Nukkleus Inc
For the period ended Mar 31, 2024. Filed Aug 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed Aug 14, 2024
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-Q
Period ended 2023-12-31; filed 2024-07-30.
0001013762-24-002177
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-03-31; filed 2024-08-14.
0001213900-24-068918
Item 2. 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 99 previous paragraphs and 105 current paragraphs.
57 unchanged; 34 reworded; 12 added; 8 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 15 previous and 15 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 (12)
Current report
We are now a financial technology company with the aim of providing blockchain-enabled technology solutions.
Current report
Digital RFQ
Current report
Through our Digital RFQ subsidiary, we aim to provide cross-border payment and transactions solutions to institutional investors, and offer blockchain-enabled financial services solutions to institutional investors in a secure, compliant and globally accessible manner. The blockchain-enabled payment gateway we have developed has the capability to deliver global cross-border transfers of fiat currencies using blockchain rails. Digital RFQ currently offers payment and settlement services, including those utilizing blockchain networks, but does not provide custody or wallet services with respect to digital assets, and does not hold digital assets, reducing the risks and regulatory burden on its business. In future, Digital RFQ plans to offer a white-labelled digital bank with end-to-end digital banking solutions for international business. We are uncertain as to when we will be able to offer these products and intend to evaluate potential strategic opportunities for DigiClear which may include the sale of the assets or a joint venture, of which there is no guarantee. Our competitors in this product category are banks and other financial institutions, and we intend to compete by offering faster and more reliable products using more advanced technology. Products and services offered by Digital RFQ are distributed through our website.
Current report
Digital RFQ is regulated in the United Kingdom by the Financial Conduct Authority and is in good standing and is and has been in the past in material compliance with the applicable laws, rules and regulations promulgated thereby. Digital RFQ is subject to Anti Money Laundering (“AML”) and Counter Terrorist Finance (“CTF”) regulations consistent with our authorization by the Financial Conduct Authority as an Electronic Money Directive Agent, among others. For a discussion of the various laws and regulations Digital RFQ is subject.
Current report
The “blockchain technology” used by Digital RFQ in its payment processing business includes only advanced-stage and fully tested, well-established and fully collateralized stablecoins operated on the Bitcoin, Ethereum and Tron networks. However, in future, we will be free to use other blockchain networks if we determine that they offer more sophisticated or secure technology. Based on our risk assessments, we determine the appropriate network to use for a particular transaction or customer. We do not use stablecoins of an algorithmic nature, and in the event that we determine any particular stablecoin presents a threat or risk to the security of our business, customers or the transactions we process, we promptly move to another stablecoin network. We do not accept payment in digital assets and do not hold digital assets for investment or offer digital wallet services. For a description of the risks associated with the use of blockchain technology in financial services generally, and payment processing specifically.
Current report
DigiClear
Current report
Through DigiClear, we plan to develop technology that offers a custody and settlement utility operating system aiming to deliver value and a high-functioning automated post-trade solution. DigiClear aims to provide clients with the means to transfer underlying assets to alternative custodians at any time. We intend for DigiClear to use hardware security modules to offer technology that can secure client assets to block any unwanted modification of client settlement instructions or transfers. We expect that the transfer process that DigiClear’s technology will offer will be fully automated, monitored and can be processed within milliseconds. We are uncertain as to when we will be able to offer these products and intend to evaluate potential strategic opportunities for DigiClear which may include the sale of the assets or a joint venture, of which there is no guarantee. Our competitors in this product category are banks and other financial institutions and smaller financial technology companies, and we intend to compete by offering faster and more reliable products using more advanced technology. Assuming we offer DigiClear products and services once commercially developed these will be distributed through our website.
Current report
Nukkleus Technology
Current report
Our Nukkleus Technology business unit offers a full-service transactions technology and advisory business providing end-to-end transactions technology solutions. We offer an advanced transactions platform for dealing and risk management with global liquidity and customizable leverage, where users have control over quote and liquidity strategies.
