Nukkleus Inc
For the period ended Sep 30, 2024. Filed Feb 10, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 10, 2025
DFNS$2.01-12.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-09-30; filed 2024-07-12.
0001213900-24-060986
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-09-30; filed 2025-02-10.
0001213900-25-011694
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 116 previous paragraphs and 146 current paragraphs.
23 unchanged; 19 reworded; 104 added; 74 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 15 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (104)
Current report
Unless the context otherwise requires, references in this “Management’s Discussion and Anlalysis of Financial Condition and Results of Operations” to “Nukkleus”, “we”, “us”, “our”, and the “Company” are intended to refer to (i) following the Business Combination (as defined below), the business and operations of Nukkleus, Inc and its consolidated subsidiaries, and (ii) prior to the Business Combination, Old Nukk (the predecessor entity in existence prior to the consummation of the Business Combination) and its consolidated subsidiaries.
Current report
In January 2024, we ceased providing our general support services to customers, terminating our existing customer and supplier contracts with a related party, and shifted our focus to our payment services business. In November 2024, we entered into a Settlement Agreement and Release (the “Settlement Agreement”) with a shareholder and one of our subsidiaries to sell the subsidiary that operates the payment services business to the shareholder in consideration of GBP 1,000 (approximately $1,338 at September 30, 2024).
Current report
In December 2024, we entered into a Securities Purchase Agreement and Call Option (the “Star Agreement”) with Star 26 Capital Inc. (“Star”), the shareholders of Star (“Star Equity Holders”) and an officer of Nukkleus, acting in his capacity as the representative of the Star Equity Holders, to acquire a controlling 51% interest in Star, an Israeli corporation engaged as a supplier of generators for “iron dome” launchers and other defense products.
Current report
As a result of the Settlement Agreement and subject to the closing of the acquisition of Star, our business will be focused on the defense sector.
Current report
Recent Developments
Current report
Executive Change: On July 24, 2024, The Company’s Chief Executive Officer (the “Original CEO”) resigned from his management position at the Company and from the Board. The Chief Operating Officer, and a director of the Company, was appointed as the new Chief Executive Officer (the “New CEO”) effective July 24, 2024. Effective September 4, 2024, the New CEO resigned from his position as Chief Executive Officer and from the Board, and another individual was appointed as Chief Executive Officer (the “Current CEO”) as well as being appointed to the Board.
Current report
Reverse stock split: Effective October 24, 2024, the Company amended its amended and restated certificate of incorporation to implement a one-for-eight reverse stock split of its common stock (the “2024 Reverse Stock Split”) and increase the number of authorized shares of the Company’s common stock from 40,000,000 to 150,000,000.
Current report
Conversion Agreement: On November 8, 2024, the Company entered into a Conversion Agreement (the “Conversion Agreement”) with the Lender, as later amended on November 14, 2024, to convert outstanding principal and interest totaling $771,085 payable under the Lender’s convertible notes payable into 319,952 shares of the Company’s common stock. Pursuant to the Conversion Agreement, the Company issued an additional warrant to purchase 351,424 shares of the Company’s common stock exercisable for a period of five years at an exercise price of $2.41 per share (the “November 2024 Warrant”) in exchange for the cancellation of the Lender’s convertible notes payable. Further, the Company and the Lender entered into a letter agreement providing that the Lender may not exercise the June 2024 Warrant in the event such exercise would result in the Lender holding in excess of 19.9% of the Company’s outstanding shares of common stock as of November 8, 2024.
Current report
Sales of Securities: On November 8, 2024 and November 18, 2024, the Company entered into securities purchase agreements pursuant to which the Company sold 110,707 and 138,556 shares of the Company’s common stock at a purchase price of $2.09456 and 1.7765 per share, respectively, for aggregate gross proceeds of $231,882 and $246,145, respectively. The purchase price per share includes a 5.0% discount from the closing price of the Company as listed on Nasdaq as of the business day immediately prior to the closing date of each securities purchase agreement.
