UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q10-Q/A
Amendment No. 2
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 20172022
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: 333-192647000-55922
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(Address of principal executive offices, including zip code)
212-791-4663
(Issuer’s telephone number)
212 - 791-4663
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.0001
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ☐☒ No ☐
(Does not currently apply to the Registrant)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | Smaller reporting company | ☒ | ||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Title of each class | Trading symbol | Name of each exchange on which registered | ||
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.date.
Class | Outstanding | |
May 23, 2022 | ||
Common Stock, $0.0001 par value per share |
Explanatory Note
Nukkleus Inc. (the “Company”) is filing this Amendment No. 2 to its Quarterly Report on Form 10-Q (this “Amendment”) for the period ended March 31, 2022, which was originally filed with the Securities and Exchange Commission (“SEC”) on May 23, 2022 and amended on August 1, 2022 (the “10Q Filing”). In response to an SEC comment letter dated September 7, 2022, this Amendment makes certain revisions to the 10Q Filing to reflect the following revisions:
● | revise the Part I – Item 1. Interim Financial Statements; and |
● | revise the Part I – Item 4. Controls and Procedures. |
In addition, as required by Rule 12b-15 under the Securities Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits to this Amendment under Part II, “Item 6. Exhibits” hereof.
Except for the foregoing amended information or where otherwise noted, this Amendment does not reflect events that occurred after the 10Q Filing or modify or update those disclosures affected by subsequent events.
This Amendment should be read in conjunction with the 10Q Filing.
NUKKLEUS INC.
FORM 10-Q10-Q/A
DecemberMarch 31, 20172022
TABLE OF CONTENTS
i
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.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-0330.1-800-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.prospects.
Unless otherwise indicated, references in this report to the “Company”, “Nukkleus”, “we”, “us”, or “our” refer to Nukkleus Inc. and its consolidated subsidiary.subsidiaries.
ii
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
As of | ||||||||
December 31, 2017 | September 30, 2017 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 969,111 | $ | 48,642 | ||||
Prepaid expense | 750 | 750 | ||||||
Deposit on potential acquisition | — | 1,055,559 | ||||||
TOTAL CURRENT ASSETS | 969,861 | 1,104,951 | ||||||
OTHER ASSETS: | ||||||||
Software development costs | 50,000 | — | ||||||
TOTAL ASSETS | $ | 1,019,861 | $ | 1,104,951 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Due to affiliates | $ | 475,342 | $ | 403,994 | ||||
Accrued liabilities | 97,219 | 22,400 | ||||||
Accrued liabilities - related party | — | 8,000 | ||||||
TOTAL CURRENT LIABILITIES | 572,561 | 434,394 | ||||||
OTHER LIABILITIES: | ||||||||
Series A redeemable preferred stock liability at $10 stated value; 100,000 shares issued and outstanding ($1,000,000 less discount of $31,367 and $33,657, respectively) | 968,633 | 966,343 | ||||||
TOTAL LIABILITIES | 1,541,194 | 1,400,737 | ||||||
Contingent common stock (0 and 24,156,000 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively) | — | 55,559 | ||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at December 31, 2017 and September 30, 2017) | — | — | ||||||
Common stock ($0.0001 par value; 900,000,000 shares authorized; 230,485,100 shares issued and outstanding at December 31, 2017 and September 30, 2017) | 23,049 | 23,049 | ||||||
Additional paid-in capital | 141,057 | 141,057 | ||||||
Accumulated deficit | (685,439 | ) | (515,451 | ) | ||||
TOTAL STOCKHOLDERS’ DEFICIT | (521,333 | ) | (351,345 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,019,861 | $ | 1,104,951 |
For the Three Months Ended | For the Three Months Ended | |||||||
December 31, 2017 | December 31, 2016 | |||||||
REVENUE | ||||||||
Revenue | $ | — | $ | — | ||||
Revenue - related party | 4,800,000 | 6,000,000 | ||||||
Total revenue | 4,800,000 | 6,000,000 | ||||||
COST OF REVENUE | ||||||||
Cost of revenue | — | — | ||||||
Cost of revenue - related party | 4,725,000 | 5,925,000 | ||||||
Total cost of revenue | 4,725,000 | 5,925,000 | ||||||
GROSS PROFIT | 75,000 | 75,000 | ||||||
OPERATING EXPENSES: | ||||||||
General and administrative | 232,948 | 71,505 | ||||||
General and administrative - related party | 6,000 | 50,000 | ||||||
Total operating expenses | 238,948 | 121,505 | ||||||
LOSS FROM OPERATIONS | (163,948 | ) | (46,505 | ) | ||||
OTHER EXPENSE: | ||||||||
Interest expense on redeemable preferred stock | (3,750 | ) | (3,750 | ) | ||||
Amortization of debt discount | (2,290 | ) | (2,289 | ) | ||||
Total other expense | (6,040 | ) | (6,039 | ) | ||||
LOSS BEFORE INCOME TAXES | (169,988 | ) | (52,544 | ) | ||||
INCOME TAXES | — | — | ||||||
NET LOSS | $ | (169,988 | ) | $ | (52,544 | ) | ||
NET LOSS PER COMMON SHARE: | ||||||||
Basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
Basic and diluted | 242,037,970 | 254,641,100 |
For the Three Months Ended | For the Three Months Ended | |||||||
December 31, 2017 | December 31, 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (169,988 | ) | $ | (52,544 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Amortization of debt discount | 2,290 | 2,289 | ||||||
Changes in operating assets and liabilities: | ||||||||
Due from affiliate | — | (75,000 | ) | |||||
Due to affiliates | 71,348 | 118,699 | ||||||
Accrued liabilities | 74,819 | 6,556 | ||||||
Accrued liabilities - related party | (8,000 | ) | — | |||||
Net cash used in operating activities | (29,531 | ) | — | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds received from termination of potential acquisition | 1,000,000 | — | ||||||
Payment made for software development costs | (50,000 | ) | — | |||||
Net cash provided by investing activities | 950,000 | — | ||||||
NET INCREASE IN CASH | 920,469 | — | ||||||
Cash - beginning of period | 48,642 | — | ||||||
Cash - end of period | $ | 969,111 | $ | — | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest | $ | — | $ | — | ||||
Income taxes | $ | — | $ | — | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Cancellation of contingent common stock | $ | 55,559 | $ | — |
NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of | ||||||||
March 31, 2022 | September 30, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 50,444 | $ | 355,673 | ||||
Accounts receivable | 55,892 | 57,953 | ||||||
Due from affiliates | 1,479,413 | 2,617,873 | ||||||
Other current assets | 26,627 | 12,221 | ||||||
TOTAL CURRENT ASSETS | 1,612,376 | 3,043,720 | ||||||
NON-CURRENT ASSETS: | ||||||||
Cost method investment | 6,602,000 | - | ||||||
Equity method investment | 4,929,381 | - | ||||||
Intangible assets, net | 9,260,888 | 13,616,116 | ||||||
TOTAL NON-CURRENT ASSETS | 20,792,269 | 13,616,116 | ||||||
TOTAL ASSETS | $ | 22,404,645 | $ | 16,659,836 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Due to affiliates | $ | 4,026,354 | $ | 4,257,792 | ||||
Accounts payable and accrued liabilities | 561,460 | 380,721 | ||||||
TOTAL CURRENT LIABILITIES | 4,587,814 | 4,638,513 | ||||||
TOTAL LIABILITIES | 4,587,814 | 4,638,513 | ||||||
CONTINGENCY - (Note 14) | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred stock ($0.0001 par value; 15,000,000 shares authorized; 0 share issued and outstanding at March 31, 2022 and September 30, 2021) | - | - | ||||||
Common stock ($0.0001 par value; 900,000,000 shares authorized; 367,175,886 and 332,024,371 shares issued and outstanding at March 31, 2022 and September 30, 2021, respectively) | 36,718 | 33,203 | ||||||
Additional paid-in capital | 24,127,298 | 14,474,839 | ||||||
Accumulated deficit | (6,366,612 | ) | (2,495,159 | ) | ||||
Accumulated other comprehensive income - foreign currency translation adjustment | 19,427 | 8,440 | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 17,816,831 | 12,021,323 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 22,404,645 | $ | 16,659,836 |
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For the Three Months Ended March 31, | For the Six Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(as restated) | (as restated) | |||||||||||||||
REVENUES | ||||||||||||||||
Revenue - general support services - related party | $ | 4,800,000 | $ | 4,800,000 | $ | 9,600,000 | $ | 9,600,000 | ||||||||
Revenue - financial services | 289,017 | - | 618,032 | - | ||||||||||||
Total revenues | 5,089,017 | 4,800,000 | 10,218,032 | 9,600,000 | ||||||||||||
COSTS OF REVENUES | ||||||||||||||||
Cost of revenue - general support services - related party | 4,725,000 | 4,725,000 | 9,450,000 | 9,450,000 | ||||||||||||
Cost of revenue - financial services | 690,184 | - | 1,697,615 | - | ||||||||||||
Total costs of revenues | 5,415,184 | 4,725,000 | 11,147,615 | 9,450,000 | ||||||||||||
GROSS PROFIT (LOSS) | ||||||||||||||||
Gross profit - general support services - related party | 75,000 | 75,000 | 150,000 | 150,000 | ||||||||||||
Gross loss - financial services | (401,167 | ) | - | (1,079,583 | ) | - | ||||||||||
Total gross (loss) profit | (326,167 | ) | 75,000 | (929,583 | ) | 150,000 | ||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Advertising and marketing | 163,427 | - | 198,649 | - | ||||||||||||
Professional fees | 1,066,816 | 51,500 | 1,988,548 | 138,272 | ||||||||||||
Amortization of intangible assets | 66,290 | - | 131,644 | - | ||||||||||||
Other general and administrative | 231,022 | 21,941 | 548,921 | 62,254 | ||||||||||||
Total operating expenses | 1,527,555 | 73,441 | 2,867,762 | 200,526 | ||||||||||||
(LOSS) INCOME FROM OPERATIONS | (1,853,722 | ) | 1,559 | (3,797,345 | ) | (50,526 | ) | |||||||||
OTHER EXPENSE: | ||||||||||||||||
Loss from equity method investment | (70,619 | ) | - | (70,619 | ) | - | ||||||||||
Other expense | (2,273 | ) | (1,510 | ) | (3,489 | ) | (3,020 | ) | ||||||||
Total other expense | (72,892 | ) | (1,510 | ) | (74,108 | ) | (3,020 | ) | ||||||||
(LOSS) INCOME BEFORE INCOME TAXES | (1,926,614 | ) | 49 | (3,871,453 | ) | (53,546 | ) | |||||||||
INCOME TAXES | - | - | - | - | ||||||||||||
NET (LOSS) INCOME | $ | (1,926,614 | ) | $ | 49 | $ | (3,871,453 | ) | $ | (53,546 | ) | |||||
COMPREHENSIVE (LOSS) INCOME: | ||||||||||||||||
NET (LOSS) INCOME | $ | (1,926,614 | ) | $ | 49 | $ | (3,871,453 | ) | $ | (53,546 | ) | |||||
OTHER COMPREHENSIVE INCOME | ||||||||||||||||
Unrealized foreign currency translation gain | 13,214 | - | 10,987 | - | ||||||||||||
COMPREHENSIVE (LOSS) INCOME | $ | (1,913,400 | ) | $ | 49 | $ | (3,860,466 | ) | $ | (53,546 | ) | |||||
NET (LOSS) INCOME PER COMMON SHARE: | ||||||||||||||||
Basic | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) | |||||
Diluted | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) | |||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
Basic | 354,549,624 | 230,485,100 | 345,031,364 | 230,485,100 | ||||||||||||
Diluted | 354,549,624 | 231,735,100 | 345,031,364 | 230,485,100 |
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended March 31, 2022
Accumulated | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Other | Total | ||||||||||||||||||||||||||||
Number of | Number of | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||||||||
Balance as of October 1, 2021 | - | $ | - | 332,024,371 | $ | 33,203 | $ | 14,474,839 | $ | (2,495,159 | ) | $ | 8,440 | $ | 12,021,323 | |||||||||||||||||
Adjustment for asset acquisition | - | - | - | - | (2,861,631 | ) | - | - | (2,861,631 | ) | ||||||||||||||||||||||
Common stock issued in connection with cost method investment | - | - | 20,000,000 | 2,000 | 6,600,000 | - | - | 6,602,000 | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 378,746 | - | - | 378,746 | ||||||||||||||||||||||||
Net loss for the three months ended December 31, 2021 | - | - | - | - | - | (1,944,839 | ) | - | (1,944,839 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | (2,227 | ) | (2,227 | ) | ||||||||||||||||||||||
Balance as of December 31, 2021 | - | - | 352,024,371 | 35,203 | 18,591,954 | (4,439,998 | ) | 6,213 | 14,193,372 | |||||||||||||||||||||||
Common stock issued in connection with equity method investment | - | - | 15,151,515 | 1,515 | 4,998,485 | - | - | 5,000,000 | ||||||||||||||||||||||||
Stock options issued for the purchase of an intangible asset | - | - | - | - | 11,237 | - | - | 11,237 | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 525,622 | - | - | 525,622 | ||||||||||||||||||||||||
Net loss for the three months ended March 31, 2022 | - | - | - | - | - | (1,926,614 | ) | - | (1,926,614 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | 13,214 | 13,214 | ||||||||||||||||||||||||
Balance as of March 31, 2022 | - | $ | - | 367,175,886 | $ | 36,718 | $ | 24,127,298 | $ | (6,366,612 | ) | $ | 19,427 | $ | 17,816,831 |
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three and Six Months Ended March 31, 2021
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
Number of | Number of | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance as of October 1, 2020 | - | $ | - | 230,485,100 | $ | 23,049 | $ | 141,057 | $ | (1,558,313 | ) | $ | (1,394,207 | ) | ||||||||||||||
Net loss for the three months ended December 31, 2020 | - | - | - | - | - | (53,595 | ) | (53,595 | ) | |||||||||||||||||||
Balance as of December 31, 2020 | - | - | 230,485,100 | 23,049 | 141,057 | (1,611,908 | ) | (1,447,802 | ) | |||||||||||||||||||
Net income for the three months ended March 31, 2021 | - | - | - | - | - | 49 | 49 | |||||||||||||||||||||
Balance as of March 31, 2021 | - | $ | - | 230,485,100 | $ | 23,049 | $ | 141,057 | $ | (1,611,859 | ) | $ | (1,447,753 | ) |
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (3,871,453 | ) | $ | (53,546 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
(used in) provided by operating activities: | ||||||||
Amortization of debt discount | - | 1,145 | ||||||
Amortization of intangible assets | 1,504,834 | - | ||||||
Stock-based compensation and service expense | 904,368 | - | ||||||
Provision for bad debt | - | 12 | ||||||
Loss on equity method investment | 70,619 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 667 | - | ||||||
Other current assets | (14,943 | ) | (334 | ) | ||||
Due from affiliates | 1,138,460 | 791,899 | ||||||
Due to affiliates | (224,287 | ) | (770,730 | ) | ||||
Accounts payable and accrued liabilities | 187,364 | 48,202 | ||||||
Net cash (used in) provided by operating activities | (304,371 | ) | 16,648 | |||||
EFFECT OF EXCHANGE RATE ON CASH | (858 | ) | - | |||||
NET (DECREASE) INCREASE IN CASH | (305,229 | ) | 16,648 | |||||
Cash - beginning of period | 355,673 | 82,849 | ||||||
Cash - end of period | $ | 50,444 | $ | 99,497 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued in connection with cost method investment | $ | 6,602,000 | $ | - | ||||
Common stock issued in connection with equity method investment | $ | 5,000,000 | $ | - | ||||
Stock options issued for the purchase of an intangible asset | $ | 11,237 | $ | - |
The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 1 –THE COMPANY HISTORY AND NATURE OF THE BUSINESS
Nukkleus Inc. (f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.
