Company’s performance obligation is not to arrange for the provision of the specified good or service by another party. The Company is primarily responsible for fulfilling the promise to provide the specified good or service. Therefore, the Company is deemed to be a principal in the transaction and recognizes revenue for that performance obligation. The Company is a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. Under a GSA, the Company is contractually obligated to provide for the fulfillment software, technology, customer sales and marketing and risk management technology hardware and software solutions package to TCM. The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company’s approximately 2% mark-up to the costs of the services being provided by FXDirect Dealer, LLC.
  ● Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. Prepayments, if any, received from customers prior to the services being performed are recorded as advances from customers. In these cases, when the services are performed, the appropriate portion of the amount recorded as advance from customers is recognized as revenue. There are 4 distinct stages that each trade must go through to be completed and must be converted from one currency into another. Where possible, fees are taken in United States dollar (“USD”) and therefore if there is an agreed fee with the client then this will be taken on the USD leg of the transaction regardless of whether it is pre-conversion or post-conversion. The first stage is notification and there is no real opportunity for us to realize revenue at this stage. The second stage is the funding stage and it allows us to charge the agreed fee before any currency conversion, we call this pre-trade revenue. The third stage of the transaction is conversion and we are able to realize revenue in the spread between the price we pay for the conversion and the price we charge the client for the conversion. The fourth opportunity for us to realize revenue (charge our fee) is after the conversion has taken place (post-trade).

 
Disaggregation of revenues

Disaggregation of revenues

The Company’s revenues stream detail are as follows:

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

In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2024 and 2023:

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Revenue Stream  2024   2023   2024   2023 
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total revenues  $175,214   $5,212,056   $5,677,362   $16,222,388 
Impairment of long-lived assets

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended June 30, 2024 and 2023 as there was no impairment indicator noted.
Beneficial conversion features and warrants

Beneficial conversion features and warrants

The Company evaluates the conversion feature of convertible debt instruments to determine whether the conversion feature was beneficial as described in ASC 470-30, Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants with the convertible instruments using the Black-Scholes valuation model.

Under these guidelines, the Company first allocates the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable instruments included in the transaction (such as warrants) on a relative fair value basis. A BCF is then measured as the intrinsic value of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible. The allocated value of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument.
Advertising and marketing costs

Advertising and marketing costs

All costs related to advertising and marketing are expensed as incurred. For the three months ended June 30, 2024 and 2023, advertising and marketing costs amounted to $2,355 and $1,670, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. For the nine months ended June 30, 2024 and 2023, advertising and marketing costs amounted to $43,941 and $51,087, respectively, which was included in operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.

 
Income taxes

Income taxes

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

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

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

Foreign currency translation

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

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

Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.7904 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.9329 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 1.3694 CAD and 1.3591 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.7955 GBP and 0.8249 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.9261 EUR and 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and for the period from February 18, 2023 through June 30, 2023 was 1.3597 CAD and 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.
Comprehensive loss

Comprehensive loss

Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended June 30, 2024 and 2023 consisted of net loss and unrealized loss from foreign currency translation adjustment.

 
Stock-based compensation

Stock-based compensation

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

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

Segment reporting

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

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

Per share data

ASC Topic 260, Earnings per Share, requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three and nine months ended June 30, 2024 and 2023, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (using the treasury stock method). Common stock equivalents are not included in the calculation of diluted net loss per share if their effect would be anti-dilutive. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.

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

   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Options to purchase common stock   124,286    124,286    124,286    167,143 
Warrants to purchase common stock   8,017,279    
-
    8,017,279    
-
 
Potentially dilutive security   8,141,565    124,286    8,141,565    167,143 
Reclassification

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.

 
Merger

Merger

Old Nukk completed a Business Combination with Brilliant on December 22, 2023. All references in these condensed consolidated financial statements to shares and corresponding capital amounts and losses per share, prior to the reverse recapitalization, have been retroactively restated based on shares reflecting the exchange ratio of 36.44532 established in the Business Combination.
Recently issued accounting pronouncements

Recently issued accounting pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its condensed consolidated financial statements disclosures.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
v3.24.2.u1
Summary of Significant Accounting Policies (Tables)
 9 Months Ended
Jun. 30, 2024
Summary of Significant Accounting Policies [Abstract]  
Schedule of Cash Balances by Geographic Area As of June 30, 2024 and September 30, 2023, the Company’s cash balances by geographic area were as follows:
Country:  June 30, 2024   September 30, 2023 
United States  $1,773    28.9%  $7,675    39.7%
United Kingdom   4,087    66.6%   11,469    59.4%
Republic of Lithuania   104    1.7%   
-
    
-
 
Malta   174    2.8%   174    0.9%
Total cash  $6,138    100.0%  $19,318    100.0%
Schedule of Assets and Liabilities Carried at Fair Value Measured The following table provides these assets and liabilities carried at fair value, measured as of June 30, 2024:
   Quoted
Price in		   Significant Other   Significant    
   Active
Markets		   Observable
Inputs		   Unobservable
Inputs		   Balance at
June 30,		 
   (Level 1)   (Level 2)   (Level 3)   2024 
Customer digital currency assets  $
  -
   $7,635   $
    -
   $7,635 
Customer digital currency liabilities  $
-
   $7,635   $
-
   $7,635 
Schedule of Carrying Value of Assets and Liabilities Recognized As of June 30, 2024 and September 30, 2023, the carrying value of assets and liabilities recognized in the condensed consolidated balance sheets related to the Company’s interest in the non-consolidated VIE and the Company’s maximum exposure to loss relating to non-consolidated VIE were as follows:
   June 30,
2024		   September 30,
2023		 
Cost method investment  $391,217   $391,217 
Due from affiliates   
-
    95,274 
Total VIE assets  $391,217   $486,491 
Maximum exposure to loss  $391,217   $486,491 
Schedule of Revenues are Disaggregated by Segment In the following table, revenues are disaggregated by segment for the three and nine months ended June 30, 2024 and 2023:
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Revenue Stream  2024   2023   2024   2023 
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total revenues  $175,214   $5,212,056   $5,677,362   $16,222,388 
Schedule of Diluted Per Share The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Options to purchase common stock   124,286    124,286    124,286    167,143 
Warrants to purchase common stock   8,017,279    
-
    8,017,279    
-
 
Potentially dilutive security   8,141,565    124,286    8,141,565    167,143 
v3.24.2.u1
Customer Assets and Liabilities (Tables)
 9 Months Ended
Jun. 30, 2024
Customer Assets and Liabilities [Abstract]  
Schedule of Customers Cash and Digital Positions The following table presents customers’ cash and digital positions:
   June 30,
2024		   September 30,
2023		 
Customer custodial cash  $532,634   $672,501 
Customer digital currency assets   7,635    
-
 
Total customer assets  $540,269   $672,501 
           
Customer custodial cash liabilities  $882,578   $1,443,011 
Customer digital currency liabilities   7,635    
-
 
Total customer liabilities  $890,213   $1,443,011 
Schedule of Fair Market Value of Customer Digital Currency Assets The following table sets forth the fair market value of customer digital currency assets, as shown in the condensed consolidated balance sheets, as customer digital currency assets and customer digital currency liabilities, as of June 30, 2024 and September 30, 2023:
   June 30, 2024   September 30, 2023 
   Fair Value   Percentage of Total   Fair Value   Percentage of Total 
Stablecoin/USD Coin  $6,066    79.4%  $
-
    