Current report
Disposition of Subsidiary: On November 8, 2024, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with a shareholder of the Company and a subsidiary of the Company to sell the subsidiary to the shareholder or his nominee subject to the Company obtaining shareholder approval (the “Settlement Agreement”). The Settlement Agreement requires the Company to pay $61,000 to the shareholder of the Company by November 15, 2024. As required by the Settlement Agreement, a Share Purchase Agreement was entered into between the same parties dated December 23, 2024 providing that the Company, subject to it obtaining shareholder approval, will sell the subsidiary to the officer of the Company in consideration of GBP 1,000 (approximately $1,338 at September 30, 2024). In accordance with the terms of the Settlement Agreement, separate settlement agreements were entered into with two shareholders of the Company, pursuant to which the Company will issue an aggregate 200,000 shares of the Company’s common stock in consideration of each party releasing the Company for compensation owed for services.
Current report
Exit and Settlement Agreement: On November 8, 2024, the Company entered into an exit and settlement agreement (the “Exit and Settlement Agreement”) with three directors of the Board, under which each director resigned effective immediately. As required by the Exit and Settlement Agreement, the Company issued 46,700 fully vested shares of the Company common stock to each former direct in exchange for past services rendered.
Current report
Bylaws Amendment: On November 8, 2024, the Board approved an amendment to the Company’s Bylaws to decrease the quorum requirement from a majority to one-third of the voting power that was effective immediately.
Current report
Standby Equity Purchase Agreement: On December 3, 2024, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with an investor (the “Investor”) pursuant to which the Company has the right, at its option, to sell to the Investor up to $10 million of shares of the Company’s common stock, subject to certain limitations and conditions set forth in the SEPA, during the term of the SEPA. In connection with the SEPA, the Investor agreed to advance to the Company in the form of convertible promissory notes (the “SEPA Convertible Notes”) an aggregate principal amount of $2.0 million, which was to be advanced to the Company in three tranches. The first tranche of $500,000, was disbursed to the Company on December 3, 2024 (the “December 2024 Note”).
Current report
On December 19, 2024, the Company and the Investor entered into a Termination Agreement pursuant to which the SEPA and the Registration Rights Agreement were terminated. Accordingly, the Investor’s obligation to advance the Company additional amounts ceased.
Current report
Securities Purchase Agreement: On December 15, 2024, the Company entered into a Securities Purchase Agreement and Call Option with Star 26 Capital Inc. (“Star”), the shareholders of Star (“Star Equity Holders”) and an officer of the Company acting in his capacity as the representative of the Star Equity Holders, (the “Star Agreement”) to acquire a controlling 51% interest in Star, an Israeli corporation engaged as a supplier of generators for “iron dome” launchers and other defense products, in exchange for an aggregate investment of $15,000,000 that consists of:
Current report
The Star Equity Holders granted the Company an option (the “Option”) to purchase the balance of their equity in Star (49.0%) for an aggregate $16,084,250 (the “Option Exercise Price”) in consideration for the issuance to the Star Equity Holders five-year stock purchase warrants to purchase an aggregate of 720,000 shares of the Company’s common stock with an exercise price of $1.50 per share. The Option Exercise Price to be paid by the Company to the Star Equity Holders consists of
Current report
If, for a period of 12 months after the closing of the Star Agreement, the Company’s shares of common stock are delisted from Nasdaq, Star shall have the right, at its own discretion, to require the Company to exchange the Investment Note for all the shares of Star then held by the Company, provided, however, the Option shall be automatically cancelled and Star shall retain any cash payments made by the Company to Star and the Company shall retain an equity interest in Star equivalent to all cash payments. The closing of the Transaction is subject to customary closing conditions, including regulatory approvals, third-party consents, fairness opinion, and approval by the Company’s shareholders as required under applicable Nasdaq listing rules.
Current report
If the Star Agreement is canceled because stockholder approval was not obtained within 90-days after the date of the Star Agreement and the failure was a result of the Company failing to perform or observe the covenants or agreements of the Company provided for in the terms of the Star Agreement, the Seller is entitled to damages of $1,000,000 from the Company.
Current report
As a result of the Settlement Agreement and subject to the closing of the acquisition of Star, the Company’s business will be focused on the defense sector.