Current report
On May 24, 2016, Nukkleus Limited entered into a General Service Agreement to provide its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to FML Malta Ltd. In December 2017, Nukkleus Limited, FML Malta Ltd. and TCM entered into a letter agreement providing that there was an error in drafting the General Service Agreement and acknowledging that the correct counter-party to Nukkleus Limited in the General Service Agreement is TCM. Accordingly, all references to FML Malta Ltd. have been replaced with TCM. TCM is a private limited liability company formed under the laws of Malta. The General Service Agreement entered with TCM provides that TCM will pay Nukkleus Limited at minimum $2,000,000 per month. On October 17, 2017, Nukkleus Limited entered into an amendment of the General Service Agreement with TCM. In accordance with the amendment, which was effective as of October 1, 2017, the minimum amount payable by TCM to Nukkleus Limited for services was reduced from $2,000,000 per month to $1,600,000 per month. Emil Assentato is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of TCM.
Current report
In addition, on May 24, 2016, in order to appropriately service TCM, Nukkleus Limited entered into a General Service Agreement with FXDIRECT, which provides that Nukkleus Limited will pay FXDIRECT a minimum of $1,975,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. On October 17, 2017, Nukkleus Limited entered into an amendment of the General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, the minimum amount payable by Nukkleus Limited to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Currency Mountain Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC. Due to non-payment by TCM under the GSA, the Company has advised TCM that the GSA has been terminated effective January 1, 2024. The Company has historically generated substantially most of its revenue through the services rendered under the GSA. The Company is repositioning its focus on digital assets as the services generated under the GSA with TCM generated limited net income.
Current report
Other expense, net, totaled $9,568 for the three months ended March 31, 2024, as compared to other income, net, of $715 for the three months ended March 31, 2023, a decrease of $10,283, or 1,438.2%, which was mainly attributable to an increase in related parties’ interest expense of approximately $10,000.
Removed paragraphs (8)
Previous report
We are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry.
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 exchange-traded fund (“ETF”). Jamal Khurshid and Nicholas Gregory own, directly and indirectly, approximately 40% and 10% of Jacobi, respectively. Jamal Khurshid is the Company’s chief executive officer and director and Nicholas Gregory is the Company’s director. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.
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. Digiclear is a company developing a custody and settlement utility operating system.
Reworded paragraphs (34)
Previous wording
The following discussion and analysis of our financial condition and results of operations for the three months ended December 31, 2023 and 2022 should be read in conjunction with our condensed consolidated financial statements and related notes to those condensed consolidated financial statements that are included elsewhere in this report.
Current wording
The following discussion and analysis of our financial condition and results of operations for the three and six months ended March 31, 2024 and 2023 should be read in conjunction with our condensed consolidated financial statements and related notes to those condensed consolidated financial statements that are included elsewhere in this report.
Previous wording
Financial services income (loss) is measured as financial services revenue, less costs incurred associated with delivery of our services. For the three months ended December 31, 2022, cost of financial services includes amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Current wording
Financial services income (loss) is measured as financial services revenue, less costs incurred associated with delivery of our services. For the three and six months ended March 31, 2023, cost of financial services includes amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Previous wording
In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three months ended December 31, 2023, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services. We had a financial services income for the three months ended December 31, 2023 as compared to financial services loss for the three months ended December 31, 2022.
Current wording
In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three and six months ended March 31, 2024, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services. We had a financial services income for the six months ended March 31, 2024 as compared to financial services loss for the six months ended March 31, 2023.
Previous wording
Active clients for the three months ended December 31, 2023 and 2022 was 53 and 57, respectively.
Current wording
Active clients for the three months ended March 31, 2024 and 2023 was 45 and 70, respectively. Active clients for the six months ended March 31, 2024 and 2023 was 66 and 127, respectively.
Previous wording
Significant estimates during the three months ended December 31, 2023 and 2022 include the allowance for doubtful accounts, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, and the fair value of customer digital currency assets and liabilities.
Current wording
Significant estimates during the three and six months ended March 31, 2024 and 2023 include the allowance for doubtful accounts, the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the valuation of deferred tax assets and associated valuation allowances, the valuation of stock-based compensation, and the fair value of customer digital currency assets and liabilities.