-
 
Ethereum   1,569    20.6%   
-
    
-
 
Total customer digital currency assets  $7,635    100.0%  $
-
    
-
 
v3.24.2.u1
Digital Assets (Tables)
 9 Months Ended
Jun. 30, 2024
Digital Assets [Abstract]  
Schedule of Digital Asset The following table summarizes the Company’s digital asset holdings as of June 30, 2024:
Asset  Estimated Useful Life  Cost   Impairment   Digital Assets 
Bitcoin  Indefinite  $1,523   $
        -
   $1,523 
Ethereum  Indefinite   732    
-
    732 
Stablecoin/USD Coin  Indefinite   3,024    
-
    3,024 
Other  Indefinite   627    
-
    627 
Total     $5,906   $
-
   $5,906 
The following table summarizes the Company’s digital asset holdings as of September 30, 2023:
Asset  Estimated Useful Life  Cost   Impairment   Digital Assets 
Bitcoin  Indefinite  $894   $
       -
   $894 
Ethereum  Indefinite   709    
-
    709 
Stablecoin/USD Coin  Indefinite   284    
-
    284 
Other  Indefinite   86    
-
    86 
Total     $1,973   $
-
   $1,973 
v3.24.2.u1
Convertible Promissory Note Payable, Net (Tables)
 9 Months Ended
Jun. 30, 2024
Convertible Promissory Note Payable, Net [Abstract]  
Schedule of Convertible Promissory Note Payable At June 30, 2024, convertible promissory note payable consisted of the following:
   June 30,
2024		 
Principal amount  $375,000 
Less: unamortized debt discount   (345,486)
Convertible promissory note payable, net  $29,514 
v3.24.2.u1
Promissory Note Payable, Net (Tables)
 9 Months Ended
Jun. 30, 2024
Promissory Note Payable, Net [Abstract]  
Schedule of Promissory Note Payable At June 30, 2024, promissory note payable consisted of the following:
   June 30,
2024		 
Principal amount  $78,000 
Less: unamortized debt discount   (34,003)
Promissory note payable, net  $43,997 
v3.24.2.u1
Accrued Liabilities and Other Payables (Tables)
 9 Months Ended
Jun. 30, 2024
Accrued Liabilities and Other Payables [Abstract]  
Schedule of Accrued Liabilities and Other Payables At June 30, 2024 and September 30, 2023, accrued liabilities and other payables consisted of the following:
   June 30,
2024		   September 30,
2023		 
Unearned revenue  $157,276   $151,617 
Interest payable   3,392    
-
 
Interest payable – related parties   10,942    
-
 
Others   25,697    18,255 
Total  $197,307   $169,872 
v3.24.2.u1
Share Capital (Tables)
 9 Months Ended
Jun. 30, 2024
Share Capital [Abstract]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2024:
Options Outstanding   Options Exercisable 
Range of
Exercise Price		   Number
Outstanding at
June 30,
2024		   Weighted Average
Remaining
Contractual Life
(Years)		   Weighted
Average
Exercise
Price		   Number
Exercisable at
June 30,
2024		   Weighted
Average
Exercise
Price		 
$ 3.15 – 15.75    95,715    2.51   $4.44    64,286   $4.51 
 87.50    28,571    2.22    87.50    28,571    87.50 
$ 3.15 – 87.50    124,286    2.44   $23.53    92,857   $30.05 
Schedule of Stock Option Activities Stock option activities for the nine months ended June 30, 2024 were as follows:
   Number of
Options		   Weighted
Average
Exercise
Price		 
Outstanding at September 30, 2023   124,286   $23.53 
Granted   
-
    
-
 
Outstanding at June 30, 2024   124,286   $23.53 
Options exercisable at June 30, 2024   92,857   $30.05 
Options expected to vest   31,429   $4.30 

 
Schedule of Nonvested Stock Options Granted A summary of the status of the Company’s nonvested stock options granted as of June 30, 2024 and changes during the nine months ended June 30, 2024 is presented below:
   Number of
Options		   Weighted
Average
Exercise
Price		 
Nonvested at September 30, 2023   34,286   $5.25 
Vested   (2,857)   (15.75)
Nonvested at June 30, 2024   31,429   $4.30 
Schedule of Stock Warrant Activities Stock warrant activities during the period from Closing Date to June 30, 2024 were as follows:
   Number of
Options		   Weighted
Average
Exercise
Price		 
Outstanding at Closing Date   6,701,000   $11.50 
Granted   1,316,279    0.30 
Outstanding and exercisable at June 30, 2024   8,017,279   $9.66 
Schedule of Common Stock Issuable Upon Exercise of Warrants Outstanding The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2024:
Warrants Outstanding   Warrants Exercisable 
Range of Exercise Price   Number Outstanding at June 30, 2024   Weighted Average Remaining Contractual Life (Years)   Weighted Average Exercise Price   Number Exercisable at June 30, 2024   Weighted Average Exercise
Price		 
$11.50    6,701,000    4.49   $11.50    6,701,000   $11.50 
 0.25 – 0.86    1,316,279    4.76    0.30    1,316,279    0.30 
 0.25 – 11.50    8,017,279    4.54   $9.66    8,017,279   $9.66 
v3.24.2.u1
Related Party Transactions (Tables)
 9 Months Ended
Jun. 30, 2024
Related Party Transactions [Abstract]  
Schedule of General Support Services Provided to the Related Party During the three and nine months ended June 30, 2024 and 2023, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Service provided to:                    
TCM  $
-
   $4,800,000   $4,800,000   $14,400,000 
   $
-
   $4,800,000   $4,800,000   $14,400,000 

 

During the three and nine months ended June 30, 2024 and 2023, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying condensed consolidated statements of operations and comprehensive loss were as follows:
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Service received from:                
FXDIRECT  $
-
   $4,675,000   $4,650,000   $14,125,000 
   $
-
   $4,675,000   $4,650,000   $14,125,000 
Schedule of Due From Affiliates At June 30, 2024 and September 30, 2023, due from affiliates consisted of the following:
   June 30,
2024		   September 30,
2023		 
Jacobi  $
-
   $95,274 
FXDD Mauritius (1)   6,001    1,500 
TCM   12,502    1,942,500 
Total  $18,503   $2,039,274 
(1)FXDD Mauritius is controlled by Emil Assentato, the Company’s former chief executive officer and chairman.
Schedule of Due to Affiliates At June 30, 2024 and September 30, 2023, due to affiliates consisted of the following:
   June 30,
2024		   September 30,
2023		 
Forexware LLC (1)  $1,207,201   $1,211,778 
FXDIRECT (2)   6,209,179    5,064,428 
Currency Mountain Holdings Bermuda, Limited (“CMH”)   42,000    42,000 
FXDD Trading (1)   411,585    396,793 
Markets Direct Payments (1)   2,404    2,317 
Match Fintech Limited (3)   48,920    91,433 
Craig Vallis   4,005    
-
 