On February 5, 2016, Charms Investments, Ltd (“Charms”), the former majority shareholder of theThe Company sold 146,535,140 shares of common stock to Currency Mountain Holdings Bermuda, Limited (“CMH”), the parent of the Company. CMH is wholly-owned by an entity thata financial technology company which is owned by Emil Assentato, the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chairman. In addition,focused on the same date, CMH acquired 3,937,000 shares of common stock from another non-affiliated company. The aggregate purchase price paid by CMH was $347,500.
On May 24, 2016, Nukkleus, its wholly-owned subsidiary, Nukkleus Limited, a Bermuda limited company (the “Subsidiary”), Charms, the former majority shareholder, and CMH entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which the Company purchased from CMH certain intellectual property, hardware,providing software and other assets (collectively,technology solutions for the “Assets”) in consideration of 48,400,000 shares of common stock of the Company. The Asset Purchase Agreement closed on May 24, 2016. As a result of such acquisition, the Company’s operations are now focused on the operation of aworldwide retail foreign exchange (“FX”) trading business utilizing the assets acquired from CMH.
On May 24, 2016, the Subsidiary entered into a General Service Agreement to provideindustry. The Company primarily provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to FML MaltaTriton Capital Markets Ltd. In December 2017, the Subsidiary, FML Malta Ltd. and(“TCM”), formerly known as FXDD Malta Limited (“FXDD Malta”) entered into a letter agreement providing that there was an error in drafting. The FXDD brand (e.g., see FXDD.com) is the General Service Agreement and acknowledging that the correct counter-party to Subsidiarybrand 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 ServiceServices Agreement is FXDD Malta. Accordingly, all references(“GSA”) to FML Malta Ltd. have been replaced with FXDD Malta. FXDD MaltaTCM. TCM is a private limited liability company formed under the laws of Malta. The General Service Agreement entered with FXDD MaltaGSA provides that FXDD MaltaTCM will pay the SubsidiaryNukkleus Limited at minimum $2,000,000 per month. On October 17, 2017, the Subsidiary entered into an amendment of the General Service Agreement with FXDD Malta. In accordance with the amendment, which was effective as of October 1, 2017, the minimum amount payable by FXDD Malta to the Subsidiary 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, who is our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chairman, is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of FXDD Malta.TCM.
In addition, on May 24, 2016, in order to appropriately service FXDD Malta, the SubsidiaryTCM, Nukkleus Limited entered into a General Service AgreementGSA with FXDirectDealer LLC (“FXDIRECT”), which provides that the SubsidiaryNukkleus Limited will pay FXDIRECT a minimum of $1,975,000$1,575,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. On October 17, 2017, the Subsidiary 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 the Subsidiary 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.
On May 27, 2016, the Company entered into a Stock Purchase Agreement (“SPA”) to acquire, from IBIH Limited, a BVI corporation (“IBIH”) 2,200 issued and outstanding common stock for $1,000,000, representing 9.9% of IBIH. In addition, the Company acquired 100% of the issued and outstanding shares of GVS Limited (“Iron BVI”), which is the parent corporation of GVS (AU) Pty Ltd. (“Iron Australia”) for 24,156,000 shares of common stock of the Company (“First Closing”).
The Company agreed to acquire the remaining 20,000 shares of IBIH for 219,844,000 shares of its common stock, subject to IBIH obtaining regulatory approvals from the Financial Conduct Authority in the United Kingdom (“London FCA”) and from the regulators in Cyprus (“Second Closing”). The Second Closing was subject to the Company signing an option agreement with FXDD Malta and FXDD Trading Limited operating units (the “Option”), which are affiliates through common ownership, providing that the Company may acquire both entities for $1. These transactions were subject to regulatory approval, where applicable.
The terms of the Agreement stipulated that if the Second Closing did not occur before November 28, 2016, the $1,000,000 would be returned to the Company and the First Closing would be unwound. As a result of the First Closing being contingent on the Second Closing, the $1,000,000 cash paid and value of the 24,156,000 shares issued was recorded as a “deposit on potential acquisition”, which was repaid to and returned to the Company in the first fiscal quarter of 2018 (See next paragraph), and the 24,156,000 shares was recorded as “contingent common stock” due to the uncertainty of the closing of the transaction.
NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS (continued)
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 November 17, 2017,August 27, 2020, the Company IBIH, Terra (FX) Offshore Limited, Ludico Investments Limited, Currency Mountain Holdings LLCrenamed Nukkleus Exchange Malta Ltd. to Markets Direct Technology Group Ltd (“MDTG”). MDTG manages the technology and IP behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the IP rights to the brands such as Markets Direct and TCM. MDTG then leases out the rights to use these names/brands licenses to the appropriate entities.
On May 24, 2021, the Company and the IBIH Shareholdersshareholders of Match Financial Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”), entered into a SettlementPurchase and Sale Agreement and Mutual Release (the “Iron Settlement“Match Agreement”), pursuant to which the Stock Purchase Agreement was terminated, all differences between the parties were resolved and settled and the parties fully released the other parties from any liability. Pursuant to the Iron Settlement Agreement, the Company, agreed to (i) have the registered office of Iron Australia changed, (ii) have its director designees resign as directors of Iron Australia, (iii) appoint Markos Kashiouris, Petros Economides and Yun Ma as directors of Iron Australia; (iv) and make all required changes with the Australian Securities and Investments Commission. With respect to Iron BVI, pursuant to the Iron Settlement Agreement, the Company agreed to (i) have the registered office of Iron BVI changed, (ii) have its director designee resign as a director of Iron BVI, (iii) appoint Cymora Limited as director of Iron BVI; (iv) and make all required changes with the BVI Registrar of Companies. Further, the Company agreed to return the 2,200on May 28, 2021, acquired 1,152 ordinary shares of capital stockMatch representing 70% of IBIH to the IBIH Shareholdersissued and return 100%outstanding ordinary shares of its interestMatch in Iron BVI to IBIH. IBIH agreed to return the 24,156,000consideration of 70,000,000 shares of common stock of the Company to(the “Initial Transaction”). On August 30, 2021, the Company exercised its option pursuant to which it acquired from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for cancellation andan additional 30,000,000 shares of common stock of the Company. Match is engaged in providing payment services from one fiat currency to pay the Company $1,000,000. Further, Markos Kashiouris, Petros Economides and Efstathios Christophi resigned as directors ofanother.
On October 20, 2021, the Company and waived any directorship fees payablethe shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to them under their letter of appointment dated August 1, 2016. The $1,000,000 has been paid towhich the Company netagreed to acquire 5.0% of approximately $70,000the issued and outstanding ordinary shares of legal expenses,Jacobi in the first fiscal quarterconsideration of 2018 and IBIH has returned the certificate representing the 24,156,00020,000,000 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.
On December 30, 2021, the Company and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement) pursuant to which the Company agreed to acquire 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of 15,151,515 shares of common stock of the Company (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. Digiclear is a company developing a custody and settlement utility operating system.
The unaudited condensed consolidated financial statements have been cancelledprepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company incurred a net loss and generated negative cash flow from operating activities for the six months ended March 31, 2022 of $3,871,453 and $304,371, respectively, and had a working capital deficit of $2,975,438 at March 31, 2022. The Company’s ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.
We cannot be certain that such necessary capital through equity or debt financings will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, Currency Mountain Holdings Bermuda, Limited (“CMH”), which is wholly-owned by an entity that is majority-owned by Mr. Assentato, has committed to inject capital into the Company.Company in order to maintain the ongoing operations of the business.
The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.
The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 2 – RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS
The Company concluded it should restate its previously issued financial statements by amending its Quarterly Report on Form 10- Q for the quarterly period ended March 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022 and amended on August 1, 2022 (the “10Q Filing”), to record the classification of amortization of intangible assets representing licenses and banking infrastructure acquired on Match acquisition. The Company had previously recorded the amortization of intangible assets as operating expenses. In July 2022, the Company realized its financial services segment is unable to generate revenue without the licenses and bank infrastructure. As a result, the Company reclassified the amortization of intangible assets from operating expenses to cost of revenue – financial services.
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the correction and has determined that the related impact was material to the previously filed financial statements that contained the error, reported in the Company’s Form 10-Q for the quarterly period ended March 31, 2022 (the “Affected Quarterly Period”). Therefore, the Company concluded that the Affected Quarterly Period should be restated to present the reclassification. As such, the Company is reporting the restatement to the period in this quarterly report.
The following table represents the impacts of the adjustment described above:
As Reported | Adjustment | As Restated | ||||||||||
Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 | ||||||||||||
Cost of revenue - financial services | $ | 163,583 | $ | 526,601 | $ | 690,184 | ||||||
Total costs of revenues | $ | 4,888,583 | $ | 526,601 | $ | 5,415,184 | ||||||
Gross profit (loss) - financial services | $ | 125,434 | $ | (526,601 | ) | $ | (401,167 | ) | ||||
Total gross profit (loss) | $ | 200,434 | $ | (526,601 | ) | $ | (326,167 | ) | ||||
Amortization of intangible assets | $ | 592,891 | $ | (526,601 | ) | $ | 66,290 | |||||
Total operating expenses | $ | 2,054,156 | $ | (526,601 | ) | $ | 1,527,555 |
As Reported | Adjustment | As Restated | ||||||||||
Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the Six Months Ended March 31, 2022 | ||||||||||||
Cost of revenue - financial services | $ | 324,425 | $ | 1,373,190 | $ | 1,697,615 | ||||||
Total costs of revenues | $ | 9,774,425 | $ | 1,373,190 | $ | 11,147,615 | ||||||
Gross profit (loss) - financial services | $ | 293,607 | $ | (1,373,190 | ) | $ | (1,079,583 | ) | ||||
Total gross profit (loss) | $ | 443,607 | $ | (1,373,190 | ) | $ | (929,583 | ) | ||||
Amortization of intangible assets | $ | 1,504,834 | $ | (1,373,190 | ) | $ | 131,644 | |||||
Total operating expenses | $ | 4,240,952 | $ | (1,373,190 | ) | $ | 2,867,762 |
The reclassifications did not have any impact on consolidated operating loss, net loss or earnings per share, cash flows or balance sheets.