Current report
*Private Placement: *On December 18, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) pursuant to which the investor (the “Purchaser”) agreed to purchase from the Company 1,666,666 units for an aggregate purchase price of $10,000,000 or a per unit price of $6.00 with each unit consisting of (i) one share (the “Shares”) of the Company’s common stock and (ii) a stock purchase warrant to purchase up to one and one half shares of the Company’s common stock (the “December 2024 PIPE Warrant”). At the discretion of the Purchaser, it may elect to acquire one pre-funded common stock purchase warrant in lieu of one Share (the “Pre-Funded Warrant”). Each Share and accompanying December 2024 PIPE Warrant is being sold together at a combined offering price of $6.00 per Share and December 2024 PIPE Warrant. The Pre-Funded Warrant is immediately exercisable, at a nominal exercise price of $0.0001 per share, and may be exercised at any time until the Pre-Funded Warrant is fully exercised. The December 2024 PIPE Warrant will have an exercise price of $6.00 per share, are immediately exercisable on a cash or cashless basis and will expire five years from the date of issuance. The Units were priced in excess of the average Nasdaq Official Closing Price of the Company’s common stock for the five trading days immediately preceding the signing of the Securities Purchase Agreement. The Private Placement closed on December 20, 2024.
Current report
The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within 15 days of the date of the Securities Purchase Agreement (the “Filing Deadline”) and to use commercially reasonable efforts to have the registration statement declared effective within 45 days of the closing of the Private Placement or 75 days in the event of a full review (the “Effectiveness Deadline”). In certain circumstances including, but not limited to, if the Company misses the Filing Deadline or the Effectiveness Deadline, then the Company will be required to pay to the Purchasers an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 5.0% multiplied by the aggregate purchase price.
Current report
Pursuant to a Placement Agency Agreement (the “PAA”), dated December 18, 2024, between the Company the placement agent entered into in connection with the Private Offering, the Company has paid customary placement fees to the placement agent, including a cash fee equal to 7.0% of the gross proceeds raised in the Private Placement and 4.0% on all proceeds from the exercise of the December 2024 PIPE Warrants. Pursuant to the PAA, the Company has also agreed to reimburse certain expenses of the placement agent incurred in connection with the Private Placement.
Current report
Incentive Equity Grants: On December 16, 2024, the Company issued an aggregate of 1,337,500 restricted stock grants consisting of restricted shares of common stock under its stock incentive plans to various executive officers, directors and consultants of the Company who have provided services to the Company for an extended period of time with limited compensation.
Current report
Comparability of Financial Information
Current report
Our historical operations and statements of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the Business Combination and becomes a public company.
Current report
Business Combination and Public Company Costs
Current report
On December 22, 2023, we consummated the merger contemplated by the Business Combination, with Old Nukk surviving the merger as a wholly-owned subsidiary or Brilliant.
Current report
Upon the closing of the Business Combination, Brilliant’s certificate of incorporation was amended and restated to, among other things, set the total number of authorized shares of capital to 55,000,000 shares, of which 40,000,000 shares were designated common stock, $0.0001 par value per share, and of which 15,000,000 shares were designated preferred stock, $0.0001 par value per share.
Current report
Upon the consummation of the Business Combination, each share of Old Nukk common stock issued and outstanding was cancelled and converted into the right to receive a pro-rata portion of 1,312,494 shares of the Company’s common stock. Additionally, a backstop pool of 26,668, 40% of the aggregate number of Brilliant Ordinary shares and Brilliant Rights in accordance with the terms of the merger agreement, was issued to certain holders of Brilliant Ordinary Shares, Brilliant Rights, and Brilliant Warrants.
Current report
Old Nukk was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805. The determination was primarily based on Old Nukk’s shareholders prior to the Business Combination having a majority of the voting interests in the combined company, Old Nukk’s ability to exert control over the majority of the board of directors of the combined company, and given the board of directors election and retention provisions, Old Nukk’s ability to maintain control of the board of directors on a go-forward basis, Old Nukk’s senior management comprising the senior management of the combined company; and old Nukk’s operations prior to the Business Combination comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Old Nukk issuing stock for the net assets of Brilliant, accompanied by a recapitalization. The net assets of Brilliant are stated at historical cost, with no goodwill or other intangible assets recorded.
Current report
As a result of the Business Combination, we became a Nasdaq listed company, which will require us to hire additional personnel and implement procedures to address public company regulatory requirements and customary practices. We expect to incur annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance and legal fees.
