Nukkleus Inc. (ticker: NUKK), a global financial services company specializing in online trading and digital asset management, has seen an uptick in its financial services segment’s gross margin for the three and six months ending March 31, 2023. This increase is attributed to the rising scale of their operations as a result of higher revenues, driving more efficient allocation of fixed costs, such as amortization costs of intangible assets.
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Decreased Advertising and Marketing Expenses
During the three months ending March 2023, advertising and marketing expenses decreased by 99.8%, largely due to a reduction in advertising and marketing activities. Professional fees, including audit fees, legal service fees, advisory fees, and consulting fees, also decreased by 53.2%. The company reports that they expect advertising and marketing expenses to increase again in the near future, while professional fees will likely remain at their current level with minimal increases.
Increased Compensation and Operating Expenses
Compensation and related benefits increased by 52.1% for the three months ending March 2023, mainly attributable to increased management in the financial services segment. This growth is expected to continue, with minimal increases in the near future. Meanwhile, Nukkleus’ operating expenses, such as rent and filing fees, increased by 22.5%. This increase was primarily driven by an $18,000 increase in filing fees due to a rise in public filings.
Improved Net Loss and Overall Business Performance
Despite the higher operating expenses, Nukkleus’ net loss decreased significantly, falling by 58.2% to $805,649 for the three months ended March 2023, compared to $1,926,614 for the same period in 2022. These positive financial results indicate a healthier overall business performance and growth in the financial services segment of Nukkleus.
Working Capital Deficit
The company’s working capital deficit increased by $604,615 to $4,391,140 at March 31, 2023, from $3,786,525 at September 30, 2022. The increase was primarily due to a decrease in cash, customer custodial cash, and due from affiliates, as well as an increase in customer digital currency liabilities and accrued payroll liabilities and director’s compensation.
Dependence on Management and TCM Support
Nukkleus is currently dependent on its management’s ability to control expenses and secure necessary funding for ongoing operations and obligations. The company states that they need to either borrow funds or raise additional capital through equity or debt financing, and if they cannot secure that capital, it will negatively impact their business. However, Nukkleus is backed by TCM, which has committed to injecting capital into the company to maintain ongoing operations if needed.
Despite the challenges faced, these financial results showcase the growth of Nukkleus’ financial services segment and their ability to improve the gross margin. It also highlights the company’s successful adaptation to leaner operations while still maintaining a healthy financial performance. Investors should carefully consider these positive trends and the company’s commitment to further growth in the global financial services sector.
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