NOTE 23 – BASIS OF PRESENTATION
These interim condensed consolidated financial statements of the Company and its wholly-owned subsidiarysubsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)of America (U.S. GAAP).
The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.consolidated subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 20172021 filed with the Securities and Exchange Commission on December 27, 2017.29, 2021. The consolidated balance sheet as of September 30, 20172021 contained herein has been derived from the audited consolidated financial statements as of September 30, 2017,2021, but does not include all disclosures required by the generally accepted accounting principles in the U.S. GAAP.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 34 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of AmericaU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the three and six months ended DecemberMarch 31, 20172022 and 20162021 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances.allowances, and valuation of stock-based compensation.
Cash and cash equivalents
At March 31, 2022 and September 30, 2021, the Company’s cash balances by geographic area were as follows:
Country: | March 31, 2022 | September 30, 2021 | ||||||||||||||
United States | $ | 3,005 | 6.0 | % | $ | 327,443 | 92.1 | % | ||||||||
United Kingdom | 47,265 | 93.7 | % | 28,056 | 7.9 | % | ||||||||||
Malta | 174 | 0.3 | % | 174 | 0.0 | % | ||||||||||
Total cash | $ | 50,444 | 100.0 | % | $ | 355,673 | 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 March 31, 2022 and September 30, 2021.
Fair value of financial instruments and fair value measurements
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 reportedrepresented in the unauditedaccompanying condensed consolidated balance sheets for cash, prepaid expense, deposit on potential acquisition,financial statements, primarily due to affiliates, accrued liabilities, and accrued liabilities – related party approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of December 31, 2017 and September 30, 2017.nature.
NUKKLEUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSCredit risk and uncertainties
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentration of credit risk
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.Asfederally-insured limits of December 31, 2017 and September 30, 2017, the Company’s$250,000. The Company manages this credit risk by concentrating its cash balances in bank accounts had approximately $650,000high quality financial institutions and $0 in excessby periodically evaluating the credit quality of the federally-insured limits, respectively.primary financial institutions holding such deposits. The Company has not experienced any losses in itssuch bank accounts through and asbelieves it is not exposed to any risks on its cash in bank accounts. At March 31, 2022, the Company’s cash balances in United States bank accounts were not in excess of the date of this report.federally-insured limits.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The following table summarizes customer revenue concentrations:Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
Three Months Ended December 31, 2017 |
| Three Months Ended December 31, 2016 | ||||||
FXDD Malta - related party | 100 | % | 100 | % |
The following table summarizes vendor expense concentrations:Accounts receivable and allowance for doubtful accounts
Three Months Ended December 31, 2017 | Three Months Ended December 31, 2016 | |||||||
FXDIRECT - related party | 100 | % | 100 | % |
Prepaid expense
Prepaid expense represents cash paid in advanceAccounts receivable are presented net of an allowance for professional service charge.doubtful accounts. The amountCompany maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is recognizeddoubt as expense over the related service periods. At both December 31, 2017 and September 30, 2017, prepaid expense amounted $750.
Software development costs
At December 31, 2017, software development costs totaled $50,000, which represents software development that management expects to complete and place in service in June 2018. Projected capitalized costs of this software development is approximately $200,000. Capitalized costs related to the software under development are treated as an asset untilcollectability of individual balances. In evaluating the development is completed. Thecollectability of individual receivable balances, the Company will amortizeconsiders many factors, including the software costs on a straight-line basis over the estimated lifeage of the software, commencing whenbalance, a customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. Management believes that the software is put into productive use.
Revenue recognition
Because the Company provides its applications as services, it follows the provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104; Revenue Recognition. The Company recognizes revenue when all of the following conditionsaccounts receivable are met:
The Company records revenues and expenses related to the General Service Agreements at gross as the Companyfully collectable. Therefore, no allowance for doubtful accounts is deemed to be a principal in the transactions. Revenues are recognized when the services are completedrequired on its accounts receivable at March 31, 2022 and expenses are recognized as incurred.
Income taxes
September 30, 2021. The Company recorded no income tax expense for the three months ended December 31, 2017 and 2016 because the estimated annual effective tax rate was zero. As of December 31, 2017, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely thanhistorically has not its deferred tax assets will not be realized.
In December 2017, the United States Government passed new tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income the Company may have, the legislation affects the way the Company can use and carryforward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on the balance sheet. Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no net impact on the balance sheet. However, when the Company becomes profitable, the Company will receive a reduced benefit from such deferred tax assets.experienced significant uncollectible accounts receivable.
6
NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 34 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other current assets
Other current assets primarily consist of prepaid professional service fees and prepaid OTC Markets listing fees. As of March 31, 2022 and September 30, 2021, other current assets amounted to $26,627 and $12,221, respectively.
Investments
Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other income (expense), net” in the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income, and a new basis in the investment is established.
The Company uses the equity method of accounting for its investments in, and earning or loss of, a company that it does not control but over which it does exert significant influence. The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value.
Intangible assets
Intangible assets consist of trade names, regulatory licenses, technology and software, which are being amortized on a straight-line method over the estimated useful life of 3 - 5 years.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of March 31, 2022 and September 30, 2021. For the three and six months ended March 31, 2022 and 2021, no impairment of long-lived assets was recognized.
Revenue recognition
The Company accounts for revenue under the provisions of ASC Topic 606.
The Company’s revenues are derived from providing:
● | General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA (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 General Services Agreement (“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 Triton Capital Markets Ltd. (“TCM”) The Company provides these services, obtained from affiliate service provider FXDirect Dealer, LLC which is under common ownership, and controls the services of its service provider necessary to legally transfer of the services to TCM. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation by providing ongoing service support enabling TCM to conduct its retail FX business without interruption. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The monthly GSA price is calculated by applying the Company's 1.6% mark-up to the costs of the services being provided by FXDirect Dealer, LLC. | |
● | Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. |
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 4 – 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 |
In the following table, revenues are disaggregated by segment for the three and six months ended March 31, 2022 and 2021:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
Revenue Stream | 2022 | 2021 | 2022 | 2021 | ||||||||||||
General support services | $ | 4,800,000 | $ | 4,800,000 | $ | 9,600,000 | $ | 9,600,000 | ||||||||
Financial services | 289,017 | - | 618,032 | - | ||||||||||||
Total revenues | $ | 5,089,017 | $ | 4,800,000 | $ | 10,218,032 | $ | 9,600,000 |
Advertising and marketing costs
All costs related to advertising and marketing are expensed as incurred. For the three and six months ended March 31, 2022, advertising and marketing costs amounted to $163,427 and $198,649, respectively, which was included in operating expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income. For the three and six months ended March 31, 2021, the Company did not incur any advertising and marketing costs.
Stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees including grants of stock options, to be recognized as expense in the statements of operations based on their grant date fair values. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.
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.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share data
ASC Topic 260, “EarningsEarnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted earnings per share reflectsFor the potential dilution that could occur if securities were exercised or converted intothree and six months ended March 31, 2022 and 2021, potentially dilutive common stock or other contracts to issueshares consist of the common stock resulting inshares issuable upon the issuanceexercise of common stock that would then shareoptions (using the treasury stock method) and the conversion of Series A preferred stock (using the if-converted method). Common stock equivalents are not included in the Company’s earnings subject to anti-dilution limitations.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. For the three months ended December 31, 2017 and 2016, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).
The following table presentsis a reconciliation of the basic and diluted net loss(loss) income per share:share computations for the three and six months ended March 31, 2022 and 2021:
Three Months Ended December 31, 2017 | Three Months Ended December 31, 2016 | |||||||
Net loss available to common stockholders for basic and diluted net loss per share of common stock | $ | (169,988 | ) | $ | (52,544 | ) | ||
Weighted average common stock outstanding - basic | 242,037,970 | 254,641,100 | ||||||
Effect of dilutive securities: | ||||||||
Series A preferred stock | — | — | ||||||
Weighted average common stock outstanding - diluted | 242,037,970 | 254,641,100 | ||||||
Net loss per common share - basic | $ | (0.00 | ) | $ | (0.00 | ) | ||
Net loss per common share - diluted | $ | (0.00 | ) | $ | (0.00 | ) |
Basic net (loss) income per share
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | |||||||||||||
Net (loss) income available to common stockholders for basic net (loss) income per share of common stock | $ | (1,926,614 | ) | $ | 49 | $ | (3,871,453 | ) | $ | (53,546 | ) | |||||
Weighted average common stock outstanding - basic | 354,549,624 | 230,485,100 | 345,031,364 | 230,485,100 | ||||||||||||
Net (loss) income per share: | ||||||||||||||||
Basic | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) |
During
Diluted net (loss) income per share
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | |||||||||||||
Net (loss) income available to common stockholders for basic net (loss) income per share of common stock | $ | (1,926,614 | ) | $ | 49 | $ | (3,871,453 | ) | $ | (53,546 | ) | |||||
Add: interest expense for redeemable preferred stock | - | 937 | - | - | ||||||||||||
Subtract: unamortized debt discount for redeemable preferred stock | - | (401 | ) | - | - | |||||||||||
Net (loss) income available to common stockholders for diluted net (loss) income per share of common stock | $ | (1,926,614 | ) | $ | 585 | $ | (3,871,453 | ) | $ | (53,546 | ) | |||||
Weighted average common stock outstanding - basic | 354,549,624 | 230,485,100 | 345,031,364 | 230,485,100 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Series A preferred stock | - | 1,250,000 | - | - | ||||||||||||
Weighted average common stock outstanding - diluted | 354,549,624 | 231,735,100 | 345,031,364 | 230,485,100 | ||||||||||||
Net (loss) income per share: | ||||||||||||||||
Diluted | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) |
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Per share data (continued)
The following table summarizes the three months ended December 31, 2017 and 2016, all potentially dilutive securities arethat were excluded from the computationdiluted per share calculation because the effect of diluted weighted average number ofincluding these potential shares of common stock outstanding as they would have had an anti-dilutive impact.was antidilutive:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Stock options | 5,850,000 | - | 5,850,000 | - | ||||||||||||
Convertible preferred stock | - | - | - | 1,250,000 | ||||||||||||
Potentially dilutive securities | 5,850,000 | - | 5,850,000 | 1,250,000 |
Reclassifications
Foreign currency translation
The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar and the functional currency of Match Financial Limited and its subsidiaries is the British Pound (“GBP”). Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange prevailing at the balance sheet date. Revenue and expenses are translated using average rates during each reporting period, and shareholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the 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 March 31, 2022 and September 30, 2021 were translated at 0.7611 GBP and 0.7426 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the six months ended March 31, 2022 was 0.7439 GBP to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.
Comprehensive (loss) income
Comprehensive (loss) income is comprised of net (loss) income 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) income for the three and six months ended March 31, 2022 and 2021 consisted of net (loss) income and unrealized gain from foreign currency translation adjustment.
Segment reporting
The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. The Company has reclassified certain prior period amounts in the accompanying unaudited condensed consolidated statementsdetermined that it has two reportable business segments: general support services segment and financial services segment. These reportable segments offer different types of operations in order to be consistent with the current period presentation. These reclassifications had no effect on the previously reported resultsservices and products, have different types of operations.revenue, and are managed separately as each requires different operating strategies and management expertise.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements
In May 2014,June 2016, the FASB issued Accounting Standards UpdateASU 2016-13, Financial Instruments - Credit Losses (“ASU”Topic 326”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will requireintroduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requiresearlier recognition of credit losses and additional disclosure aboutdisclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the nature, amount, timing and uncertaintyrecognition of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtaincredit losses at the time the financial asset is originated or fulfill a contract.acquired. ASU 2014-092016-13 is effective for interim and annual periodsperiod beginning after December 15, 2017 (quarter ending December 31, 2018 for the Company). Early adoption is permitted only in2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on its unaudited condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2016, including2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim periods therein. Entities can transition toor annual period presented in the standard either retrospectively or as a cumulative-effect adjustment as of the dateinitial fiscal year of adoption. The Company is currently evaluating the effectsadoption of adopting ASU 2014-09 and the implementation approach to be used, butthis guidance as of the date of this filing, the adoption isOctober 1, 2020 did not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
NUKKLEUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements (continued)
In February 2016,December 2019, the FASB issued ASU No. 2016-02, Leases (Topic 842): Amendments2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the Leases Analysis, which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. This pronouncement is effective for reporting periods beginning after December 15, 2018 including interim periods within those annual reporting periods (quarter ending December 31, 2019 for the Company) using a modified retrospective adoption method. The Company is currently evaluating the impact of adopting the new lease standard on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments add further guidance on identifying performance obligations and also improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. This pronouncement has the same effective date as the new revenue standard, which is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017 (quarter ending December 31, 2018 for the Company). The Company is currentlygeneral principles in the process of evaluating the impact of the adoption on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvementsexisting guidance for income taxes and Practical Expedients.making other minor improvements. The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years (quarter ending December 31, 2018 for the Company), with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period.ASU are effective for the Company on October 1, 2021. The Company is currently evaluating the impact it may have on its consolidated financial statements, but the adoption isof this guidance as of October 1, 2021 did not expected to have a significantmaterial impact as ofon the filing of this report.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for acquisitions (or disposals) of assets or business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods (quarter ending December 31, 2018 for the Company). The Company is currently evaluating the impact of adopting ASU 2017-01 on itsCompany’s unaudited condensed consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017 (quarter ending December 31, 2018 for the Company). Early adoption is permitted. The Company is currently evaluating the impact it may have on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.
NUKKLEUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements (continued)
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.
NOTE 4 – ACCRUED LIABILITIESReclassifications
At December 31, 2017 and September 30, 2017, accrued liabilities consisted ofReclassifications occurred to certain prior year amounts in order to confirm to the following:current year presentation. The reclassifications had no effect on the previously reported net loss.
December 31, 2017 | September 30, 2017 | |||||||
Professional fees | $ | 48,594 | $ | 2,525 | ||||
Directors’ compensation | 25,000 | — | ||||||
Interest payable | 23,625 | 19,875 | ||||||
$ | 97,219 | $ | 22,400 |
NOTE 5 – SHARE CAPITALCOST METHOD INVESTMENT
Authorized sharesAt March 31, 2022, cost method investment amounted to $6,602,000. The investment represents the Company’s minority interest in Jacobi Asset Management Holdings Limited (“Jacobi”), a private company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF.
TheOn December 15, 2021, the Company is authorized to issue 900,000,000issued 20,000,000 shares of its common stock at par valueto Jacobi’s shareholders for acquisition of $0.0001 and 15,000,000 shares5.0% equity interest of Series A preferred stock at par value of $0.0001.
Common stock issued for Stock Purchase Agreement
As described in Note 1, on May 27, 2016, the Company acquired 100% of the issued and outstanding shares of Iron BVI for 24,156,000 shares of common stock of the Company. TheJacobi. These shares were valued at $.0023 per share. As a result of$6,602,000, the First Closing being contingentfair market value on the Second Closing,grant date using the 24,156,000 shares for the purchase of IBIH was recorded as “contingent common stock” due to the uncertainty of thereported closing of the transaction.
On November 17, 2017, the Company entered into the Iron Settlement Agreement. As a result, IBIH has returned the certificate representing the 24,156,000 shares of common stockshare price of the Company on the date of grant.
In accordance with ASC Topic 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company monitors its investment in the non-marketable security and will recognize, if ever existing, a loss in value which is deemed to be other than temporary. The Company determined that there was no impairment of this investment as of March 31, 2022.
NOTE 6 – EQUITY METHOD INVESTMENT
As of March 31, 2022, the equity method investment amounted to $4,929,381. The investment represents the Company’s interest in Digiclear Inc. (“Digiclear”). Digiclear was incorporated on July 13, 2021 in United Kingdom. The company and the shares have been cancelled byother unrelated party accounted for 50% and 50% of the Company.total ownership, respectively. Digiclear is a company developing a custody and settlement utility operating system.
Common stock and Series A preferred stock sold for cash
The Company agreed to sell to CMH 30,900,000 sharesaccounts for the investment in Digiclear under the equity method of common stock and 200,000 shares of Series A preferred stockaccounting. Under the equity method, the investment is initially recorded at cost, adjusted for $2,000,000 in two equal installments. The first close occurred on June 7, 2016. Originally, the second closing was to occur with the closingany excess of the Company’s acquisitionshare of IBIH. Since the acquisitionincorporated-date fair values of IBIH transaction was terminated, the second closing with CMH will not proceed.
The Series A preferred stock hasinvestee’s identifiable net assets over the following key terms:
During the first close, 15,450,000 sharesinvestment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of common stockthe investee’s net assets and 100,000 shares of Series A preferred stock were issued and were recorded as equity and as a long-term liability, respectively. The $1,000,000 of proceeds received was allocatedany impairment loss relating to the common stock and Series A preferred stock according to their relative fair values determined at the time of issuance, and as a result, the Company recorded a total discount of $45,793 on the Series A preferred stock, which is being amortized to interest expense to the date of redemption. For the three months ended December 31, 2017 and 2016, amortization of debt discount amounted to $2,290 and $2,289, respectively.investment.
For the period from March 17, 2022 (date of investment) through March 31, 2022, the Company’s share of Digiclear’s net loss of $30,320 and the adjustment for allocated amortization of intangible asset of $40,299 were included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive (loss) income.
NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 56 – SHARE CAPITALEQUITY METHOD INVESTMENT (continued)
Common stock and Series A preferred stock sold for cash (continued)
The termstables below present the summarized unaudited financial information, as provided to the Company by the investee, for the unconsolidated company:
March 31, 2022 | ||||
Current assets | $ | 290,515 | ||
Noncurrent assets | 46,601 | |||
Current liabilities | 70,116 | |||
Noncurrent liabilities | - | |||
Equity | 267,000 |
For the Period from March 17, 2022 (Date of Investment) through March 31, 2022 | ||||
Net revenue | $ | - | ||
Gross profit | - | |||
Loss from operations | 60,641 | |||
Net loss | 60,641 |
NOTE 7 – INTANGIBLE ASSETS
Intangible assets primarily consist of the Series A preferred stock issued represent mandatory redeemable shares, with a fixed redemption date (in 5 years)valuation of identifiable intangible assets acquired, representing trade names, regulatory licenses, and technology. The straight-line method of amortization represents the Company has a choiceCompany’s best estimate of redeeming the instrument either in cash or a variable numberdistribution of sharesthe economic value of common stock based on a formula in the certificateidentifiable intangible assets.
At March 31, 2022 and September 30, 2021, intangible assets consisted of designation. The conversion price has a floor of $0.20 per share. As such, all dividends accrued and/or paid and any accretions are classified as part of interest expense. the following:
Useful Life | March 31, 2022 | September 30, 2021 | ||||||||
Licenses and banking infrastructure (1) | 10 Years | $ | - | $ | 14,085,402 | |||||
Trade names | 3 Years | 784,246 | - | |||||||
Regulatory licenses | 3 Years | 138,751 | - | |||||||
Technology | 5 Years | 10,300,774 | - | |||||||
Software | 3 Years | 11,237 | - | |||||||
11,235,008 | 14,085,402 | |||||||||
Less: accumulated amortization | (1,974,120 | ) | (469,286 | ) | ||||||
$ | 9,260,888 | $ | 13,616,116 |
(1) | In February 2022, a third party valuation report in connection with the acquisition of Match was completed. As a result, the Company adjusted the previous estimated allocation to reflect the results of the third party valuation. The Company decreased its cost of intangible assets of $2,861,631 and adjusted the estimated useful life of trade names and regulatory licenses from 10 years to 3 years and the estimated useful life of technology from 10 years to 5 years. This change in accounting estimate was effective in the first quarter of fiscal year 2022. |
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 7 – INTANGIBLE ASSETS (continued)
For the three and six months ended DecemberMarch 31, 2017 and 2016, dividends on redeemable preferred stock2022, amortization expense amounted to $3,750. $592,891 and $1,504,834, respectively, of which, $526,601 and $1,373,190 was included in cost of revenue – financial services, and $66,290 and $131,644 was included in operating expenses, respectively. There was no comparable amortization for the three and six months ended March 31, 2021. Amortization of intangible assets attributable to future periods is as follows:
For the Twelve-month Period Ending March 31: | Amortization Amount | ||||
2023 | $ | 2,371,566 | |||
2024 | 2,371,566 | ||||
2025 | 2,114,241 | ||||
2026 | 2,060,155 | ||||
2027 and thereafter | 343,360 | ||||
$ | 9,260,888 |
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
On February 13, 2018,
At March 31, 2022 and September 30, 2021, accounts payable and accrued liabilities consisted of the Company and CMH entered into afollowing:
March 31, 2022 | September 30, 2021 | |||||||
Directors’ compensation | $ | 190,538 | $ | 170,538 | ||||
Professional fees | 255,388 | 125,697 | ||||||
Accounts payable | 110,000 | 54,831 | ||||||
Others | 5,534 | 29,655 | ||||||
Total | $ | 561,460 | $ | 380,721 |
NOTE 9 – SHARE CAPITAL
Preferred stock redemption agreement for 75,000
The Company’s Board of Directors is authorized to issue, at any time, without further stockholder approval, up to 15,000,000 shares of preferred stock. SeeThe Board of Directors has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.
Common stock issued for cost method investment
On December 15, 2021, the Company issued 20,000,000 shares of its common stock to Jacobi Asset Management Holdings Limited’s shareholders as consideration of acquisition of 5.0% of the issued and outstanding ordinary shares of Jacobi. These shares were valued at $6,602,000, the fair market value on the grant date using the reported closing share price of the Company on the date of grant, and the Company recorded cost method investment of $6,602,000 (see Note 7.5).
Common stock issued for equity method investment
On March 17, 2022, the Company issued 15,151,515 shares of its common stock to Digiclear Shareholder for acquisition of 50% equity interest of Digiclear. These shares were valued at $5,000,000, the fair market value on the grant date using the reported closing share price on the date of grant.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 9 – SHARE CAPITAL (continued)
Options
The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31, 2022:
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number Outstanding at March 31, 2022 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at March 31, 2022 | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.09 – 1.00 | 4,850,000 | 3.52 | $ | 0.29 | 50,000 | $ | 0.40 | ||||||||||||||
2.50 | 1,000,000 | 4.47 | 2.50 | - | - | |||||||||||||||||
$ | 0.09 – 2.50 | 5,850,000 | 3.68 | $ | 0.67 | 50,000 | $ | 0.40 |
Stock option activities for the six months ended March 31, 2022 were as follows:
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at October 1, 2021 | 1,000,000 | $ | 2.50 | |||||
Granted | 4,850,000 | 0.29 | ||||||
Terminated / Exercised / Expired | - | - | ||||||
Outstanding at March 31, 2022 | 5,850,000 | $ | 0.67 | |||||
Options exercisable at March 31, 2022 | 50,000 | $ | 0.40 | |||||
Options expected to vest | 5,800,000 | $ | 0.67 |
The aggregate intrinsic value of stock options outstanding and stock options exercisable at March 31, 2022 was $300,000 and $0, respectively.
The fair values of options granted during the six months ended March 31, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 188.87% - 317.02%, risk-free rate of 0.39% - 1.26%, annual dividend yield of 0% and expected life of 1.00 - 5.00 years. The aggregate fair value of the options granted during the six months ended March 31, 2022 was $1,057,958.
For the three and six months ended March 31, 2022, stock-based compensation expense associated with stock options granted amounted to $525,622 and $904,368, respectively, which was recorded as professional fees on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income. There was no comparable stock-based compensation expense associated with stock options for the three and six months ended March 31, 2021.
In January 2022, the Company issued 50,000 stock options for software purchase. The fair value of 50,000 stock options granted was $11,237 which was recorded as the cost of software. For the three and six months ended March 31, 2022, amortization in connection with the software amounted to $936, which was included in amortization of intangible assets on the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income.
A summary of the status of the Company’s nonvested stock options granted as of March 31, 2022 and changes during the six months ended March 31, 2022 is presented below:
Number of Options | Weighted Average Exercise Price | |||||||
Nonvested at October 1, 2021 | 1,000,000 | $ | 2.50 | |||||
Granted | 4,850,000 | 0.29 | ||||||
Vested | (50,000 | ) | (0.40 | ) | ||||
Nonvested at March 31, 2022 | 5,800,000 | $ | 0.67 |
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 610 – RELATED PARTY TRANSACTIONS
Services provided by related parties
From time to time, Craig Marshak, a director of the Company, provides consulting services to the Company. Mr. Craig Marshak is a principal of Triple Eight Markets. All professional services fee payable to Craig Marshak is paid to Triple Eight Markets.As compensation for professional services provided, the Company recognized consulting expenses of $6,000 and $50,000 for the three months ended December 31, 2017 and 2016, respectively, which have been included in general and administrative expense – related party on the accompanying unaudited condensed consolidated statements of operations. As of December 31, 2017 and September 30, 2017, the accrued and unpaid services charge related to Craig Marshak amounted to $0 and $8,000, respectively, which have been included in accrued liabilities – related party on the accompanying consolidated balance sheets.