Previous wording
For the Three Months Ended December 31, 2023 Versus the Three Months Ended December 31, 2022
Current wording
For the Three and Six Months Ended March 31, 2024 Versus the Three and Six Months Ended March 31, 2023
Previous wording
For both the three months ended December 31, 2023 and 2022, we had revenue from general support services rendered to TCM under a GSA of $4,800,000. We do not expect any revenue from general support services in the near future since we have advised TCM that the GSA has been terminated due to non-payment by TCM under the GSA.
Current wording
For the three months ended March 31, 2024, we had revenue from general support services rendered to TCM under a GSA of $0, as compared to $4,800,000 for the three months ended March 31, 2023, a decrease of $4,800,000, or 100.0%. For the six months ended March 31, 2024, we had revenue from general support services rendered to TCM under a GSA of $4,800,000, as compared to $9,600,000 for the six months ended March 31, 2023, a decrease of $4,800,000, or 50.0%. Due to non-payment by TCM under the GSA, the Company had advised TCM that the GSA has been terminated effective January 1, 2024. The Company has historically generated substantially most of its revenue through the services rendered under the GSA to TCM, the sole customer in our general support services segment. We did not have any other customers in the three months ended March 31, 2024. We do not expect any revenue from general support services until we are successful in retaining other customers.
Previous wording
For the three months ended December 31, 2023, we had revenue from financial services of $442,391, as compared to $576,388 for the three months ended December 31, 2022, a decrease of $133,997, or 23.2%. The decrease was primarily attributable to the closure of our primary USD Banking rails when Signature and Silvergate closed in March 2023. We expect that our revenue from financial services will remain at its current level with minimal increase in the near future.
Current wording
For the three months ended March 31, 2024, we had revenue from financial services of $259,757, as compared to $833,944 for the three months ended March 31, 2023, a decrease of $574,187, or 68.9%. For the six months ended March 31, 2024, we had revenue from financial services of $702,148, as compared to $1,410,332 for the six months ended March 31, 2023, a decrease of $708,184, or 50.2%. The decrease was primarily attributable to the closure of our primary USD Banking rails when Signature and Silvergate closed in March 2023. We expect that our revenue from financial services will remain at its current quarterly level with minimal increase in the near future.
Previous wording
For the three months ended December 31, 2023, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $4,650,000, as compared to $4,725,000 for the three months ended December 31, 2022, a decrease of $75,000, or 1.6%. Effective May 1, 2023, the amount payable by us to FXDIRECT for services under a GSA was reduced from $1,575,000 per month to $1,550,000 per month. Therefore, our cost of general support services for the three months ended December 31, 2023 was decreased as compared to the three months ended December 2022.
Current wording
For the three months ended March 31, 2024, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $0, as compared to $4,725,000 for the three months ended March 31, 2023, a decrease of $4,725,000, or 100.0%. For the six months ended March 31, 2024, our cost of general support services, which represented amount incurred for services rendered by FXDIRECT under a GSA, amounted to $4,650,000, as compared to $9,450,000 for the six months ended March 31, 2023, a decrease of $4,800,000, or 50.8%. The decrease was attributable to the decrease in our revenue from general support services, and, effective May 1, 2023, the amount payable by us to FXDIRECT for services under a GSA was reduced from $1,575,000 per month to $1,550,000 per month.
Previous wording
For the three months ended December 31, 2022, cost of financial services includes amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Current wording
For the three and six months ended March 31, 2023, cost of financial services includes amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition, introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Previous wording
In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three months ended December 31, 2023, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Current wording
In September 2023, we assessed our intangible assets which were solely related to the Match acquisition (which consisted of license and banking infrastructure) for any impairment and concluded that there were indicators of impairment as of September 30, 2023. We calculated that the estimated undiscounted cash flows related to our intangible assets were less than their carrying amounts. We have not been able to realize the financial projections provided by Match at the time of the intangible assets purchase and have decided to impair the intangible assets to zero. Therefore, for the three and six months ended March 31, 2024, cost of financial services only includes introducing broker fees, banking, and trading fees incurred associated with delivery of our services.
Previous wording
For the three months ended December 31, 2023, cost of financial services amounted to $133,691, as compared to $706,261 for the three months ended December 31, 2022, a decrease of $572,570, or 81.1%. The significant decrease was primarily attributable to decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition in the three months ended December 31, 2023.