Jamal Khurshid (4)   18,895    
-
 
Total  $7,944,189   $6,808,749 
(1)Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s former chief executive officer and chairman.
(2)The partial outstanding amount of $2,727,061 due to FXDIRECT was converted into 757,678 shares of common stock of the Company in December 2023 (See Note 10 – Common shares issued for related party debts conversion).
(3)Match Fintech Limited is controlled by affiliates of the Company.
(4)Jamal Khurshid is the Company’s former chief executive officer and director.
Schedule of Activity Recorded for the Line of Credit In the nine months ended June 30, 2024, activity recorded for the Line of Credit is summarized in the following table:
Outstanding principal under the Line of Credit at September 30, 2023  $127,820 
Repayment of Line of Credit   (127,820)
Outstanding principal under the Line of Credit at June 30, 2024  $
-
 
v3.24.2.u1
Concentrations (Tables)
 9 Months Ended
Jun. 30, 2024
Concentrations [Abstract]  
Schedule of Customer Revenues The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended June 30, 2024 and 2023.
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Customer  2024   2023   2024   2023 
A – related party   
*
    92.1%   84.5%   88.8%
B   37.2%   
*
    
*
    
*
 
C   10.1%   
*
    
*
    
*
 
*Less than 10%
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, 2024 and 2023.
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
Supplier  2024   2023   2024   2023 
A – related party   
*
    87.1%   95.0%   86.7%
B   48.9%   
*
    
*
    
*
 
C   20.3%   
*
    
*
    
*
 
*Less than 10%
v3.24.2.u1
Segment Information (Tables)
 9 Months Ended
Jun. 30, 2024
Segment Information [Abstract]  
Schedule of Reportable Business Segments Information with respect to these reportable business segments for the three and nine months ended June 30, 2024 and 2023 was as follows:
   Three Months Ended
June 30,		   Nine Months Ended
June 30,		 
   2024   2023   2024   2023 
Revenues                
General support services  $
-
   $4,800,000   $4,800,000   $14,400,000 
Financial services   175,214    412,056    877,362    1,822,388 
Total   175,214    5,212,056    5,677,362    16,222,388 
                     
Costs of revenues                    
General support services   
-
    4,675,000    4,650,000    14,125,000 
Financial services   49,738    695,074    246,625    2,162,317 
Total   49,738    5,370,074    4,896,625    16,287,317 
                     
Gross profit (loss)                    
General support services   
-
    125,000    150,000    275,000 
Financial services   125,476    (283,018)   630,737    (339,929)
Total   125,476    (158,018)   780,737    (64,929)
                     
Operating expenses                    
Financial services   487,750    558,228    1,482,560    1,595,955 
Corporate/Other   1,029,373    496,555    12,056,902    1,494,776 
Total   1,517,123    1,054,783    13,539,462    3,090,731 
                     
Other income (expense)                    
Financial services   4,230    3,057    29,683    6,345 
Corporate/Other   (228,824)   
-
    (244,711)   
-
 
Total   (224,594)   3,057    (215,028)   6,345 
                     
Net income (loss)                    
General support services   
-
    125,000    150,000    275,000 
Financial services   (358,044)   (838,189)   (822,140)   (1,929,539)
Corporate/Other   (1,258,197)   (496,555)   (12,301,613)   (1,494,776)
Total   (1,616,241)   (1,209,744)   (12,973,753)   (3,149,315)
                     