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 those affiliates,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
On May 24, 2016, the Company entered intoThe Company’s general support services operate under a General Service AgreementGSA with FXDD Malta, a related party. The Company is to invoice FXDD Malta a minimum of $2,000,000 per month in consideration forTCM providing personnel and technical support, marketing, accounting, risk monitoring, documentation processing and customer care and support.On October 17, 2017, the Company entered into an amendment of the General Service Agreement The minimum monthly amount received is $1,600,000.
The Company’s general support services operate under a GSA with FXDD Malta. In according to the amendment, which was effective as of October 1, 2017, the minimum amount payable by FXDD Malta to the Company 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 FXDD Malta.
In addition, on May 24, 2016, the Company entered into a General Service Agreement with FXDIRECT to pay a minimum of $1,975,000 per month for receiving personnel and technical support, marketing, accounting, risk monitoring, documentation processing and customer care and support. On October 17, 2017, the Company entered into an amendment of the General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, theThe minimum monthly amount payable by the Company 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.$1,575,000.
Both of the above entities are affiliates through common ownership.
During the three and six months ended DecemberMarch 31, 20172022 and 2016, service2021, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations wasand comprehensive (loss) income were as follows:
Three Months Ended | Three Months Ended | |||||||
December 31, 2017 | December 31, 2016 | |||||||
Service provided to: | ||||||||
FXDD Malta | $ | 4,800,000 | $ | 6,000,000 | ||||
$ | 4,800,000 | $ | 6,000,000 |
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | |||||||||||||
Service provided to: | ||||||||||||||||
TCM | $ | 4,800,000 | $ | 4,800,000 | $ | 9,600,000 | $ | 9,600,000 | ||||||||
$ | 4,800,000 | $ | 4,800,000 | $ | 9,600,000 | $ | 9,600,000 |
NUKKLEUS INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – RELATED PARTY TRANSACTIONS (continued)
Revenue from related party and cost of revenue from related party (continued)
During the three and six months ended DecemberMarch 31, 20172022 and 2016, service2021, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations wasand comprehensive (loss) income were as follows:
Three Months Ended | Three Months Ended | |||||||
December 31, 2017 | December 31, 2016 | |||||||
Service received from: | ||||||||
FXDIRECT | $ | 4,725,000 | $ | 5,925,000 | ||||
$ | 4,725,000 | $ | 5,925,000 |
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | |||||||||||||
Service received from: | ||||||||||||||||
FXDIRECT | $ | 4,725,000 | $ | 4,725,000 | $ | 9,450,000 | $ | 9,450,000 | ||||||||
$ | 4,725,000 | $ | 4,725,000 | $ | 9,450,000 | $ | 9,450,000 |
Due from affiliates
Due to affiliates
At DecemberMarch 31, 20172022 and September 30, 2017,2021, due from related parties consisted of the following:
March 31, 2022 | September 30, 2021 | |||||||
NUKK Capital (*) | $ | - | $ | 144,696 | ||||
TCM | 1,479,413 | 2,473,177 | ||||||
Total | $ | 1,479,413 | $ | 2,617,873 |
(*) | An entity controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman. |
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 10 – RELATED PARTY TRANSACTIONS (continued)
Due from affiliates (continued)
The balance of due from NUKK Capital represent the Company’s prior investment in digital currency that was transferred to NUKK Capital in March 2019. The balance of due from TCM represent unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.
Management believes that the related parties’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from related parties at March 31, 2022 and September 30, 2021. The Company historically has not experienced uncollectible receivable from the related parties.
Due to affiliates
At March 31, 2022 and September 30, 2021, due to related parties consisted of the following:
December 31, 2017 | September 30, 2017 | |||||||
Forexware LLC | $ | 299,781 | $ | 403,994 | ||||
FXDIRECT | 175,561 | — | ||||||
$ | 475,342 | $ | 403,994 |
March 31, 2022 | September 30, 2021 | |||||||
Forexware LLC (*) | $ | 924,229 | $ | 579,229 | ||||
FXDIRECT | 2,772,606 | 3,341,893 | ||||||
CMH | 42,000 | 42,000 | ||||||
FXDD Trading (*) | 287,519 | 294,670 | ||||||
Total | $ | 4,026,354 | $ | 4,257,792 |
(*) Forexware LLC and FXDD Trading are both controlled by Emil Assentato, the Company’s chief executive officer, chief financial officer and chairman.
The balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, and FXDIRECTFXDD Trading on behalf of the Company.Company and advances from CMH. The balancesbalance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.
The related parties’ payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.
NOTE 11 – INCOME TAXES
The Company recorded no income tax expense for the three and six months ended March 31, 2022 and 2021 because the estimated annual effective tax rate was zero. As of March 31, 2022, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
NOTE 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 six months ended March 31, 2022 and 2021.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
Customer | 2022 | 2021 | 2022 | 2021 | ||||||||||||
A – related party | 94.3 | % | 100 | % | 94.0 | % | 100 | % |
One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at March 31, 2022, accounted for 96.4% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at March 31, 2022.
One related party customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at September 30, 2021, accounted for 97.8% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at September 30, 2021.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
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 six months ended March 31, 2022 and 2021.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
Supplier | 2022 | 2021 | 2022 | 2021 | ||||||||||||
A – related party | 96.7 | % | 100 | % | 96.7 | % | 100 | % |
One related party supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at March 31, 2022, accounted for 96.2% of the Company’s total outstanding accounts payable, and accounts payable – related party at March 31, 2022.
One related party supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at September 30, 2021, accounted for 98.8% of the Company’s total outstanding accounts payable, and accounts payable – related party at September 30, 2021.
NOTE 13 – SEGMENT INFORMATION
For the three and six months ended March 31, 2022, the Company operated in two reportable business segments - (1) the general support services segment, in which we provide software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party; and (2) the financial services segment, in which we provide payment services from one fiat currency to another. For the three and six months ended March 31, 2021, the Company operated in one reportable business segment – the general support services segment. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 13 – SEGMENT INFORMATION (continued)
Information with respect to these reportable business segments for the three and six months ended March 31, 2022 and 2021 was as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
General support services | $ | 4,800,000 | $ | 4,800,000 | $ | 9,600,000 | $ | 9,600,000 | ||||||||
Financial services | 289,017 | - | 618,032 | - | ||||||||||||
Total | 5,089,017 | 4,800,000 | 10,218,032 | 9,600,000 | ||||||||||||
Costs of revenues | ||||||||||||||||
General support services | 4,725,000 | 4,725,000 | 9,450,000 | 9,450,000 | ||||||||||||
Financial services | 690,184 | - | 1,697,615 | - | ||||||||||||
Total | 5,415,184 | 4,725,000 | 11,147,615 | 9,450,000 | ||||||||||||
Gross profit (loss) | ||||||||||||||||
General support services | 75,000 | 75,000 | 150,000 | 150,000 | ||||||||||||
Financial services | (401,167 | ) | - | (1,079,583 | ) | - | ||||||||||
Total | (326,167 | ) | 75,000 | (929,583 | ) | 150,000 | ||||||||||
Operating expenses | ||||||||||||||||
Financial services | 278,232 | - | 681,287 | - | ||||||||||||
Corporate/Other | 1,249,323 | 73,441 | 2,186,475 | 200,526 | ||||||||||||
Total | 1,527,555 | 73,441 | 2,867,762 | 200,526 | ||||||||||||
Other expense | ||||||||||||||||
Financial services | 1,185 | - | 2,401 | - | ||||||||||||
Corporate/Other | 71,707 | 1,510 | 71,707 | 3,020 | ||||||||||||
Total | 72,892 | 1,510 | 74,108 | 3,020 | ||||||||||||
Net income (loss) | ||||||||||||||||
General support services | 75,000 | 75,000 | 150,000 | 150,000 | ||||||||||||
Financial services | (680,584 | ) | - | (1,763,271 | ) | - | ||||||||||
Corporate/Other | (1,321,030 | ) | (74,951 | ) | (2,258,182 | ) | (203,546 | ) | ||||||||
Total | (1,926,614 | ) | 49 | (3,871,453 | ) | (53,546 | ) | |||||||||
Amortization | ||||||||||||||||
Financial services | 591,955 | - | 1,503,898 | - | ||||||||||||
Corporate/Other | 936 | - | 936 | - | ||||||||||||
Total | $ | 592,891 | $ | - | $ | 1,504,834 | $ | - |
Total assets at March 31, 2022 and September 30, 2021 | March 31, 2022 | September 30, 2021 | ||||||
Financial services | $ | 9,376,915 | $ | 13,703,140 | ||||
Corporate/Other | 13,027,730 | 2,956,696 | ||||||
Total | $ | 22,404,645 | $ | 16,659,836 |
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 14 – CONTINGENCY
On April 16, 2020, the Company was named as a defendant in the Adversary Proceeding (the “BT Prime Litigation”) filed in the United States Bankruptcy Court for the District of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). On May 31, 2022, the BT Prime Litigation was dismissed with prejudice by the bankruptcy court as to Nukkleus.
The BT Prime Litigation was brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus, Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. BT Prime sought, amongst other relief, a determination that the defendants were liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and sought to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against Nukkleus, BT Prime alleged that Nukkleus acquired certain technology assets from Forexware and is a continuation of the business of Forexware and a successor-in-interest to Forexware. Based on this theory, BT Prime alleged that Nukkleus should be jointly and severally liable for any liability attributable to Forexware or the other defendants, should the court eventually find any such liability. Although Nukkleus acquired licenses from Forexware, Forexware maintained other assets and continued to operate a separate business, which Nukkleus believes is the business that is pertinent to BT Prime’s allegations. Nukkleus has issued a limited guarantee of the obligations under a settlement agreement among BT Prime and the defendants other than Nukkleus, limited to an amount equal to $2,050,000, which guarantee is subject to release following payment by the defendants other than Nukkleus of their obligations under the settlement agreement. Nukkleus management believes that the term of the limited guarantee will expire without any payment obligation or other cost to Nukkleus.
NOTE 715 – SUBSEQUENT EVENTS
ExceptThe 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 set forthdescribed below, there were nothe Company did not identify any subsequent events that occurred subsequent to December 31, 2017 that requirewould have required adjustment to or disclosure in the consolidated financial statements.
Letter agreement with ClearThink
Nukkleus is party to a letter agreement with ClearThink dated as of November 22, 2021, pursuant to which ClearThink was engaged by Nukkleus in connection with the Business Combination (See Note 15 - White Lion Stock Purchase Agreement).
Craig Marshak, a member of the Board of Directors of Nukkleus, is a managing director of ClearThink, a transaction advisory firm. ClearThink has been engaged by Nukkleus to serve as the exclusive transactional financial advisor, and finder with respect to the Business Combination, to advise Nukkleus with respect to the Business Combination. As of the date of this quarterly report re-issuance Nukkleus has paid ClearThink $140,000 and upon closing of the Business Combination Nukkleus is obligated to pay ClearThink 1.2% of the total transaction value plus reimbursable expenses less the $140,000 paid to ClearThink as of the date of this quarterly report re-issuance.
Merger
On June 3, 2016,February 22, 2022, the Company agreedentered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to selltime, the “Merger Agreement”), by and among the Company and Brilliant Acquisition Corporation, a British Virgin Islands company (“Brilliant”). The Merger Agreement has been approved by the Company’s boards of directors. The transaction is expected to CMH 30,900,000close in the fourth quarter of fiscal year 2022 provided however there is no guarantee that the transaction will close.
White Lion Stock Purchase Agreement
On May 17, 2022, the Company entered into a Stock Purchase Agreement (the “White Lion Agreement”) with White Lion Capital Partners, LLC a California-based investment fund (“White Lion”). Under the terms of the White Lion Agreement, the Company has the right, but not the obligation, to require White Lion to purchase shares of its common stock and 200,000up to a maximum amount of $75,000,000 or such lower amount as may be required pursuant to the rules of the market on which shares of Series A preferredits common stock for $2,000,000 in two equal installmentstrades at such time. Pursuant to terms of the White Lion Agreement and the Registration Rights Agreement (as defined below), the Company is required to use its commercially reasonable efforts to file with the firstSEC a registration statement covering the shares to be acquired by White Lion within sixty days following the closing occurringof the previously announced business combination with Brilliant Acquisition Corporation described in its Current Report on June 7, 2016 resultingForm 8-K filed with the SEC on February 23, 2022 (the “Business Combination”).
The term of the White Lion Agreement commences on the effective date of the registration statement and shall end on December 31, 2024, or, if earlier, the date on which White Lion has purchased the maximum number of shares of the Company’s common stock provided under the White Lion Agreement, in each case on the terms and subject to the conditions set forth in the issuanceWhite Lion Agreement. White Lion’s purchase price will be 96% of 100,000the dollar- volume weighted average price of the Company’s common stock over the two consecutive trading days immediately following receipt of the Company’s notice of its intent to make a draw.