Current wording
For the three months ended March 31, 2024, cost of financial services amounted to $63,196, as compared to $760,982 for the three months ended March 31, 2023, a decrease of $697,786, or 91.7%. For the six months ended March 31, 2024, cost of financial services amounted to $196,887, as compared to $1,467,243 for the six months ended March 31, 2023, a decrease of $1,270,356, or 86.6%. The significant decrease was primarily attributable to decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition in the three and six months ended March 31, 2024.
Previous wording
Our gross profit from general support services for the three months ended December 31, 2023 was $150,000, as compared to $75,000 for the three months ended December 31, 2022, an increase of $75,000, or 100.0%. Gross margin increased to 3.1% for the three months ended December 31, 2023 from 1.6% for the three months ended December 31, 2022. The increase in our gross margin for the general support services segment for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was attributed to the decrease in our cost of general support services as described above.
Current wording
Our gross profit from general support services for the three months ended March 31, 2024 was $0, as compared to $75,000 for the three months ended March 31, 2023, a decrease of $75,000, or 100.0%. Our gross profit from general support services for both the six months ended March 31, 2024 and 2023 was $150,000. Gross margin increased to 3.1% for the six months ended March 31, 2024 from 1.6% for the six months ended March 31, 2023. The increase in our gross margin for the general support services segment for the six months ended March 31, 2024 as compared to the corresponding period of 2023 was attributed to the decrease in our cost of general support services as described above.
Previous wording
Gross profit from financial services for the three months ended December 31, 2023 was $308,700, as compared to gross loss of $129,873 for the three months ended December 31, 2022, a decrease of $438,573, or 337.7%. Gross margin increased to 69.8% for the three months ended December 31, 2023 from (22.5)% for the three months ended December 31, 2022. The increase in our gross margin for the financial services segment for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was primarily attributed to the decrease in cost for financial services driven by decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition. We expect that our gross margin for the financial services segment will remain in its current level with minimal increase in the near future.
Current wording
Gross profit from financial services for the three months ended March 31, 2024 was $196,561, as compared to $72,962 for the three months ended March 31, 2023, an increase of $123,599, or 169.4%. Gross margin increased to 75.7% for the three months ended March 31, 2024 from 8.7% for the three months ended March 31, 2023. Gross profit from financial services for the six months ended March 31, 2024 was $505,261, as compared to gross loss of $56,911 for the six months ended March 31, 2023, a decrease of $562,172, or 987.8%. Gross margin increased to 72.0% for the six months ended March 31, 2024 from (4.0)% for the six months ended March 31, 2023. The increase in our gross margin for the financial services segment for the three and six months ended March 31, 2024 as compared to the comparable periods of 2023 was primarily attributed to the decrease in cost for financial services driven by decreased amount of amortization of intangible assets which consist of license and banking infrastructure acquired on Match acquisition. We expect that our gross margin for the financial services segment will remain in its current quarterly level with minimal increase in the near future.
Previous wording
For the three months ended December 31, 2023, advertising and marketing expense decreased by $28,104, or 57.2%, as compared to the three months ended December 31, 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 three months ended March 31, 2024, advertising and marketing expense increased by $20,273, or 6,872.2%, as compared to the three months ended March 31, 2023. The increase was primarily attributable to our increased advertising and marketing activities in the three months ended March 31, 2024. For the six months ended March 31, 2024, advertising and marketing expense decreased by $7,831, or 15.8%, as compared to the six months ended March 31, 2023. The decrease was primarily attributable to our decreased advertising and marketing activities in the six months ended March 31, 2024. We expect that our advertising and marketing expense will remain in its current quarterly level with minimal increase in the near future.
Previous wording
Professional fees primarily consisted of audit fees, legal service fees, advisory fees, and consulting fees. For the three months ended December 31, 2023, professional fees increased by $2,185,007, or 322.7%, as compared to the three months ended December 31, 2022. The increase was primarily attributable to a significant increase in advisory service fees of $2,293,000 mainly driven by common stock granted to advisors of approximately $2,016,000, and an increase in other miscellaneous items of approximately $22,000, offset by a decrease in consulting fees of approximately $130,000 mainly due to the decrease in options granted to consultants. We expect that our professional fees will remain in its current level with minimal increase in the near future.