Amortization                    
Financial services   3,432    591,955    10,364    1,775,865 
Corporate/Other   
-
    937    
-
    2,810 
Total  $3,432   $592,892   $10,364   $1,778,675 
Total assets at June 30, 2024 and September 30, 2023  June 30,
2024		   September 30,
2023		 
Financial services  $624,757   $1,004,708 
Corporate/Other   495,368    2,347,917 
Total  $1,120,125   $3,352,625 
v3.24.2.u1
The Company History and Nature of the Business (Details) - USD ($)
 1 Months Ended 3 Months Ended 9 Months Ended
May 01, 2023
Dec. 30, 2021
Oct. 20, 2021
Jun. 28, 2024
Jun. 30, 2024
Mar. 31, 2024
Dec. 31, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Jun. 30, 2024
Jun. 30, 2023
Sep. 30, 2023
The Company History and Nature of the Business [Line Items]                          
Acquired shares (in Shares)       255,000,000                  
Acquire to issued and outstanding percentage       51.00%                  
Ordinary shares issued (in Shares)         14,802,414           14,802,414   10,074,657
Exchange of additional shares, percentage   4.545%                      
Cash         $ 6,138     $ 142,341     $ 6,138 $ 142,341 $ 19,318
Working capital deficit         11,421,000           11,421,000    
Net loss         $ (1,616,241) $ (2,429,417) $ (8,928,095) $ (1,209,744) $ (805,649) $ (1,133,922) (12,973,753) (3,149,315)  
Negative cash used in operating activities                     $ (2,619,117) $ (626,716)  
Mountain Malta LLC [Member] | Max Q Investments LLC [Member]                          
The Company History and Nature of the Business [Line Items]                          
Ownership percentage         79.00%           79.00%    
Liquidity [Member]                          
The Company History and Nature of the Business [Line Items]                          
Cash         $ 6,000           $ 6,000   $ 19,000
General Services Agreement [Member] | Triton Capital Market Ltd [Member]                          
The Company History and Nature of the Business [Line Items]                          
Payment receivable                     1,600,000    
General Services Agreement [Member] | Triton Capital Markets Ltd. [Member]                          
The Company History and Nature of the Business [Line Items]                          
Related party transaction                     $ 1,575,000    
General Services Agreement [Member] | Triton Capital Markets Ltd. [Member] | Maximum [Member]                          
The Company History and Nature of the Business [Line Items]                          
Related party transaction $ 1,575,000                        
General Services Agreement [Member] | Triton Capital Markets Ltd. [Member] | Minimum [Member]                          
The Company History and Nature of the Business [Line Items]                          
Related party transaction $ 1,550,000                        
Jacobi Transaction [Member]                          
The Company History and Nature of the Business [Line Items]                          
Acquire to issued and outstanding percentage     5.00%                    
Consideration shares of common stock (in Shares)     548,767                    
Digiclear Agreement [Member]                          
The Company History and Nature of the Business [Line Items]                          
Additional investment   $ 1,000,000                      
Jacobi Asset Management Holdings Limited [Member] | Jamal Khurshid [Member]                          
The Company History and Nature of the Business [Line Items]                          
Investment ownership percentage         40.00%           40.00%    
Jacobi Asset Management Holdings Limited [Member] | Nicholas Gregory [Member]                          
The Company History and Nature of the Business [Line Items]                          
Percentage of original shareholders         10.00%           10.00%    
Common Stock [Member] | Digiclear Transaction [Member]                          
The Company History and Nature of the Business [Line Items]                          
Shares of common stock (in Shares)   415,733                      
Common stock value   $ 5,000,000                      
Common Stock [Member] | Digiclear Agreement [Member]                          
The Company History and Nature of the Business [Line Items]                          
Ordinary shares issued (in Shares)   5,400,000                      
Ordinary shares outstanding (in Shares)   5,400,000                      
v3.24.2.u1
Basis of Presentation and Principles of Consolidation (Details)
 9 Months Ended
Jun. 30, 2024
Basis of Presentation and Principles of Consolidation [Abstract]  
Shares reflecting exchange ratio 36.44532
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - USD ($)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Sep. 30, 2023
Summary of Significant Accounting Policies [Line Items]          
Federally-insured limits $ 250,000   $ 250,000    
Insurance limit value 250,000   250,000    
Accounts written off amount     657,000    
Other current assets $ 135,631   $ 135,631   $ 32,522
Estimated useful life 3 years   3 years    
Services cost percentage     2.00%    
Advertising and marketing costs $ 2,355 $ 1,670 $ 43,941 $ 51,087  
Foreign currency translation, description     Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.7904 GBP and 0.8199 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 0.9329 EUR and 0.9446 EUR to $1.00, respectively, which were the exchange rates on the balance sheet dates. Asset and liability accounts at June 30, 2024 and September 30, 2023 were translated at 1.3694 CAD and 1.3591 CAD to $1.00, which was the exchange rate on the balance sheet date. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.7955 GBP and 0.8249 GBP to $1.00, respectively. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and 2023 was 0.9261 EUR and 0.9429 EUR to $1.00. The average translation rate applied to the statement of operations for the nine months ended June 30, 2024 and for the period from February 18, 2023 through June 30, 2023 was 1.3597 CAD and 1.3516 CAD to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.    
Shares reflecting exchange ratio     36.44532    
Related Party [Member]          
Summary of Significant Accounting Policies [Line Items]          
Allowance for doubtful account $ 0   $ 0   $ 637,072
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - Schedule of Cash Balances by Geographic Area - USD ($)
 9 Months Ended
Jun. 30, 2024
Sep. 30, 2023
Jun. 30, 2023
Schedule of Cash Balances by Geographic Area [Line Items]      
Total cash $ 6,138 $ 19,318 $ 142,341
Cash percentage 100.00% 100.00%  
United States [Member]      
Schedule of Cash Balances by Geographic Area [Line Items]      
Total cash $ 1,773 $ 7,675  
Cash percentage 28.90% 39.70%  
United Kingdom [Member]      
Schedule of Cash Balances by Geographic Area [Line Items]      
Total cash $ 4,087 $ 11,469  
Cash percentage 66.60% 59.40%  
Republic of Lithuania [Member]      
Schedule of Cash Balances by Geographic Area [Line Items]      
Total cash $ 104  
Cash percentage 1.70%  
Malta [Member]      
Schedule of Cash Balances by Geographic Area [Line Items]      
Total cash $ 174 $ 174  
Cash percentage 2.80% 0.90%  
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - Schedule of Assets and Liabilities Carried at Fair Value Measured - USD ($)
Dec. 03, 2024
Dec. 02, 2024
Jun. 30, 2024
Mar. 01, 2024
Sep. 30, 2023
Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items]          
Customer digital currency assets     $ 7,635  
Customer digital currency liabilities     $ 7,635  
Quoted Price in Active Markets (Level 1) [Member]          
Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items]          
Customer digital currency assets        
Customer digital currency liabilities        
Significant Other Observable Inputs (Level 2) [Member]          
Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items]          
Customer digital currency assets   $ 7,635      
Customer digital currency liabilities   $ 7,635      
Significant Unobservable Inputs (Level 3) [Member]          
Schedule of Assets and Liabilities Carried at Fair Value Measured [Line Items]          
Customer digital currency assets        
Customer digital currency liabilities        
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - Schedule of Carrying Value of Assets and Liabilities Recognized - VIE [Member] - USD ($)
Jun. 30, 2024
Sep. 30, 2023
Schedule of Carrying Value of Assets and Liabilities Recognized [Line Items]    
Cost method investment $ 391,217 $ 391,217
Due from affiliates 95,274
Total VIE assets 391,217 486,491
Maximum exposure to loss $ 391,217 $ 486,491
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - Schedule of Revenues are Disaggregated by Segment - USD ($)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Schedule of Revenues Are Disaggregated By Segment [Line Items]        