Current report
Key Business Metrics
Current report
**Trading volume.**We define trading volume as the total U.S. dollar equivalent value of spot matched trades transacted between a buyer and seller through our platform during the period of measurement. Trading Volume represents the product of the quantity of assets transacted and the trade price at the time the transaction was executed. As trading activity directly impacts transaction revenue, we believe this measure is a reflection of liquidity on our order books, trading health, and the underlying growth of the digital assets economy.
Current report
Generally, Trading Volume on our platform is primarily influenced by the price of digital assets, digital asset volatility, and macroeconomic conditions. In periods of high digital asset prices and digital asset volatility, we have experienced correspondingly high levels of Trading Volumes on our platform.
Current report
Average cost per tradeis driven by financial services costs. Our average cost per trade decreased significantly as a direct result of zero amortization of intangible assets included in direct costs for the year ended September 30, 2024, as these assets have been fully amortized as of prior year.
Current report
Active clientsrepresents the total number of clients that transacted within our financial services segment throughout the report period. For the years ended September 30, 2024 and 2023, we had 88 and 217 active clients, respectively.
Current report
Components of Results of Operations
Current report
Revenueconsists of general support services revenue and financial services revenue.
Current report
General support services revenue represents general support services revenue earned from an affiliate who has engaged us to provide general support services, 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. Support services revenue is provided for in the contract with the affiliate and recognized over the period the general support services are rendered.
Current report
Financial services revenue represents transaction revenue earned from customers who submit requests to process a payment to a third party, often involving exchanging one fiat currency to another or to a digital asset as part of the transaction. Transaction revenue is generated primarily from transaction fees applied to the amount of the transaction requested by the customer. The transaction fee earned is based on the price and quantity of the fiat or digital asset that is converted. Financial services revenue is recognized at the time the transaction completes. Financial services revenue is directly correlated with Trading Volume, which is driven by the number of conversion transactions requested by customers.
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Removed paragraphs (74)
Previous report
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-K involve risks and uncertainties, including statements as to:
Previous report
Impact of COVID-19 on Our Operations
Previous report
The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption. Due to the nature of our business, the technology we use and offer to our customers, and our employees’ ability to work remotely, there was no material impact of COVID-19 on our business, operations and financial results.
Previous report
The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic, and governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.
Previous report
We have ownership of the FOREXWARE assets, the primary software suite and technology solution which powers the FXDD brand globally today. We also have ownership of the FOREXWARE brand name. We have also acquired ownership of the customer interface and other software trading solutions being used by FXDD.com. We seek to offer our client’s customers 24 hours, five days a week direct access to the global over the counter (“OTC”) FX market, which is a decentralized market in which participants trade directly with one another, rather than through a central exchange.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
In fiscal year 2021, the Company completed its acquisition of Match Financial Limited, a private limited company formed in England and Wales (“Match”). Match is engaged in providing payment services from one fiat currency to another or to digital assets.
Previous report
On October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 548,767 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF. Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s chief operating officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.
Previous report
On December 30, 2021, Old Nukk and the shareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement”) pursuant to which Old Nukk acquired 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of shares of common stock, which following the Merger represented 415,733 shares of common stock of the Company (valued at $5,000,000 based on the market price of Old Nukk’s common stock on the acquisition date) (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. In addition, upon the closing of the Merger, the Company agreed to provide an additional $1 million in investment to Digiclear in exchange for 4.545% of additional shares of Digiclear’s capital stock subject to the parties entering a definitive agreement. The Company and Digiclear have not entered into an additional agreement outlining the terms pursuant to which the Company would acquire the additional shares of Digiclear. The Company has provided $229,837 additional funds to Digiclear since the initial closing. Digiclear is a company developing a custody and settlement utility operating system.
Previous report
On February 22, 2022, the Company entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, 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. On June 23, 2023, the Company, Brilliant and BRIL Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Brilliant (“Merger Sub”), entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”). The A&R Merger Agreement extended the Outside Closing Date (as defined in the A&R Merger Agreement), to the later of (i) July 23, 2023, or, (ii) following the approval by Brilliant’s shareholders of an extension of the life of the SPAC pursuant to Brilliant’s organizational documents, to the date so approved, but not later than December 23, 2023. The transactions contemplated by the A&R Merger Agreement are closed on December 22, 2023.