During the term of the White Lion Agreement, on the terms and subject to the conditions set forth therein, the Company may draw up to the lesser of (i) the number of shares of Series A Preferred Stock to CMH (the “CMH Preferred Shares”). CMH is wholly-owned by an entity that is owned by Emil Assentato, the Company’s CEO, CFO and Chairman. common stock which would result in beneficial ownership by White Lion of more than 4.99% of the outstanding shares of the Company’s common stock, (ii) the number of shares of the Company’s common stock equal to 30% of the average daily trading volume of the Company’s common stock over the five consecutive trading days immediately following the notice date, or (iii) the number of the Company’s common stock obtained by dividing $1,500,000 by the closing sale price of the Company’s common stock on the notice date.
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED)
NOTE 15 – SUBSEQUENT EVENTS (continued)
White Lion Stock Purchase Agreement (continued)
The second close wasCompany is not entitled to occurdraw on the White Lion Agreement if the closing sale price of the Company’s common stock on the trading day immediately preceding the notice date is less than $1.00 (following the reverse stock split proposed in connection with the closing of the Business Combination and described in the Company’s acquisitionCurrent Report on Form 8-K filed with the SEC on February 23, 2022, but adjusted for any other reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). The Company is not entitled to draw on the White Lion Agreement unless each of IBIH. On November 17, 2017,the following additional conditions is satisfied: (i) each of the Company’s representations and warranties set forth in the White Lion Agreement is true and correct (subject to qualifications as to materiality set forth therein) in all respects as of such time; (ii) a registration statement is and remains effective for the resale of securities in connection with the White Lion Agreement; (iii) the trading of the Company’s common stock shall not have been suspended by the SEC, the applicable trading market or FINRA, or otherwise halted for any reason; (iv) the Company shall have complied with its obligations and shall not otherwise be in breach or default of any agreement set forth in the White Lion Agreement; (v) no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any federal, state, local or foreign court or governmental authority of competent jurisdiction, including, without limitation, the SEC, which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the White Lion Agreement; (vi) all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by us with the SEC pursuant to the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K) shall have been filed with the SEC within the applicable time periods prescribed for such filings; (vii) to the extent the issuance of the put shares requires shareholder approval under the listing rules of the applicable national exchange or principal quotation system for the Company’s common stock, the Company has or will seek such approval; and (viii) certain other conditions as set forth in the White Lion Agreement.
In addition to the shares to be issued under the White Lion Agreement, the Company will include in its registration statement additional shares of the Company’s common stock in the amount of $750,000 being issued to White Lion in connection with the execution of the White Lion Agreement.
White Lion Registration Rights Agreement
In connection with the Company’s entry into the White Lion Agreement, the Company entered into a SettlementRegistration Rights Agreement and Mutual Release terminatingwith White Lion (the “Registration Rights Agreement”). Pursuant to the Company’s acquisitionterms of IBIH and, asthe Registration Rights Agreement, the Company has agreed to use its commercially reasonable efforts to file a result,registration statement under the secondSecurities Act registering the resale of the shares sold under the White Lion Agreement within sixty days of the closing of the CMH financing wasBusiness Combination. The Registration Rights Agreement also terminated. As a resultprovides that the Company is required to use its commercially reasonable efforts to keep the registration effective and to prepare and file with the SEC such amendments and supplements if the foregoing registration statement is not then in effect, and the Company proposes to file certain types of registration statements under as may be necessary to keep the terminationregistration statement effective.
Appointment of directors
On May 31, 2022, the IBIH transaction,Board of Directors (the “Board”) increased the authorized number of directors of the Company and CMH have agreedappointed Nicholas Gregory, Daniel Marcus and Brian Schwieger, each to enter into that certain Stock Redemption Agreement dated February 13, 2018 providing that 75,000 CMH Preferred Shares shall be redeemedserve as a member of the Board, with immediate effect, each until such time as he resigns or is removed and cancelled in considerationhis successor appointed. There are no arrangements or understandings between any of $750,000Mr. Gregory, Mr. Marcus or Mr. Schwieger and the Company or any other person pursuant to which occurredMr. Gregory, Mr. Marcus or Mr. Schwieger, as applicable, was elected as a director. Mr. Marcus will serve on February 13, 2018.the Company’s audit committee, nomination committee and compensation committee. Mr. Gregory will serve on the Company’s audit committee and nomination committee. Mr. Schwieger will serve on the Company’s audit committee, nomination committee and compensation committee.
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 six months ended DecemberMarch 31, 20172022 and 20162021 should be read in conjunction with our unaudited condensed consolidated financial statements and related notes to those unaudited condensed consolidated financial statements that are included elsewhere in this report.
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:
● | our future operating results; |
● | our business prospects; |
● | any contractual arrangements and relationships with third parties; |
● | the dependence of our future success on the general economy; |
● | any possible financings; and |
● | the adequacy of our cash resources and working capital. |
These forward-looking statements can generally be identified as such because the contextImpact of COVID-19 on Our Operations
The ramifications of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated asoutbreak of the datenovel strain of filingCOVID-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 Nukkleus’s 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 Form 10-Q. Shareholders, potential investorspoint forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made asscope of the date of filing of this Form 10-Q,pandemic, and we undertake no obligationgovernmental, business and individuals’ actions that have been and continue to publicly update such forward-looking statements to reflect subsequent events or circumstances.
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipatedbe taken in these forward-looking statements.
Unless otherwise indicated, referencesresponse to the “Company”, “us”, or “we” refer to Nukkleus Inc. and its consolidated subsidiary.pandemic.
Overview
We are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. We primarily provide our software, technology, customer sales and marketing and risk management technology hardware and software solutions package to FXDD Malta Limited (“FXDD Malta”).TCM. The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by FXDD Malta.TCM.
As part of the Assets acquired, we acquiredWe have ownership of FOREXWARE, the primary software suite and technology solution which powers the FXDD brand globally today. We also have ownership of the FOREXWARE brand name. We have also acquired ownership of the customer interface and other software trading solutions being used by FXDD.com. By virtue of our relationship with FXDD MaltaTCM and FXDirectDealer LLC (“FXDIRECT”),FXDIRECT, we provide turnkey software and technology solutions for FXDD.com. We offer the customers of FXDD 24 hour,hours, five days a week direct access to the global over the counter (“OTC”) FX market, which is a decentralized market in which participants trade directly with one another, rather than through a central exchange.
In an FX trade, participants effectively buy one currency and simultaneously sell another currency, with the two currencies that make up the trade being referred to as a “currency pair”. Our software and technology solutions enable FXDD to present its customers with price quotations on over the counter tradeable instruments, including over the counter currency pairs, and also provide our customers the ability to trade FX derivative contracts on currency pairs through a product referred to as Contracts for Difference (“CFD”). Our software solutions also offer other CFD products, including CFDs on metals, such as gold, and on futures linked to other products.
In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated MDTG, formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer pursue the regulatory licensing necessary to operate an exchange in Malta.
We
On August 27, 2020, the Company renamed Nukkleus Exchange Malta Ltd. to Markets Direct Technology Group Ltd (“MDTG”). MDTG manages the technology and IP behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the IP rights to the brands such as Markets Direct and TCM. MDTG then leases out the rights to use these names/brands licenses to the appropriate entities.
On May 24, 2021, the Company and the shareholders of Match Financial Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”), entered into a Purchase and Sale Agreement (the “Match Agreement”), pursuant to which the Company, on May 28, 2021, acquired 1,152 ordinary shares of Match representing 70% of the issued and outstanding ordinary shares of Match in consideration of 70,000,000 shares of common stock of the Company (the “Initial Transaction”). On August 30, 2021, the Company exercised its option pursuant to which it acquired from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. Match is engaged in providing payment services from one fiat currency to another.
On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 20,000,000 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF.
On December 30, 2021, the Company and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement) pursuant to which the Company agreed to acquire 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of 15,151,515 shares of common stock of the Company (the “Digiclear Transaction”). The Digiclear Transaction is closed on March 17, 2022. Digiclear is a company developing a custody and settlement utility operating system.
Key Performance Indicators (KPI)
The Key Performance Indicators outlined below are the metrics that provide management with the most immediate understanding of the drivers of business performance and tracking of financial targets.
Three Months Ended | Six Months Ended | |||||||
Performance Indicator | March 31, 2022 | March 31, 2022 | ||||||
Trading volume | 38,121,289 | 59,304,826 | ||||||
Trading revenue | $ | 289,017 | $ | 618,032 | ||||
Trading loss | $ | (401,167 | ) | $ | (1,079,583 | ) | ||
Average cost per trade | $ | 3,595 | $ | 4,769 | ||||
Average trade | 198,548 | 166,587 | ||||||
Number of trades | 192 | 356 | ||||||
Clients active | 30 | 37 | ||||||
Gross trading margin | 0.8 | % | 1.0 | % | ||||
Gross margin | (138.8 | )% | (174.7 | )% |
On May 28, 2021, the Company acquired a controlling interest in Match. There was no comparable information prior to the processdate the Company acquired a controlling interest in Match.
Trading volume is measured by number of finalizingtrades.
Trading revenue represents the top-line revenue generated from trades, before considering the costs associated with the generation of trading revenue.
Trading loss is measured as trading revenue, less the costs of carrying out those trades. During the first half of fiscal 2022, we engaged with introducing brokers in an agreementeffort to expand trading volume/revenue. The costs associated with a third-partyintroducing brokers increased the average cost per trade however we expect to gain economies of scale on these fees as the trading volume and average trade value increases.
Average cost per trade is driven by bank, front office employee and introducing broker costs. As previously mentioned, we expect to gain economies of scale for these costs as we will see increased trading volume and average trade value.
Active clients for the customizationthree and development ofsix months ended March 31, 2022 was 30 and 37, respectively. We continue to bring on introducing brokers as well as increases in marketing spend from which we continue to add new clients.
Gross trading margin is a metric that measures gross revenue to gross trading platform to be used by us. Management expects the project to be completed and the platform to be placed in service in June 2018. Projected capitalized costs of this software development is approximately $200,000.volume.
We currently plan to seek for acquisitions that bring shareholder value both in the short term and long term. Our goal is to create an industry leading sector consolidated platform, combining strong global retail and institutional trading flows covering FX, commodities, futures, CFD and equities, with a cutting edge technological product suite, turnkey software and technological development capabilities.
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses,expense, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results maycould differ under differentfrom these estimates. Significant estimates during the three and assumptions.six months ended March 31, 2022 and 2021 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances, and valuation of stock-based compensation.
CriticalInvestment, at Cost
Investment in which the Company does not have the ability to exercise significant influence over operating and financial matters is accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other income (expense), net” in the accompanying unaudited condensed consolidated statements of operations and comprehensive (loss) income, and a new basis in the investment is established.
Investment in Unconsolidated Company – Digiclear Inc.
The Company uses the equity method of accounting policiesfor its investment in, and earning or loss of, company that it does not control but over which it does exert significant influence. The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value.
Intangible Assets
Intangible assets consist of trade names, regulatory licenses, technology and software, which are thosebeing amortized on a straight-line method over the estimated useful life of 3 - 5 years.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that require applicationthe carrying amount of management’s most subjectivethe assets may not be fully recoverable, or complex judgments, oftenat 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 a resultthe difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of matters thatimpairment as of March 31, 2022. For the three and six months ended March 31, 2022 and 2021, no impairment of long-lived assets was recognized.
Revenue Recognition
The Company accounts for revenue under the provisions of ASC Topic 606.
The Company’s revenues are inherently uncertainderived from providing:
● | General support services under a GSA to a related party. The transaction price is determined in accordance with the terms of the GSA and payments are due on a monthly basis. There are multiple services provided under the GSA and these performance obligations are combined into a single unit of accounting. Fees are recognized as revenue over time as the services are rendered under the terms of the GSA. Revenue is recorded at gross as the Company is deemed to be a principal in the transactions. |
● | Financial services to its customers. Revenue related to its financial services offerings are recognized at a point in time when service is rendered. |
Stock-based Compensation
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and may changenon-employees including grants of stock options, to be recognized as expense in subsequent periods. There have been no material changes to the critical accounting policies andstatements of operations based on their grant date fair values. The Company estimates as discussed in our Annual Report on Form 10-K for the year ended September 30, 2017.grant date fair value of each option award using the Black-Scholes option-pricing model.
Results of Operations
Summary of Key Results
For the three and six months ended DecemberMarch 31, 20172022 versus the three and six months ended March 31, 2021
Revenues
For both of the three months ended DecemberMarch 31, 2016
Revenue2022 and Cost of Revenue
Total2021, we had revenue for the three months ended December 31, 2017 versus the three months ended December 31, 2016 was $4,800,000 and $6,000,000, respectively. Revenue for the three months ended December 31, 2017 and 2016 was from general support services rendered to TCM under a related party.On October 17, 2017,GSA of $4,800,000. For both of the six months ended March 31, 2022 and 2021, we entered into an amendmenthad revenue from general support services rendered to TCM under a GSA of General Service Agreement with FXDD Malta. In accordance with$9,600,000.