Total revenues $ 175,214 $ 5,212,056 $ 5,677,362 $ 16,222,388
General support services [Member]        
Schedule of Revenues Are Disaggregated By Segment [Line Items]        
Total revenues 4,800,000 4,800,000 14,400,000
Financial services [Member]        
Schedule of Revenues Are Disaggregated By Segment [Line Items]        
Total revenues $ 175,214 $ 412,056 $ 877,362 $ 1,822,388
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - Schedule of Diluted Per Share - shares
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Schedule of Diluted Per Share [Line Items]        
Potentially dilutive securities 8,141,565 124,286 8,141,565 167,143
Options to purchase common stock [Member]        
Schedule of Diluted Per Share [Line Items]        
Potentially dilutive securities 124,286 124,286 124,286 167,143
Warrants to purchase common stock [Member]        
Schedule of Diluted Per Share [Line Items]        
Potentially dilutive securities 8,017,279 8,017,279
v3.24.2.u1
Customer Assets and Liabilities (Details) - Schedule of Customers Cash and Digital Positions - USD ($)
Jun. 30, 2024
Sep. 30, 2023
Schedule of Customers Cash and Digital Positions [Abstract]    
Customer custodial cash $ 532,634 $ 672,501
Customer digital currency assets 7,635
Total customer assets 540,269 672,501
Customer custodial cash liabilities 882,578 1,443,011
Customer digital currency liabilities 7,635
Total customer liabilities $ 890,213 $ 1,443,011
v3.24.2.u1
Customer Assets and Liabilities (Details) - Schedule of Fair Market Value of Customer Digital Currency Assets - USD ($)
Jun. 30, 2024
Sep. 30, 2023
Schedule of Fair Market Value of Customer Digital Currency Assets [Line Items]    
Fair Value $ 7,635
Percentage of Total 100.00%
Stablecoin/USD Coin [Member]    
Schedule of Fair Market Value of Customer Digital Currency Assets [Line Items]    
Fair Value $ 6,066
Percentage of Total 79.40%
Ethereum [Member]    
Schedule of Fair Market Value of Customer Digital Currency Assets [Line Items]    
Fair Value $ 1,569
Percentage of Total 20.60%
v3.24.2.u1
Digital Assets (Details) - USD ($)
 3 Months Ended 9 Months Ended 12 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Sep. 30, 2023
Digital Assets [Abstract]          
Impairment expense $ 0 $ 122 $ 7,865
v3.24.2.u1
Digital Assets (Details) - Schedule of Digital Asset - USD ($)
 3 Months Ended 9 Months Ended 12 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Sep. 30, 2023
Schedule of Digital Asset [Line Items]          
Cost $ 5,906   $ 5,906   $ 1,973
Impairment 0 $ 122 $ 7,865
Digital Assets, net 5,906   $ 5,906   $ 1,973
Bitcoin [Member]          
Schedule of Digital Asset [Line Items]          
Estimated Useful Life     Indefinite   Indefinite
Cost 1,523   $ 1,523   $ 894
Impairment      
Digital Assets, net 1,523   $ 1,523   $ 894
Ethereum [Member]          
Schedule of Digital Asset [Line Items]          
Estimated Useful Life     Indefinite   Indefinite
Cost 732   $ 732   $ 709
Impairment      
Digital Assets, net 732   $ 732   $ 709
Stablecoin/USD Coin [Member]          
Schedule of Digital Asset [Line Items]          
Estimated Useful Life     Indefinite   Indefinite
Cost 3,024   $ 3,024   $ 284
Impairment      
Digital Assets, net 3,024   $ 3,024   $ 284
Other [Member]          
Schedule of Digital Asset [Line Items]          
Estimated Useful Life     Indefinite   Indefinite
Cost 627   $ 627   $ 86
Impairment      
Digital Assets, net $ 627   $ 627   $ 86
v3.24.2.u1
Loan Payable (Details) - Third Party [Member]
Nov. 30, 2023
USD ($)
Loan Payable [Line Items]  
Borrowed loan $ 50,000
Loan bears interest 0.00%
v3.24.2.u1
Convertible Promissory Note Payable, Net (Details)
 3 Months Ended 9 Months Ended
Jun. 18, 2024
USD ($)
$ / shares
Jun. 17, 2024
USD ($)
$ / shares
Jun. 11, 2024
USD ($)
$ / shares
shares
Jun. 30, 2024
USD ($)
shares
Jun. 30, 2024
USD ($)
shares
Jun. 30, 2023
USD ($)
Sep. 30, 2023
shares
Sep. 18, 2023
USD ($)
Convertible Promissory Note Payable, Net [Line Items]                
Principal amount       $ 405,676 $ 405,676     $ 270,000
Debt discount       $ 345,486 $ 345,486      
Share of common stock (in Shares) | shares       14,802,414 14,802,414   10,074,657  
Consideration of convertible promissory note     $ 500,000          
Consideration of cash proceeds         $ 300,000    
Amortization of debt discount and interest expense       $ 29,514 $ 2,332      
X Group a Stock Purchase Warrant [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Principal amount $ 31,250 $ 31,250            
Bears interest 12.00% 12.00%            
Share of common stock (in Shares) | shares     1,200,000          
Warrant exercise price (in Dollars per share) | $ / shares     $ 0.25          
Warrant term     5 years          
Senior Unsecured Promissory Note [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Principal amount     $ 312,500          
Cash proceeds from principal amount     250,000          
Debt discount     $ 62,500          
Bears interest     12.00%          
Convertible Promissory Note [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Debt discount $ 62,500   $ 312,500          
Bears interest     12.00%          
Conversion price per share (in Dollars per share) | $ / shares     $ 0.25          
Notes term     2 years          
Beneficial conversion feature     $ 12,491          
Convertible Promissory Note [Member] | X Group a Stock Purchase Warrant [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Debt discount $ 6,250 $ 6,250            
Conversion price per share (in Dollars per share) | $ / shares $ 0.25 $ 0.25 $ 0.25          
Beneficial conversion feature $ 25,000 $ 25,000            
Consideration of cash proceeds $ 25,000 $ 25,000            
Volatility [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Assumptions fair value of warrants issued     182.23          
Risk-free rate [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Assumptions fair value of warrants issued     4.41          
Dividend yield [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Assumptions fair value of warrants issued     0          
Expected life [Member]                
Convertible Promissory Note Payable, Net [Line Items]                
Assumptions fair value of warrants issued     5          
v3.24.2.u1
Convertible Promissory Note Payable, Net (Details) - Schedule of Convertible Promissory Note Payable
Jun. 30, 2024
USD ($)
Schedule of Convertible Promissory Note Payable [Abstract]  
Principal amount $ 375,000
Less: unamortized debt discount (345,486)
Convertible promissory note payable, net $ 29,514
v3.24.2.u1
Promissory Note Payable, Net (Details) - Promissory Note Payable [Member]
 3 Months Ended 9 Months Ended
Apr. 30, 2024
USD ($)
$ / shares
shares
Jun. 30, 2024
USD ($)
shares
Jun. 30, 2024
USD ($)
shares
Promissory Note Payable, Net [Line Items]      
Debt instrument issued principal $ 78,000    
Cash proceeds $ 78,000    
Warrant exercise price (in Dollars per share) | $ / shares $ 0.86    
Loan bears interest 8.00%    
Adjustment additional paid in capital wa     $ 40,804
Amortization of debt discount   $ 6,801 6,801
Interest expense   $ 1,060 $ 1,060
Common Stock [Member]      
Promissory Note Payable, Net [Line Items]      
Stock purchase warrant (in Shares) | shares   116,279 116,279
Common Stock [Member] | Warrant [Member]      
Promissory Note Payable, Net [Line Items]      
Purchase of warrants (in Shares) | shares 116,279    
Volatility [Member]      
Promissory Note Payable, Net [Line Items]      
Assumptions of fair values of warrants issued   174.03 174.03
Risk free rate [Member]      
Promissory Note Payable, Net [Line Items]      
Assumptions of fair values of warrants issued   4.87 4.87
Dividend Yield [Member]      
Promissory Note Payable, Net [Line Items]      
Assumptions of fair values of warrants issued   0 0
Measurement Input, Expected Term [Member]      
Promissory Note Payable, Net [Line Items]      
Assumptions of fair values of warrants issued   3 3
v3.24.2.u1
Promissory Note Payable, Net (Details) - Schedule of Promissory Note Payable - Promissory Note Payable [Member]
Jun. 30, 2024
USD ($)
Short-Term Debt [Line Items]  
Principal amount $ 78,000
Less: unamortized debt discount (34,003)
Promissory note payable, net $ 43,997
v3.24.2.u1
Accrued Liabilities and Other Payables (Details) - Schedule of Accrued Liabilities and Other Payables - USD ($)
Jun. 30, 2024
Sep. 30, 2023
Schedule of Accrued Liabilities and Other Payables [Line Items]    
Unearned revenue $ 157,276 $ 151,617
Interest payable 3,392
Others 25,697 18,255
Total 197,307 169,872
Related Party [Member]    
Schedule of Accrued Liabilities and Other Payables [Line Items]    
Interest payable $ 10,942
v3.24.2.u1
Share Capital (Details) - USD ($)
 1 Months Ended 3 Months Ended 9 Months Ended
Dec. 22, 2023
Dec. 19, 2023
May 31, 2024
Jun. 30, 2024
Mar. 31, 2024
Dec. 31, 2023
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Sep. 30, 2023
Share Capital [Line Items]                    