Previous report
Financial Services Segment’s Key Performance Indicators (KPI)
Previous report
Trading volume is measured by number of trades and represents aggregate notional value of all trades.
Previous report
Average cost per trade is driven by financial services costs. We gained significant economies of scale as average cost per trade decreased measurably as trading volume increased.
Previous report
Active clients for the years ended September 30, 2023 and 2022 was 217 and 93, respectively.
Previous report
Critical Accounting Policies
Previous report
Use of Estimates
Previous report
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in these estimates and assumptions may have a material impact on the consolidated financial statements and accompanying notes. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Previous report
Significant estimates during the years ended September 30, 2023 and 2022 include the allowance for doubtful accounts, useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances, valuation of stock-based compensation, and fair value of customer digital currency assets and liabilities.
Previous report
Customer Custodial Cash and Customer Custodial Cash Liabilities
Previous report
Customer custodial cash represents cash and cash equivalents maintained in Company bank accounts that are controlled by the Company but held for the benefit of customers. Customer custodial cash liabilities represent these cash deposits to be utilized for its contractual obligations to its customers. The Company classifies the assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.
Previous report
Customer Digital Currency Assets and Liabilities
Previous report
At certain times, Digital RFQ’s customers’ funds that Digital RFQ uses to make payments on behalf of its customers, remain in the form of digital assets in its customers’ wallets at its digital asset trading platforms awaiting final conversion and/or transfer to the customer’s payment final destination. These indirectly held digital assets, may consist of USDT (Stablecoin), Bitcoin, and Ethereum (collectively, “Customer digital currency assets”). Digital RFQ maintains the internal recordkeeping of its customer digital currency assets, including the amount and type of digital asset owned by each of its customers.
Previous report
Digital RFQ has control of the private keys and knows the balances of all wallets with its digital asset trading platforms in order to be able to successfully carry out the movement of digital assets for its client payment instruction. As part of its customer payment instruction, Digital RFQ can execute withdrawals on the wallets in its digital asset trading platforms.
Previous report
The Company has determined that the Company has control of the customer digital currency assets and records these assets on its balance sheet with a corresponding liability. The Company recognizes customer digital currency liabilities and corresponding customer digital currency assets, on initial recognition and at each reporting date, at fair value of the customer digital currency assets. Subsequent changes in fair value are adjusted to the carrying amount of these customer digital currency assets, with changes in fair value recorded in other general and administrative expense in the consolidated statements of operations and comprehensive loss.
Previous report
Any loss, theft, or other misuse would impact the measurement of customer digital currency assets. The Company classifies the customer digital currency assets as current based on their purpose and availability to fulfill the Company’s direct obligations to its customers.
Previous report
Investment 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 “Operating expenses – Impairment loss” in the accompanying consolidated statements of operations and comprehensive loss, and a new basis in the investment is established. Impairment of cost method investment amounted to $6,210,783 for the year ended September 30, 2023. The Company did not record any impairment charge for cost method investment for the year ended September 30, 2022 as there was no impairment indicator noted.
Previous report
The Company uses the equity method of accounting for its investment 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. No impairment of equity method investment was recorded for the year ended September 30, 2023. Impairment of equity method investment amounted to $4,310,745 for the year ended September 30, 2022.
Previous report
Intangible Assets
Previous report
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.
Previous report
Impairment of Long-lived Assets
Previous report
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.
Previous report
In September 2023, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment as of September 30, 2023 and it calculated that the estimated undiscounted cash flows related to its intangible assets and cost method investment were less than their carrying amounts. Based on its analysis, the Company recognized an impairment loss of $11,914,322 for the year ended September 30, 2023.
Previous report
In September 2022, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment as of September 30, 2022 and it calculated that the estimated undiscounted cash flows related to its equity method investment were less than the carrying amount of the equity method investment. Based on its analysis, the Company recognized an impairment loss of $4,310,745 for the year ended September 30, 2022, which reduced the value of equity method investment to $0.