We had revenue from financial services commencing in May 2021. For the amendment, which was effective asthree and six months ended March 31, 2022, we had revenue from financial services of October 1, 2017, the minimum amount payable by FXDD Malta to us for services was reduced from $2,000,000 per month to $1,600,000 per month. Therefore,$289,017 and $618,032, respectively. We expect that our revenue forfrom financial services will increase in the near future since we are making efforts on expanding our financial services.
Costs of Revenues
For both of the three months ended DecemberMarch 31, 20172022 and 2021, our cost of general support services was significantly decreased$4,725,000, which represented amount incurred for services rendered by FXDIRECT under a GSA. For both of the six months ended March 31, 2022 and 2021, our cost of general support services was $9,450,000, which represented amount incurred for services rendered by FXDIRECT under a GSA.
Cost of financial services include amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, consulting costs, banking, and trading fees incurred associated with delivery of our services.
Cost of financial services was $690,184 and $1,697,615 for the three and six months ended March 31, 2022, respectively. There was no comparable revenue nor cost of revenue from our financial services operations for the three and six months ended March 31, 2021.
Gross Profit (Loss)
For both of the three months ended March 31, 2022 and 2021, our gross profit from general support services was $75,000, representing gross margin of 1.6%. For both of the six months ended March 31, 2022 and 2021, our gross profit from general support services was $150,000, representing gross margin of 1.6%.
For the three and six months ended March 31, 2022, Nukkleus’s gross loss from financial services was $401,167 and $1,079,583, representing gross margin of (138.8)% and (174.7)%, respectively. The gross losses were primarily attributable to a large portion of cost of financial services are fixed and do not change along with the increase/decrease in revenue from financial services. We expect that our gross margin for the financial services segment will increase since we anticipate we will generate more revenue from financial services and we can improve our gross margin from financial services segment to the extent that we can become more efficient by increasing our revenue.
Operating Expenses
Operating expenses consisted of advertising and marketing, professional fees, amortization of intangible assets, and other general and administrative expenses.
Advertising and marketing
For the three and six months ended March 31, 2022, advertising and marketing expense amounted to $163,427 and $198,649, respectively. In the first half of fiscal year 2022, we incurred advertising and marketing activities to enhance the visibility and marketability of our services and to improve brand recognition and awareness. We did not have any advertising and marketing costs during the three and six months ended March 31, 2021. 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 accounting fees, audit fees, legal service fees, advisory fees, and consulting fees. For the three months ended March 31, 2022, professional fees increased by $1,015,316, or 1,971.5%, as compared to the three months ended DecemberMarch 31, 2016.
Cost of revenue for the three months ended December 31, 2017 versus the three months ended December 31, 20162021. The significant increase was $4,725,000 and $5,925,000, respectively. Cost of revenue represents amount incurred for general support services rendered by a related party.On October 17, 2017, we entered intoprimarily attributable to an amendment of General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, the minimum amount payable by us to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Therefore, our cost of revenue for the three months ended December 31, 2017 was significantly decreased as compared to the three months ended December 31, 2016.
Operating Expenses
Total operating expenses for the three months ended December 31, 2017 versus the three months ended December 31, 2016, were $238,948 versus $121,505, respectively. These operating expenses were primarily third-party and related party professional fees. The increase in operating expensesconsulting fees of approximately $862,000, which was mainly due to the increase in useoptions granted to consultants of approximately $526,000 and the increase of approximately $336,000 mainly related to merger and acquisition consulting services, an increase in legal service fees of approximately $118,000 due to increased legal service related to our merger and acquisition, and an increase in other miscellaneous items of approximately $35,000 resulting from our business expansion. For the six months ended March 31, 2022, professional fees increased by $1,850,276, or 1,338.1%. The significant increase was primarily attributable to an increase in advisory service fees of $300,000 mainly driven by increased advisory service related to our merger and acquisition, an increase in legal service fees of approximately $212,000 resulting from increased legal service related to our merger and acquisition, an increase in consulting fees of approximately $1,289,000, which was due to the increase in options granted to consultants of approximately $904,000 and the increase of approximately $385,000 mainly related to merger and acquisition consulting services, providers.and an increase in other miscellaneous items of approximately $49,000 resulting from our business expansion. We expect that our professional fees will remain in its current quarterly level with minimal increase in the near future.
Other ExpenseAmortization of intangible assets
Other expense includes interest expense on redeemable preferred stockFor the three and six months ended March 31, 2022, our amortization of debt discount. intangible assets amounted to $66,290 and $131,644, respectively. There was no comparable amortization for the three and six months ended March 31, 2021. We expect that our amortization of intangible assets will remain in its current quarterly level in the near future.
Other general and administrative expenses
Other general and administrative expenses primarily consisted of compensation and related benefits, rent and other miscellaneous items.
Total other expensegeneral and administrative expenses for the three months ended DecemberMarch 31, 20172022 versus the three months ended DecemberMarch 31, 2016,2021, were $231,022 versus $21,941, respectively. The increase was $6,040mainly due to an increase in compensation and related benefits of approximately $120,000, an increase in rent expense of approximately $40,000, and an increase in other miscellaneous items of approximately $50,000, resulting from our business expansion.
Total other general and administrative expenses for the six months ended March 31, 2022 versus $6,039,the six months ended March 31, 2021, were $548,921 versus $62,254, respectively. The increase was mainly due to an increase in compensation and related benefits of approximately $235,000, an increase in rent expense of approximately $78,000, and an increase in other miscellaneous items of approximately $173,000, resulting from our business expansion. We expect that other general and administrative expenses will remain in its current quarterly level with minimal increase in the near future.
Other Expense
Other expenseremained roughly consistent includes loss from equity method investment and other miscellaneous expense.
Other expense totaled $72,892 for the three months ended DecemberMarch 31, 20172022, as compared to $1,510 for the three months ended DecemberMarch 31, 2016.2021, a change of $71,382, which was attributable to an increase in loss from equity method investment of approximately $71,000, and an increase in other miscellaneous expense of approximately $1,000.
Other expense totaled $74,108 for the six months ended March 31, 2022, as compared to $3,020 for the six months ended March 31, 2021, a change of $71,088, which was primarily attributable to an increase in loss from equity method investment of approximately $71,000.
Net Loss
As a result of the factors described above, our net loss was $169,988,$(1,926,614), or (0.00)$(0.01) per common share (basic and diluted), for the three months ended DecemberMarch 31, 2017. Our2022, as compared with a net loss was $52,544,income of $49, or (0.00)$0.00 per common share (basic and diluted), for the three months ended DecemberMarch 31, 2016.2021, a change of $1,926,663.
As a result of the factors described above, our net loss was $(3,871,453), or $(0.01) per share (basic and diluted), for the six months ended March 31, 2022, as compared with $(53,546), or $(0.00) per share (basic and diluted), for the six months ended March 31, 2021, a change of $3,817,907.
Foreign Currency Translation Adjustment
The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar and the functional currency of Match Financial Limited and its subsidiaries is the British Pound (“GBP”). The financial statements of our subsidiaries whose functional currency is the GBP are translated to U.S. dollars using period end rates of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $13,214 and $0 for the three months ended March 31, 2022 and 2021, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $10,987 and $0 for the six months ended March 31, 2022 and 2021, respectively. This non-cash gain had the effect of decreasing our reported comprehensive loss.
Comprehensive Loss
As a result of our foreign currency translation adjustment, we had comprehensive loss of $(1,913,400) and comprehensive income of $49 for the three months ended March 31, 2022 and 2021, respectively.
As a result of our foreign currency translation adjustment, we had comprehensive loss of $(3,860,466) and $(53,546) for the six months ended March 31, 2022 and 2021, 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 DecemberMarch 31, 20172022 and September 30, 2017,2021, we had cash balances of $969,111$50,444 and $48,642,$355,673, respectively.
Cash at December 31, 2017 was provided by proceeds received from termination of potential acquisition.
We had an accumulated deficit and a total stockholders’working capital deficit of $685,439 and $521,333, respectively,$2,975,438 as of DecemberMarch 31, 2017. For2022.
Our ability to continue as a going concern is dependent upon the three months ended December 31, 2017, we recorded a net lossmanagement of $169,988expenses and had a net cash flow used in operating activities of $29,531. We may incur losses for an indeterminate period and may never sustain profitability. We may be unableour ability to achieve and maintain profitability on a quarterly or annual basis. An extended period of losses may prevent us from successfully operating and expanding our business.
We are processing to pay forobtain the $750,000 for the preferred stock redemption as described elsewhere in this report. We estimate that our working capital is sufficient to fund our current operations for the next 12 months.
Management is currently seeking additional capital through private placements or public offerings of our securities. In addition, we may seek to raise additional capital through public or private debt or equity financings in order to fund our operations, potential mergers or acquisitions, and the development of our business plan.
Cash Flow for the Three Months Ended December 31, 2017 Compared to the Three Months Ended December 31, 2016
Net cash flow used in operating activities was $29,531 for the three months ended December 31, 2017. These include $169,988 in net loss. Cash flows used in operating activities included changes in operating assets and liabilities totaling $138,167 for the three months ended December 31, 2017.
We had $0 in net cash used in operating activities for the three months ended December 31, 2016. These include $52,544 in net loss. Cash flows used in operating activities included changes in operating assets and liabilities totaling $50,255 for the three months ended December 31, 2016.
Net cash flow provided by investing activities was $950,000 for the three months ended December 31, 2017. During the three months ended December 31, 2017, we received proceeds of $1,000,000 from termination of potential acquisition in accordance with a Settlement Agreement and Mutual Release signed on November 17, 2017 as described elsewhere in this report, and we made a payment for software development costs of $50,000.
We did not incur any investing activity during the three months ended December 31, 2016.
We did not incur anynecessary financing activity during the three months ended December 31, 2017 and 2016.
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:
Currently, we use our cash to support our operations and to provide working capital for our ongoing operations and obligations. We believe that our current cash will be sufficient to meet our anticipated cash requirements for the next twelve months. obligations and pay our liabilities arising from normal business operations when they come due, and upon profitable operations.
Although we estimate that our current cash will be sufficient to meet our anticipated cash requirements for the next twelve months, weWe need to either borrow funds or raise additional capital through equity or debt financings in order to support our future mergers or acquisitions and the development of our business opportunities.financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, CMH has committed to inject capital into the Company in order to maintain the ongoing operations of the business.
The following table sets forth a summary of changes in our working capital from September 30, 2021 to March 31, 2022:
March 31, | September 30, | Changes in | ||||||||||||||
2022 | 2021 | Amount | Percentage | |||||||||||||
Working capital deficit: | ||||||||||||||||
Total current assets | $ | 1,612,376 | $ | 3,043,720 | $ | (1,431,344 | ) | (47.0 | )% | |||||||
Total current liabilities | 4,587,814 | 4,638,513 | (50,699 | ) | (1.1 | )% | ||||||||||
Working capital deficit | $ | (2,975,438 | ) | $ | (1,594,793 | ) | $ | (1,380,645 | ) | 86.6 | % |
Our working capital deficit increased by $1,380,645 to $2,975,438 at March 31, 2022 from $1,594,793 at September 30, 2021. The increase in working capital deficit was primarily attributable to a decrease in cash of approximately $305,000, a decrease in due from affiliates of approximately $1,138,000 resulting from the payments received from our affiliates in the six months ended March 31, 2022, and an increase in accounts payable and accrued liabilities of approximately $181,000, which mainly attributable to the increase in accrued professional fees of approximately $130,000 resulting from the increase in professional service providers and the increase in accounts payable of approximately $55,000 due to our business expansion, offset by a decrease in due to affiliates of approximately $231,000 due to the payments made to our affiliates in the six months ended March 31, 2022.
Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the condensed consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the condensed consolidated balance sheets.
Cash Flow for the Six Months Ended March 31, 2022 Compared to the Six Months Ended March 31, 2021
Net cash flow used in operating activities for the six months ended March 31, 2022 was $304,371, which primarily reflected our consolidated net loss of approximately $3,871,000, and the changes in operating assets and liabilities, primarily consisting of a decrease in due to affiliates of approximately $224,000 due to the payments made to our affiliates in the first half of fiscal 2022, offset by a decrease in due from affiliates of approximately $1,138,000 resulting from the payments received from our affiliates in the first half of fiscal 2022, and an increase in accounts payable and accrued liabilities of approximately $187,000 which was mainly due to the increase in accrued professional fees of approximately $130,000 resulting from the increase in professional service providers and the increase in Match’s accounts payable of approximately $55,000, and the non-cash items adjustment primarily consisting of amortization of intangible assets of approximately $1,505,000, and stock-based compensation and service expense of approximately $904,000.