Shares valued         $ 750,000 $ 2,015,601        
Stock-based compensation expense               $ 224,002 $ 296,210  
Settlement amount               37,284    
Shares issued       $ 1,480       1,480   $ 1,007
Fair value       463,716       463,716    
Accrued liabilities settled in shares               324,601  
Excess fair value               139,115    
Aggregate intrinsic value of stock options outstanding       0       0    
Warrant [Member]                    
Share Capital [Line Items]                    
Shares of business combination (in Shares) 6,701,000                  
Aggregate intrinsic value       166,000       166,000    
FXDIRECT [Member]                    
Share Capital [Line Items]                    
Outstanding amount   $ 2,727,061                
Amount of debt conversion of distribution transaction   3,900,255                
Emil Assentato [Member]                    
Share Capital [Line Items]                    
Outstanding amount   270,563                
Amount of debt conversion of distribution transaction   342,847                
Business Combination [Member] | Warrant [Member]                    
Share Capital [Line Items]                    
Shares of business combination (in Shares) 6,701,000                  
Equity Option [Member]                    
Share Capital [Line Items]                    
Stock-based compensation expense       74,667     $ 74,667      
Settlement Agreement [Member]                    
Share Capital [Line Items]                    
Settlement amount     $ 324,601              
Shares issued       40,000       40,000    
Fair value       37,284       $ 37,284    
Common Stock [Member]                    
Share Capital [Line Items]                    
Shares of its common stock for services rendered (in Shares)               627,997    
Shares valued               $ 2,765,601    
Stock-based compensation expense               2,765,601    
Shares issued     $ 660,000              
Common Stock [Member] | FXDIRECT [Member]                    
Share Capital [Line Items]                    
Outstanding amount   $ 2,727,061                
Outstanding amount converted into shares (in Shares)   757,678                
Common Stock [Member] | Emil Assentato [Member]                    
Share Capital [Line Items]                    
Outstanding amount   $ 270,000                
Outstanding amount converted into shares (in Shares)   70,129                
Unpaid interest   $ 563                
Common Stock [Member] | Settlement Agreement [Member]                    
Share Capital [Line Items]                    
Shares issued       $ 660,000       $ 660,000    
v3.24.2.u1
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Options Outstanding - Stock Option [Member]
 9 Months Ended
Jun. 30, 2024
$ / shares
shares
Range of Exercise Price 3.15 – 15.75 [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Options Outstanding, Number Outstanding at June 30, 2024 (in Shares) | shares 95,715
Options Outstanding, Weighted Average Remaining Contractual Life (Years) 2 years 6 months 3 days
Options Outstanding, Weighted Average Exercise Price $ 4.44
Options Exercisable, Number Exercisable at June 30, 2024 (in Shares) | shares 64,286
Options Exercisable, Weighted Average Exercise Price $ 4.51
Range of Exercise Price 3.15 – 15.75 [Member] | Minimum [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Low Price 3.15
Range of Exercise Price 3.15 – 15.75 [Member] | Maximum [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise High Price 15.75
Range of Exercise Price 87.50 [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise High Price $ 87.5
Options Outstanding, Number Outstanding at June 30, 2024 (in Shares) | shares 28,571
Options Outstanding, Weighted Average Remaining Contractual Life (Years) 2 years 2 months 19 days
Options Outstanding, Weighted Average Exercise Price $ 87.5
Options Exercisable, Number Exercisable at June 30, 2024 (in Shares) | shares 28,571
Options Exercisable, Weighted Average Exercise Price $ 87.5
Range of Exercise Price 3.15-87.50 [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Options Outstanding, Number Outstanding at June 30, 2024 (in Shares) | shares 124,286
Options Outstanding, Weighted Average Remaining Contractual Life (Years) 2 years 5 months 8 days
Options Outstanding, Weighted Average Exercise Price $ 23.53
Options Exercisable, Number Exercisable at June 30, 2024 (in Shares) | shares 92,857
Options Exercisable, Weighted Average Exercise Price $ 30.05
Range of Exercise Price 3.15-87.50 [Member] | Minimum [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise Low Price 3.15
Range of Exercise Price 3.15-87.50 [Member] | Maximum [Member]  
Schedule of Common Stock Issuable Upon Exercise of Options Outstanding [Line Items]  
Range of Exercise High Price $ 87.5
v3.24.2.u1
Share Capital (Details) - Schedule of Stock Option Activities
 9 Months Ended
Jun. 30, 2024
$ / shares
shares
Schedule of Stock Option Activities [Abstract]  
Number of Options, Outstanding beginning | shares 124,286
Weighted Average Exercise Price, Outstanding beginning | $ / shares $ 23.53
Number of Options, Granted | shares
Weighted Average Exercise Price, Granted | $ / shares
Number of Options, Outstanding ending | shares 124,286
Weighted Average Exercise Price, Outstanding ending | $ / shares $ 23.53
Number of Options, exercisable | shares 92,857
Weighted Average Exercise Price, Options exercisable | $ / shares $ 30.05
Number of Options, expected to vest | shares 31,429
Weighted Average Exercise Price Options, expected to vest | $ / shares $ 4.3
v3.24.2.u1
Share Capital (Details) - Schedule of Nonvested Stock Options Granted
 9 Months Ended
Jun. 30, 2024
$ / shares
shares
Schedule of Nonvested Stock Options Granted [Abstract]  
Number of Options, Nonvested beginning | shares 34,286
Weighted Average Exercise Price, Nonvested beginning | $ / shares $ 5.25
Number of Options, Vested | shares (2,857)
Weighted Average Exercise Price, Vested | $ / shares $ (15.75)
Number of Options, Nonvested ending | shares 31,429
Weighted Average Exercise Price, Nonvested ending | $ / shares $ 4.3
v3.24.2.u1
Share Capital (Details) - Schedule of Stock Warrant Activities - Stock Warrant Activities [Member]
 9 Months Ended
Jun. 30, 2024
$ / shares
shares
Schedule of Stock Warrant Activities [Line Items]  
Number of Options, Outstanding at Closing Date | shares 6,701,000
Weighted Average Exercise Price outstanding, Outstanding at Closing Date | $ / shares $ 11.5
Number of Options, Granted | shares 1,316,279
Weighted Average Exercise Price, Granted | $ / shares $ 0.3
Number of Options, Outstanding and exercisable | shares 8,017,279
Weighted Average Exercise Price outstanding, Outstanding and exercisable | $ / shares $ 9.66
v3.24.2.u1
Share Capital (Details) - Schedule of Common Stock Issuable Upon Exercise of Warrants Outstanding - Warrant [Member]
 9 Months Ended
Jun. 30, 2024
$ / shares
shares
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Number Outstanding (in Shares) | shares 8,017,279
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) 4 years 6 months 14 days
Warrants Outstanding, Weighted Average Exercise Price $ 9.66
Warrants Exercisable, Number Exercisable (in Shares) | shares 8,017,279
Warrants Exercisable, Weighted Average Exercise Price $ 9.66
Minimum [Member]  
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Range of Exercise Price 0.25
Maximum [Member]  
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Range of Exercise Price 11.5
Exercise Price One [Member]  
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Range of Exercise Price $ 11.5
Warrants Outstanding, Number Outstanding (in Shares) | shares 6,701,000
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) 4 years 5 months 26 days
Warrants Outstanding, Weighted Average Exercise Price $ 11.5
Warrants Exercisable, Number Exercisable (in Shares) | shares 6,701,000
Warrants Exercisable, Weighted Average Exercise Price $ 11.5
Exercise Price Two [Member]  
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Number Outstanding (in Shares) | shares 1,316,279
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) 4 years 9 months 3 days
Warrants Outstanding, Weighted Average Exercise Price $ 0.3
Warrants Exercisable, Number Exercisable (in Shares) | shares 1,316,279
Warrants Exercisable, Weighted Average Exercise Price $ 0.3
Exercise Price Two [Member] | Minimum [Member]  
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Range of Exercise Price 0.25
Exercise Price Two [Member] | Maximum [Member]  
Class of Warrant or Right [Line Items]  
Warrants Outstanding, Range of Exercise Price $ 0.86
v3.24.2.u1
Related Party Transactions (Details)
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 18, 2023
USD ($)
Aug. 15, 2023
USD ($)
Jul. 31, 2023
USD ($)
Jul. 19, 2023
USD ($)
Jan. 31, 2024
USD ($)
Dec. 31, 2023
USD ($)
shares
Jun. 30, 2024
USD ($)
shares
Jun. 30, 2023
USD ($)
Jun. 30, 2024
USD ($)
shares
Jun. 30, 2023