Previous report
Note Receivable – Related Parties
Previous report
Note receivable – related parties is presented net of an allowance for doubtful account. The Company maintains allowance for doubtful account for estimated loss. The Company reviews the note receivable – related parties on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual balance. In evaluating the collectability of individual receivable balance, the Company considers many factors, including the age of the balance, a borrower’s historical payment history, its current credit-worthiness and current economic trend. Note is written off after exhaustive efforts at collection. At September 30, 2023 and 2022, the Company has established, based on a review of its outstanding balances, an allowance for doubtful account in the amounts of $637,072 and $0, respectively, for its note receivable – related parties.
Previous report
The Company accounts for revenue under the provisions of ASC Topic 606. The Company’s revenues are derived from providing:
Previous report
The Company measures and recognizes compensation expense for all stock-based awards granted to non-employees, including stock options, based on the grant date fair value of the award. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.
Previous report
For non-employee stock-based awards, fair value is measured based on the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is calculated and then recognized as compensation expense over the requisite performance period.
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Reworded paragraphs (19)
Previous wording
The following discussion and analysis of our financial condition and results of operations for the years ended September 30, 2023 and 2022 should be read in conjunction with our consolidated financial statements and related notes to those consolidated financial statements that are included elsewhere in this report.
Current wording
The following discussion and analysis summarizes the significant factors affecting our financial condition, operating results, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Previous wording
We are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry.
Current wording
We are a financial technology company was historically focused on providing software, technology solutions, customer sales and marketing, and risk management technology hardware and software solutions packages for the worldwide retail foreign exchange (“FX”) trading industry and payment services from one fiat currency to another or to digital assets.
Previous wording
The key performance indicators outlined below are our financial services segment’s metrics that provide management with the most immediate understanding of the drivers of business performance and tracking of financial targets.
Current wording
The key performance indicators outlined below are our financial services metrics that provide management with the most immediate understanding of the drivers of business performance and tracking of financial targets.
Previous wording
Financial services revenue represents the top-line revenue generated from trades, before considering the costs associated with the generation of financial services revenue.
Current wording
Financial services revenuerepresents the top-line revenue generated from trades, before considering the costs associated with the generation of financial services revenue.
Previous wording
Financial services loss is measured as financial services revenue, less costs which include amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services. For the year ended September 30, 2023, we saw a 23.3% increase in trading volume over the year ended September 30, 2022. The increase in trading volume had a similar positive effect on all other KPIs.
Current wording
Financial services profit (loss) is measured as financial services revenue, less costs which include amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services. These intangible assets have been fully amortized as of September 30, 2023. For the year ended September 30, 2024, we saw a 50.0% decrease in trading volume over the year ended September 30, 2023. The decrease in trading volume had a similar effect on all other KPIs.
Previous wording
Gross trading margin is a metric that measures financial services revenue to trading volume.
Current wording
Gross trading marginis a metric that measures financial services revenue to trading volume.
Previous wording
Cost of financial services include amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Current wording
Cost of revenue – financial services consists of costs of completing our payment processing transactions, including broker fees, banking, and trading fees incurred associated with our financial services revenue. Additionally, for the year ended September 30, 2023, cost of financial services also included amortization of intangible assets which consist of license and banking infrastructure from an acquisition.
Previous wording
Operating expenses consisted of advertising and marketing, professional fees, compensation and related benefits, amortization of intangible assets, bad debt expense, other general and administrative expenses, and impairment loss.
Current wording
Operating expenses consist of advertising, professional fees, compensation and related benefits, amortization of intangible assets, other general and administrative, and impairment loss.
Previous wording
Other general and administrative expenses primarily consisted of rent, filing fee, platform fee, travel and entertainment, miscellaneous taxes, and other miscellaneous items.
Current wording
Other general and administrative consists of personnel-related expenses incurred to support our business, including executive, customer support, compliance, finance, human resources, legal, and other support operations, and include rent, filing fee, platform fee, travel and entertainment, miscellaneous taxes, and other miscellaneous items.
Previous wording
For the Year Ended September 30, 2023 Versus the Year Ended September 30, 2022
Current wording
Comparison For the Year Ended September 30, 2024 Versus the Year Ended September 30, 2023
Previous wording
For the year ended September 30, 2023, we had revenue from financial services of $2,097,642, as compared to $2,313,474 for the year ended September 30, 2022, a decrease of $215,832, or 9.3%. The decrease was attributable tothe GBP currency depreciation which converted our revenue from financial services in GPB into lower US dollar amounts, and slight decrease in financial services revenue resulting from the closure of our primary USD Banking rails when Signature and Silvergate closed in March 2023. We expect that our revenue from financial services will increase in the near future since we are making efforts on expanding our financial services.