Net cash flow provided by operating activities was $16,648 for the six months ended March 31, 2021, which primarily reflected the changes in operating assets and liabilities, primarily consisting of a decrease in due from affiliates of approximately $792,000 resulting from the payments received from our affiliates in the first half of fiscal 2021, and an increase in accounts payable and accrued liabilities of approximately $48,000, offset by a decrease in due to affiliates of approximately $771,000 due to the payments made to our affiliates in the six months ended March 31, 2021, and our consolidated net loss of approximately $54,000.
Our operations will require additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of revenue and reduce our costs, we expect to finance future cash needs through public and/or private offerings of equity securities and/or debt financings. We do not currently have any committed future funding. To the extent we raise additional capital by issuing equity securities, our stockholders could at that time experience substantial dilution. Any debt financing we are able to obtain may involve operating covenants that restrict our business. Our capital requirements for the next twelve months primarily relate to mergers, acquisitions and the development of business opportunities. In addition, we expect to use cash to pay fees related to professional services. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:
● | The working capital requirements to finance our current business; |
● | The use of capital for mergers, acquisitions and the development of business opportunities; |
● | Addition of personnel as the business grows; and |
● | The cost of being a public company. |
We need to either borrow funds or raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth. However, CMH has committed to inject capital into the Company in order to maintain the ongoing operations of the business.
Consistent with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between us and our officers, directors and their affiliates will be entered into only if such transactions are approved by a majority of the disinterested directors, are approved by vote of the stockholders, or are fair to us as a corporation as of the time it is authorized, approved or ratified by the board. We will conduct an appropriate review of all related party transactions on an ongoing basis.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
At DecemberAs of March 31, 2017, there have been2022, we had no material changes to the contractual obligations as set forth in our Annual Report on Form 10-K forother than: FXDirectDealer LLC receives a minimum of $1,575,000 per month and such obligation may be terminated by the year ended September 30, 2017.Company upon providing 90 days’ notice.
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 34 to our Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable toWe are a “smallersmaller reporting company”company as defined in Item 10(f)(1)Rule 12b-2 of SEC Regulation S-K.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 DecemberMarch 31, 2017,2022, 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.disclosure. Our Chief Executive Officer (“CEO”)CEO and our Chief Financial Officer (“CFO”)CFO is the same person.
During evaluation of disclosure controls and procedures as of DecemberMarch 31, 2017,2022, our CEO/CFO conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that, because of our disclosuresmall size and limited resources, our internal controls and proceduresover financial reporting were effective. not effective as of March 31, 2022. We detected a weakness in our internal controls over financial reporting related to accounting for non-routine or complex transactions. This internal control deficiency represents a material weakness.
Restatement of Previously Issued Financial Statements
On August 1, 2022, we reclassified the amortization of intangible assets from operating expenses to cost of revenue – financial services. We restated our unaudited condensed consolidated statement of operations and comprehensive loss for the three and six months ended March 31, 2022 to reflect the reclassification, as described in the Note 2 of this Amendment. The Company’s accounting related to reclassification of the amortization of intangible assets did not have any effect on the Company’s previously reported consolidated operating loss, net loss or earnings per share, cash flows or balance sheets.
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
None.
Part II - Other Information
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 legal proceedings. Management is not aware of anymaterial legal proceedings, proposedexcept as set forth below.
On April 16, 2020, the Company was named as a defendant in the Adversary Proceeding (the “BT Prime Litigation”) filed in the United States Bankruptcy Court for the District of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). On May 31, 2022, the BT Prime Litigation was dismissed with prejudice by the bankruptcy court as to Nukkleus.
The BT Prime Litigation was brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus, Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. BT Prime sought, amongst other relief, a determination that the defendants were liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and sought to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against Nukkleus, BT Prime alleged that Nukkleus acquired certain technology assets from Forexware and is a continuation of the business of Forexware and a successor-in-interest to Forexware. Based on this theory, BT Prime alleged that Nukkleus should be initiated against us. However,jointly and severally liable for any liability attributable to Forexware or the other defendants, should the court eventually find any such liability. Although Nukkleus acquired licenses from timeForexware, Forexware maintained other assets and continued to time, we may becomeoperate a separate business, which Nukkleus believes is the business that is pertinent to BT Prime’s allegations. Nukkleus has issued a limited guarantee of the obligations under a settlement agreement among BT Prime and the defendants other than Nukkleus, limited to an amount equal to $2,050,000, which guarantee is subject to claims and litigation generally associated withrelease following payment by the defendants other than Nukkleus of their obligations under the settlement agreement. Nukkleus management believes that the term of the limited guarantee will expire without any business venture operating in the ordinary course.payment obligation or other cost to Nukkleus.
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-KS-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NoneOn December 15, 2021, the Company issued 20,000,000 shares of its common stock to Jacobi Asset Management Holdings Limited’s shareholders as consideration of acquisition of 5.0% of the issued and outstanding ordinary shares of Jacobi. These shares were valued at $6,602,000, the fair market value on the grant date using the reported closing share price of the Company on the date of grant, and the Company recorded cost method investment of $6,602,000.
On March 17, 2022, the Company issued 15,151,515 shares of its common stock to Digiclear Shareholder for acquisition of 50% equity interest of Digiclear. These shares were valued at $5,000,000, the fair market value on the grant date using the reported closing share price on the date of grant.
All of the offers and sales of securities in connection with the acquisition of Jacobi were made to accredited investors and the Company relied upon the exemptions contained in Section 4(a)(2) of the Securities Act of 1933, as amended, with regard to those sales. No advertising or general solicitation was employed in offering the securities. The offers and sales were made to a limited number of persons, each of whom was an accredited investor and transfer of the securities issued was restricted by the Company in accordance with the requirements of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Merger
On June 3, 2016,February 22, 2022, the Company, agreedentered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to selltime, the “Merger Agreement”), by and among the Company and Brilliant Acquisition Corporation, a British Virgin Islands company (“Brilliant”). Upon consummation of the transactions contemplated by the Merger Agreement, Nukkleus would become the Nasdaq-listed parent company of Brilliant. The merger is expected to CMH 30,900,000close in the fourth quarter of fiscal year 2022, following the receipt of the required approvals by Nukkleus’s and Brilliant’s shareholders, respectively, and the fulfillment or waiver of other closing conditions, of which there is no guarantee.
White Lion Stock Purchase Agreement
On May 17, 2022, the Company entered into a Stock Purchase Agreement (the “White Lion Agreement”) with White Lion Capital Partners, LLC a California-based investment fund (“White Lion”). Under the terms of the White Lion Agreement, the Company has the right, but not the obligation, to require White Lion to purchase shares of its common stock and 200,000up to a maximum amount of $75,000,000 or such lower amount as may be required pursuant to the rules of the market on which shares of Series A preferredits common stock for $2,000,000 in two equal installmentstrades at such time. Pursuant to terms of the White Lion Agreement and the Registration Rights Agreement (as defined below), the Company is required to use its commercially reasonable efforts to file with the firstSEC a registration statement covering the shares to be acquired by White Lion within sixty days following the closing occurringof the previously announced business combination with Brilliant Acquisition Corporation described in its Current Report on June 7, 2016 resultingForm 8-K filed with the SEC on February 23, 2022 (the “Business Combination”).
The term of the White Lion Agreement commences on the effective date of the registration statement and shall end on December 31, 2024, or, if earlier, the date on which White Lion has purchased the maximum number of shares of the Company’s Common Stock provided under the White Lion Agreement, in each case on the terms and subject to the conditions set forth in the issuanceWhite Lion Agreement. White Lion’s purchase price will be 96% of 100,000the dollar- volume weighted average price of the Company’s common stock over the two consecutive trading days immediately following receipt of the Company’s notice of its intent to make a draw.
During the term of the White Lion Agreement, on the terms and subject to the conditions set forth therein, the Company may draw up to the lesser of (i) the number of shares of Series A Preferred Stock to CMH (the “CMH Preferred Shares”). CMH is wholly-owned by an entity that is owned by Emil Assentato, the Company’s CEO, CFO and Chairman. common stock which would result in beneficial ownership by White Lion of more than 4.99% of the outstanding shares of the Company’s common stock, (ii) the number of shares of the Company’s common stock equal to 30% of the average daily trading volume of the Company’s common stock over the five consecutive trading days immediately following the notice date, or (iii) the number of the Company’s common stock obtained by dividing $1,500,000 by the closing sale price of the Company’s common stock on the notice date.
The second close wasCompany is not entitled to occurdraw on the White Lion Agreement if the closing sale price of the Company’s common stock on the trading day immediately preceding the notice date is less than $1.00 (following the reverse stock split proposed in connection with the closing of the Business Combination and described in the Company’s acquisitionCurrent Report on Form 8-K filed with the SEC on February 23, 2022, but adjusted for any other reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). The Company is not entitled to draw on the White Lion Agreement unless each of IBIH. On November 17, 2017,the following additional conditions is satisfied: (i) each of the Company’s representations and warranties set forth in the White Lion Agreement is true and correct (subject to qualifications as to materiality set forth therein) in all respects as of such time; (ii) a registration statement is and remains effective for the resale of securities in connection with the White Lion Agreement; (iii) the trading of the Company’s common stock shall not have been suspended by the SEC, the applicable trading market or FINRA, or otherwise halted for any reason; (iv) the Company shall have complied with its obligations and shall not otherwise be in breach or default of any agreement set forth in the White Lion Agreement; (v) no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any federal, state, local or foreign court or governmental authority of competent jurisdiction, including, without limitation, the SEC, which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the White Lion Agreement; (vi) all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by us with the SEC pursuant to the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K) shall have been filed with the SEC within the applicable time periods prescribed for such filings; (vii) to the extent the issuance of the put shares requires shareholder approval under the listing rules of the applicable national exchange or principal quotation system for the Company’s common stock, the Company has or will seek such approval; and (viii) certain other conditions as set forth in the White Lion Agreement.
In addition to the shares to be issued under the White Lion Agreement, the Company will include in its registration statement additional shares of the Company’s common stock in the amount of $750,000 being issued to White Lion in connection with the execution of the White Lion Agreement.
White Lion Registration Rights Agreement
In connection with the Company’s entry into the White Lion Agreement, the Company entered into a SettlementRegistration Rights Agreement and Mutual Release terminatingwith White Lion (the “Registration Rights Agreement”). Pursuant to the Company’s acquisitionterms of IBIH and, asthe Registration Rights Agreement, the Company has agreed to use its commercially reasonable efforts to file a result,registration statement under the secondSecurities Act registering the resale of the shares sold under the White Lion Agreement within sixty days of the closing of the CMH financing wasBusiness Combination. The Registration Rights Agreement also terminated. As a result of the termination of the IBIH transaction,provides that the Company is required to use its commercially reasonable efforts to keep the registration effective and CMH have agreed to enter into thatprepare and file with the SEC such amendments and supplements if the foregoing registration statement is not then in effect, and the Company proposes to file certain Stock Redemption Agreement dated February 13, 2018 providing that 75,000 CMH Preferred Shares shalltypes of registration statements under as may be redeemed and cancelled in consideration of $750,000 which occurred on February 13, 2018.necessary to keep the registration statement effective.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q/A.
101.INS* | Inline XBRL | |
101.SCH* | Inline XBRL | |
101.CAL* | Inline XBRL | |
101.DEF* | Inline XBRL | |
101.LAB* | Inline XBRL | |
101.PRE* | Inline XBRL |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
(1) | Incorporated by reference to the Form 8K Current Report filed with the SEC on May 31, 2016. |
(2) | Incorporated by reference to the Form 8K Current Report filed with the SEC on June 3, 2016. |
(3) | Incorporated by reference to the Form 8K Current Report filed with the SEC on August 9, 2016. |
(4) | Incorporated by reference to the Form 8K Current Report filed with the SEC on October 25, 2016. |
(5) | Incorporated by reference to the Form 8K Current Report filed with the SEC on October 19, 2017. |
(6) | Incorporated by reference to the Form 8K Current Report filed with the SEC on December 5, 2017. |
(7) | Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 27, 2017. |
(8) | Incorporated by reference to the Form 10Q Quarterly Report filed with the SEC on February 13, 2018. |
(9) | Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 28, 2020. |
(10) | Incorporated by reference to the Form 8K Current Report filed with the SEC on June 3, 2021. |
(11) | Incorporated by reference to the Form 10K Annual Report filed with the SEC on December 29, 2021. |
(12) | Incorporated by reference to the Form 8K Current Report filed with the SEC on February 23, 2022. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NUKKLEUS INC. | ||
(Registrant) | ||
Date: | By: | /s/ Emil Assentato |
Emil Assentato | ||
Chief Executive Officer (Principal Executive Officer) (Principal Financial and Accounting |
36