USD ($)
Sep. 30, 2023
USD ($)
Mar. 12, 2024
USD ($)
Mar. 12, 2024
GBP (£)
Mar. 06, 2024
USD ($)
Nov. 24, 2023
USD ($)
Nov. 24, 2023
GBP (£)
Sep. 01, 2023
USD ($)
Mar. 01, 2023
USD ($)
Sep. 01, 2022
USD ($)
Related Party Transaction [Line Items]                                      
Professional fees             $ 1,109,315 $ 571,761 $ 6,009,832 $ 1,815,200                  
Revenue from related parties             175,214 5,212,056 5,677,362 16,222,388                  
Cost of revenue from related party             49,738 5,370,074 4,896,625 16,287,317                  
Customer digital currency assets and liabilities                       $ 499,000 £ 395,000            
Principal amount $ 270,000           405,676   405,676                    
Cash proceeds                 1,901,629                  
Borrowed                             $ 5,000 £ 4,000      
Repaid amount         $ 50,000                            
Debt instrument due date Sep. 18, 2026                                    
Interest expense             3,392 3,392                  
Accrued interest payable             3,392   3,392                  
Interest payable – related party             $ 30,633   $ 30,633   1,771                
Promissory Note [Member]                                      
Related Party Transaction [Line Items]                                      
Principal amount                                     $ 35,000
Note payable                                 $ 17,500 $ 17,500  
Bears a fixed interest rate             5.00%   5.00%                    
July 2023 Loan [Member]                                      
Related Party Transaction [Line Items]                                      
Outstanding principal balance       $ 75,619                              
Cash proceeds       $ 75,619                              
Interest rate     5.00%                                
August 2023 Loan [Member]                                      
Related Party Transaction [Line Items]                                      
Principal amount             $ 25,000   $ 25,000                    
Outstanding principal balance   $ 75,000                                  
Cash proceeds   $ 75,000                                  
Interest rate   5.00%                                  
September 2023 Loan [Member]                                      
Related Party Transaction [Line Items]                                      
Outstanding principal balance $ 270,000                                    
Cash proceeds $ 270,000                                    
Interest rate 5.00%                                    
Emil Assentato and Max Q [Member]                                      
Related Party Transaction [Line Items]                                      
Cash proceeds                 $ 1,167,500                    
Interest rate                 5.00%                    
Accrued interest $ 563                                    
Aggregate principal                 $ 1,167,500                    
Digital RFQ Ltd. [Member]                                      
Related Party Transaction [Line Items]                                      
Principal amount             275,383   $ 275,383                    
Interest rate                 10.00%                    
Line of Credit [Member]                                      
Related Party Transaction [Line Items]                                      
Line of credit             1,000,000   $ 1,000,000                    
Line of credit bears interest at an annual rate           8.00%                          
Common stock shares issued (in Shares) | shares                 133,514                    
Line of credit written off                 $ 10,000                    
Allowance for doubtful account             $ 0   0   10,199                
Common Stock [Member]                                      
Related Party Transaction [Line Items]                                      
Amount are converted into shares (in Shares) | shares           70,129                          
Common stock shares issued (in Shares) | shares             700,000                        
ClearThink [Member]                                      
Related Party Transaction [Line Items]                                      
Business combination transaction amount             $ 210,000   210,000                    
Related Party [Member]                                      
Related Party Transaction [Line Items]                                      
Unpaid interest for related parties             23,901 41,671                  
Accrued interest payable             10,942   10,942                  
FXDIRECT [Member]                                      
Related Party Transaction [Line Items]                                      
Cost of revenue from related party                 1,575,000                    
Amount are converted into shares (in Shares) | shares           757,678                          
FXDIRECT [Member] | Maximum [Member]                                      
Related Party Transaction [Line Items]                                      
Cost of revenue from related party                 1,575,000                    
FXDIRECT [Member] | Minimum [Member]                                      
Related Party Transaction [Line Items]                                      
Cost of revenue from related party                 1,550,000                    
Digital RFQ Ltd. [Member]                                      
Related Party Transaction [Line Items]                                      
Revenue from related parties             7,722 29,343 69,050 107,859                  
Customer digital currency assets and liabilities             5,848   5,848   0                
Digital RFQ Ltd. [Member] | Line of Credit [Member]                                      
Related Party Transaction [Line Items]                                      
Line of credit     $ 1,000,000                     $ 500,000          
FXDirectDealer [Member]                                      
Related Party Transaction [Line Items]                                      
Converted amout issued           $ 2,727,061                          
Max Q Investments LLC [Member] | Promissory Note [Member]                                      
Related Party Transaction [Line Items]                                      
Principal amount             1,167,500   1,167,500                    
TCM [Member] | Related Party [Member]                                      
Related Party Transaction [Line Items]                                      
Revenue from related parties                 1,600,000                    
Related Party [Member]                                      
Related Party Transaction [Line Items]                                      
Allowance for doubtful account             0   $ 0   637,072                
Interest rate                 4.00%                    
Interest expense             23,901   $ 41,671                    
Unpaid interest for related parties                 41,575   1,771                
Accrued interest payable             10,942   10,942   $ 0                
Services Provided by Related Parties [Member] | Oliver Worsley [Member]                                      
Related Party Transaction [Line Items]                                      
Professional fees             15,130 14,942 38,969 40,005                  
Services Provided by Related Parties [Member] | Craig Vallis [Member]                                      
Related Party Transaction [Line Items]                                      
Professional fees             27,230 $ 26,017 68,008 $ 100,012                  
Chief Executive Officer [Member]                                      
Related Party Transaction [Line Items]                                      
Professional fees             $ 38,243   $ 38,243                    
v3.24.2.u1
Related Party Transactions (Details) - Schedule of General Support Services Provided to the Related Party - General Support Services [Member] - USD ($)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Service provided to:        
Service provided to related parties $ 4,800,000 $ 4,800,000 $ 14,400,000
Service received from:        
Service received from related parties 4,675,000 4,650,000 14,125,000
TCM [Member]        
Service provided to:        
Service provided to related parties 4,800,000 4,800,000 14,400,000
FXDIRECT [Member]        
Service received from:        
Service received from related parties $ 4,675,000 $ 4,650,000 $ 14,125,000
v3.24.2.u1
Related Party Transactions (Details) - Schedule of Due From Affiliates - USD ($)
Jun. 30, 2024
Sep. 30, 2023
Related Party Transaction [Line Items]    
Due from related parties $ 18,503 $ 2,039,274
Jacobi [Member]    
Related Party Transaction [Line Items]    
Due from related parties 95,274
FXDD Mauritius [Member]    
Related Party Transaction [Line Items]    