Current wording
For the year ended September 30, 2024, financial services revenue decreased $984,181, or 46.9%. The decrease was attributable to a significant decrease in financial services revenue resulting from the closure of our primary USD Banking rails when Signature and Silvergate closed in March 2023.
Previous wording
For the year ended September 30, 2023, cost of financial services amounted to $2,865,783, as compared to $3,274,870 for the year ended September 30, 2022, a decrease of $409,087, or 12.5%. The decrease was primarily attributable to decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition in the year ended September 30, 2023.
Current wording
For the year ended September 30, 2024, cost of financial services amounted to $264,945, as compared to $2,865,783 for the year ended September 30, 2023, a decrease of $2,600,838, or 90.8%. The decrease was primarily attributable to the $2,106,404 of amortization expense attributed to acquired intangible that were fully amortized during the year ended September 30, 2023. The remaining decrease of $494,434 was primarily attributable to the overall decrease in trading activity during the year ended September 30, 2024.
Previous wording
Our gross profit from general support services for the year ended September 30, 2023 was $425,000, as compared to $300,000 for the year ended September 30, 2022, an increase of $125,000, or 41.7%. Gross margin increased to 2.2% for the year ended September 30, 2023 from 1.6% for the year ended September 30, 2022. The increase in our gross margin for the general support services segment for the year ended September 30, 2023 as compared to the year ended September 30, 2022 was attributed to the decrease in our cost of general support services as described above.
Current wording
While our gross margin from general support services for the year ended September 30, 2024 decreased $275,000, or 64.7%, from the year ended September 30, 2023, our gross margin percentage increased to 3.1% for the year ended September 30, 2024 from 2.2% for the year ended September 30, 2023. The increase in our gross margin percentage for the general support services for the year ended September 30, 2024 as compared to the year ended September 30, 2023 was attributed to the $25,000 monthly decrease in our cost of general support services which took effect May 1, 2023.
Previous wording
For the year ended September 30, 2023, advertising and marketing expense decreased by $364,297, or 86.7%, as compared to the year ended September 30, 2022. The decrease was primarily attributable to our decreased advertising and marketing activities. We expect that our advertising and marketing expense will remain in its current level with minimal increase in the near future.
Current wording
For the year ended September 30, 2024, advertising expense decreased by $11,401, or 20.4%, as compared to the year ended September 30, 2023. The decrease was primarily attributable to our decreased advertising activities within our financial services segment. We expect that our advertising expense will continue to decrease in future periods considering the pending disposal of our financial services segment.
Previous wording
For the year ended September 30, 2023, our compensation and related benefits increased by $314,154, or 61.8%, as compared to the year ended September 30, 2022. The increase was mainly attributable to increased management in our financial services segment. We expect that our compensation and related benefits will remain in its current level with minimal increase in the near future.
Current wording
For the year ended September 30, 2024, our compensation and related benefits increased by $136,023, or 16.5%, as compared to the year ended September 30, 2023. The increase was mainly attributable to increased management and personnel in our financial services segment. We expect that our compensation and related benefits will decrease significantly considering the pending disposal of our financial services segment. However, we expect an overall increase in compensation expenses in the near future for certain executives, directors and other personnel outside of our financial services segment.
Previous wording
In September 2023, we assessed our long-lived assets for any impairment and concluded that there were indicators of impairment as of September 30, 2023 and we calculated that the estimated undiscounted cash flows related to our intangible assets and cost method investment were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. The impairment of cost method investment is due to our conclusion that it will be unable to recover the carrying amount of the investment due to the investee’s series of operating losses and global economic environment. Based on our analysis, we recognized an impairment loss of $11,914,322 for the year ended September 30, 2023. We did not record any impairment charge for our intangible assets and cost method investment for the year ended September 30, 2022 as there was no impairment indicator noted.