Due from related parties [1] 6,001 1,500
TCM [Member]    
Related Party Transaction [Line Items]    
Due from related parties $ 12,502 $ 1,942,500
[1] FXDD Mauritius is controlled by Emil Assentato, the Company’s former chief executive officer and chairman.
v3.24.2.u1
Related Party Transactions (Details) - Schedule of Due to Affiliates - USD ($)
Jun. 30, 2024
Sep. 30, 2023
Related Party Transaction [Line Items]    
Due to related parties $ 7,944,189 $ 6,808,749
Forexware LLC [Member]    
Related Party Transaction [Line Items]    
Due to related parties [1] 1,207,201 1,211,778
FXDIRECT [Member]    
Related Party Transaction [Line Items]    
Due to related parties [2] 6,209,179 5,064,428
Currency Mountain Holdings Bermuda, Limited (“CMH”) [Member]    
Related Party Transaction [Line Items]    
Due to related parties 42,000 42,000
FXDD Trading [Member]    
Related Party Transaction [Line Items]    
Due to related parties [1] 411,585 396,793
Markets Direct Payments [Member]    
Related Party Transaction [Line Items]    
Due to related parties [1] 2,404 2,317
Match Fintech Limited [Member]    
Related Party Transaction [Line Items]    
Due to related parties [3] 48,920 91,433
Craig Vallis [Member]    
Related Party Transaction [Line Items]    
Due to related parties 4,005
Jamal Khurshid [Member]    
Related Party Transaction [Line Items]    
Due to related parties [4] $ 18,895
[1] Forexware LLC, FXDD Trading, and Markets Direct Payments are controlled by Emil Assentato, the Company’s former chief executive officer and chairman.
[2] The partial outstanding amount of $2,727,061 due to FXDIRECT was converted into 757,678 shares of common stock of the Company in December 2023 (See Note 10 – Common shares issued for related party debts conversion).
[3] Match Fintech Limited is controlled by affiliates of the Company.
[4] Jamal Khurshid is the Company’s former chief executive officer and director.
v3.24.2.u1
Related Party Transactions (Details) - Schedule of Activity Recorded for the Line of Credit
 9 Months Ended
Jun. 30, 2024
USD ($)
Schedule of Activity Recorded for the Line of Credit [Abstract]  
Outstanding principal under the Line of Credit $ 127,820
Repayment of Line of Credit (127,820)
Outstanding principal under the Line of Credit
v3.24.2.u1
Concentrations (Details)
 9 Months Ended 12 Months Ended
Jun. 30, 2024
Sep. 30, 2023
Customer Concentration Risk [Member] | Related Party Customer One [Member] | Accounts Receivable [Member]    
Concentrations [Line Items]    
Concentration risk, percentage 87.90% 95.20%
Supplier Concentration Risk [Member] | Accounts Payable [Member] | Related Party Supplier Two [Member]    
Concentrations [Line Items]    
Concentration risk, percentage 70.80% 81.70%
v3.24.2.u1
Concentrations (Details) - Schedule of Customer Revenues
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Customer Concentration Risk [Member] | Customer A [Member] | Revenue Benchmark [Member]        
Schedule of Customer Revenues [Line Items]        
Related party [1] 92.10% 84.50% 88.80%
Customer Concentration Risk [Member] | Customer B [Member] | Revenue Benchmark [Member]        
Schedule of Customer Revenues [Line Items]        
Related party 37.20% [1] [1] [1]
Customer Concentration Risk [Member] | Customer C [Member] | Revenue Benchmark [Member]        
Schedule of Customer Revenues [Line Items]        
Related party 10.10% [1] [1] [1]
Supplier Concentration Risk [Member] | Cost of Revenue [Member] | Supplier A [Member]        
Schedule of Customer Revenues [Line Items]        
Related party [1] 87.10% 95.00% 86.70%
Supplier Concentration Risk [Member] | Cost of Revenue [Member] | Supplier B [Member]        
Schedule of Customer Revenues [Line Items]        
Related party 48.90% [1] [1] [1]
Supplier Concentration Risk [Member] | Cost of Revenue [Member] | Supplier C [Member]        
Schedule of Customer Revenues [Line Items]        
Related party 20.30% [1] [1] [1]
[1] Less than 10%
v3.24.2.u1
Segment Information (Details)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Segment Information [Abstract]        
Reportable business segments 2 2 2 2
v3.24.2.u1
Segment Information (Details) - Schedule of Reportable Business Segments - USD ($)
 3 Months Ended 9 Months Ended
Jun. 30, 2024
Mar. 31, 2024
Dec. 31, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Jun. 30, 2024
Jun. 30, 2023
Sep. 30, 2023
Revenues                  
Revenues $ 175,214     $ 5,212,056     $ 5,677,362 $ 16,222,388  
Costs of revenues                  
Costs of revenues 49,738     5,370,074     4,896,625 16,287,317  
Gross profit (loss)                  
Gross profit (loss) 125,476     (158,018)     780,737 (64,929)  
Operating expenses                  
Operating expenses 1,517,123     1,054,783     13,539,462 3,090,731  
Other income (expense)                  
Other income (expense) (224,594)     3,057     (215,028) 6,345  
Net income (loss)                  
Net income (loss) (1,616,241) $ (2,429,417) $ (8,928,095) (1,209,744) $ (805,649) $ (1,133,922) (12,973,753) (3,149,315)  
Amortization                  
Amortization 3,432     592,892     10,364 1,778,675  
Total assets 1,120,125           1,120,125   $ 3,352,625
General Support Services [Member]                  
Revenues                  
Revenues     4,800,000     4,800,000 14,400,000  
Costs of revenues                  
Costs of revenues     4,675,000     4,650,000 14,125,000  
Gross profit (loss)                  
Gross profit (loss)     125,000     150,000 275,000  
Net income (loss)                  
Net income (loss)     125,000     150,000 275,000  
Financial Services [Member]                  
Revenues                  
Revenues 175,214     412,056     877,362 1,822,388  
Costs of revenues                  
Costs of revenues 49,738     695,074     246,625 2,162,317  
Gross profit (loss)                  
Gross profit (loss) 125,476     (283,018)     630,737 (339,929)  
Operating expenses                  
Operating expenses 487,750     558,228     1,482,560 1,595,955  
Other income (expense)                  
Other income (expense) 4,230     3,057     29,683 6,345  
Net income (loss)                  
Net income (loss) (358,044)     (838,189)     (822,140) (1,929,539)  
Amortization                  
Amortization 3,432     591,955     10,364 1,775,865  
Total assets 624,757           624,757   1,004,708
Corporate/Other [Member]                  
Operating expenses                  
Operating expenses 1,029,373     496,555     12,056,902 1,494,776  
Other income (expense)                  
Other income (expense) (228,824)         (244,711)  
Net income (loss)                  
Net income (loss) (1,258,197)     (496,555)     (12,301,613) (1,494,776)  
Amortization                  
Amortization     $ 937     $ 2,810  
Total assets $ 495,368           $ 495,368   $ 2,347,917
v3.24.2.u1
Subsequent Events (Details) - USD ($)
 1 Months Ended
Sep. 04, 2024
Aug. 01, 2024
Jul. 31, 2024
May 28, 2024
Jun. 28, 2024
Sep. 30, 2024
Sep. 10, 2024
Jun. 30, 2024
Jun. 11, 2024
Sep. 18, 2023
Subsequent Events [Line Items]                    
Principal amount               $ 405,676   $ 270,000
Acquire shares issued         255,000,000          
Senior Unsecured Promissory Note [Member]                    
Subsequent Events [Line Items]                    
Principal amount                 $ 312,500  
Subsequent Event [Member]                    
Subsequent Events [Line Items]                    
Consideration of cash proceeds in the amount   $ 412,075                
Note bears interest percentage   12.00%                
Shares of common stock price per share   $ 0.25                
Conversion price per share   $ 0.3125                
Subsequent Event [Member] | Warrant [Member]                    
Subsequent Events [Line Items]                    
Acquire shares issued   1,400,000                
Subsequent Event [Member] | Senior Unsecured Promissory Note [Member]                    
Subsequent Events [Line Items]                    
Principal amount   $ 515,000                
Forecast [Member]                    
Subsequent Events [Line Items]                    
Consideration of cash proceeds in the amount $ 100,000                  
Note bears interest percentage           12.00%        
Forecast [Member] | Senior Unsecured Promissory Note [Member]                    
Subsequent Events [Line Items]                    
Principal amount             $ 125,000      
Common Stock [Member]                    
Subsequent Events [Line Items]                    
Shares issued       1,189,550            
Common Shares Issued for Settlement [Member] | Subsequent Event [Member]                    
Subsequent Events [Line Items]                    
Shares issued     500,000              
Common Shares Issued for Services [Member] | Subsequent Event [Member]                    
Subsequent Events [Line Items]                    
Shares issued     300,000              
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