Current wording
At each reporting period end, we assessed our long-lived assets for any impairment and concluded that there were indicators of impairment as of September 30, 2024 and 2023 and determined that the estimated undiscounted cash flows related to certain long-lived assets were less than their carrying amounts for both periods. For the years ended September 30, 2024 and 2023, we considered the investee’s series of operating losses and global economic environment, and recognized an impairment loss of $391,217 and $6,210,783 for the year ended September 30, 2024 and 2023, respectively. For the year ended September 30, 2023, we were not able to realize the financial projections provided by an entity acquired at the time of the intangible assets purchase and determined to recognize an impairment loss of $5,703,539, reducing the carrying value of the acquired intangible assets to zero. These impairment losses for the years ended September 30, 2024 and 2023 totaled $391,217 and $11,914,322, respectively, a decrease of $11,523,105, or 96.7%.
Previous wording
Net cash flow used in operating activities for the year ended September 30, 2023 was $1,232,382, which primarily reflected our consolidated net loss of approximately $17,428,000, and the changes in operating assets and liabilities, primarily consisting of an increase in due from affiliates of approximately $1,338,000 due to the payments made to our affiliates and monies that we paid on behalf of our affiliates in fiscal 2023, a decrease in customer custodial cash liabilities of approximately $776,000 driven by fulfillment of our direct obligations to our customers in fiscal 2023, and a decrease in customer digital currency liabilities of approximately $273,000 due to the decrease in customer digital currency controlled by us in fiscal 2023, offset by a decrease in customer digital currency assets of approximately $273,000 due to the decrease in customer digital currency controlled by us in fiscal 2023, an increase in due to affiliates of approximately $2,261,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in fiscal 2023, and an increase in accrued payroll liability and directors’ compensation of approximately $165,000 due to increased management in our financial services segment in fiscal 2023, and the non-cash items adjustment primarily consisting of amortization of intangible assets of approximately $2,380,000, stock-based compensation and service expense of approximately $371,000, provision for bad debt of approximately $1,180,000, and impairment of intangible assets and cost method investment of approximately $11,914,000.
Current wording
Net cash flow used in operating activities for the year ended September 30, 2023 was $1,232,382, which primarily reflected our consolidated net loss of approximately $17,428,000, adjusted for changes in working capital accounts and certain non-cash expense of approximately $15,856,000 (including amortization of intangible assets of approximately $2,380,000, stock-based compensation of approximately $371,000, provision for bad debt – related party of approximately $1,180,000, and impairment of long-lived assets of approximately $11,922,000).
Previous wording
Net cash flow used in investing activities was $1,109,936 for the year ended September 30, 2023 as compared to $35,000 for the year ended September 30, 2022. During the year ended September 30, 2023, we made payments for investment in note receivable – related parties of approximately $1,921,000 and payment for purchase of intangible asset of approximately $42,000, offset by proceeds received from note receivable – related parties of approximately $853,000. During the year ended September 30, 2022, we made payment for note receivable of $35,000.
Current wording
Net cash flow provided by investing activities was $132,826 for the year ended September 30, 2024 as compared to net cash flow used in investing activities of $1,109,936 for the year ended September 30, 2023. During the year ended September 30, 2024, we received approximately $133,000 of proceeds from a related party who repaid the outstanding balance of the note receivable. During the year ended September 30, 2023, we advanced monies to affiliates under note receivable – related parties of approximately $1,921,000 and acquired intangible asset of approximately $42,000, offset by repayments from related parties on the outstanding balance of the notes receivable of approximately $853,000.
Previous wording
Net cash flow provided by financing activities was $418,316 for the year ended September 30, 2023 as compared to $0 for the year ended September 30, 2022. During the year ended September 30, 2023, we received proceeds from loan payable - related parties of approximately $418,000.
Current wording
Net cash flow provided by financing activities was $3,000,403 for the year ended September 30, 2024, as compared to $418,316 for the year ended September 30, 2023. During the year ended September 30, 2024, we received cash in relation to reverse recapitalization of approximately $150,000, cash in relation to proceeds from loan payable – related parties of approximately $2,094,000, cash in relation to proceeds from issuance of convertible debt and non-convertible debt of approximately $812,000 and $78,000, respectively, offset by repayments of loan payable – related parties of approximately $134,000. During the year ended September 30, 2023, we received proceeds from loan payable - related parties of approximately $418,000.