Current wording
Professional fees primarily consisted of audit fees, legal service fees, advisory fees, and consulting fees. For the three months ended March 31, 2024, professional fees increased by $1,472,071, or 259.9%, as compared to the three months ended March 31, 2023. The increase was primarily attributable to a significant increase in advisory service fees of approximately $1,348,000 due to common stock granted to advisor of $750,000 and the increase of approximately $598,000 mainly driven by increased advisory service providers, and an increase in legal service fee of approximately $276,000 resulting from the increase in legal service providers, offset by a decrease in consulting fees of approximately $155,000 mainly due to the decrease in consulting service providers. For the six months ended March 31, 2024, professional fees increased by $3,657,078, or 294.1%, as compared to the six months ended March 31, 2023. The increase was primarily attributable to a significant increase in advisory service fees of approximately $3,641,000 due to common stock granted to advisors of approximately $2,766,000 and the increase of approximately $875,000 mainly driven by increased advisory service providers, and an increase in other miscellaneous items of approximately $16,000. We expect that our professional fees will decrease in the near future.
Previous wording
For the three months ended December 31, 2023, our compensation and related benefits increased by $93,576, or 58.4%, as compared to the three months ended December 31, 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 three months ended March 31, 2024, our compensation and related benefits increased by $72,316, or 36.6%, as compared to the three months ended March 31, 2023. For the six months ended March 31, 2024, our compensation and related benefits increased by $165,892, or 46.4%, as compared to the six months ended March 31, 2023. The increase was mainly attributable to increased management in our financial services segment. We expect that our compensation and related benefits will remain in its current quarterly level with minimal increase in the near future.
Previous wording
For the three months ended December 31, 2023, our had bad debt expense of $6,145,942. In December 2023, due to non-payment by TCM under the GSA, we have advised TCM that the GSA has been terminated. We made an allowance for doubtful account for the related party’s receivable in the amount of $6,145,942 in December 2023. We did not record any allowance for doubtful account for the three months ended December 31, 2022.
Current wording
For the three months ended March 31, 2024 and 2023, our did not record any allowance for doubtful account. For the six months ended March 31, 2024, our had bad debt expense of $6,145,942. In December 2023, due to non-payment by TCM under the GSA, we had advised TCM that the GSA has been terminated effective January 1, 2024. We made an allowance for doubtful account for the related party’s receivable in the amount of $6,145,942 in December 2023. We did not record any allowance for doubtful account for the six months ended March 31, 2023.
Previous wording
Other general and administrative expenses primarily consisted of rent, amortization of intangible assets, travel and entertainment, and other miscellaneous items.
Current wording
Other general and administrative expenses primarily consisted of rent, filing fees, amortization of intangible assets, travel and entertainment, and other miscellaneous items.
Previous wording
For the three months ended December 31, 2023, total other general and administrative expenses decreased by $72,114, or 37.0%, as compared to the three months ended December 31, 2022. The decrease was mainly due to a decrease in amortization of intangible assets of approximately $63,000 and a decrease in other miscellaneous items of approximately $9,000 driven by our efforts at stricter controls on corporate expenditure. We expect that other general and administrative expenses will remain in its current level with minimal decrease in the near future.
Current wording
For the three months ended March 31, 2024, total other general and administrative expenses increased by $97,424, or 51.2%, as compared to the three months ended March 31, 2023. The increase was mainly due to an increase in filing fees of approximately $191,000 resulting from our merger completed in December 2023, offset by a decrease in amortization of intangible assets of approximately $63,000 since we impaired our intangible assets acquired on Match acquisition in September 2023, and a decrease in other miscellaneous items of approximately $31,000 driven by our efforts at stricter controls on corporate expenditure. For the six months ended March 31, 2024, total other general and administrative expenses increased by $25,310,, or 6.6%, as compared to the six months ended March 31, 2023. The increase was mainly due to an increase in filing fees of approximately $244,000 resulting from our merger completed in December 2023, offset by a decrease in amortization of intangible assets of approximately $126,000 since we impaired our intangible assets acquired on Match acquisition in September 2023, and a decrease in other miscellaneous items of approximately $93,000 driven by our efforts at stricter controls on corporate expenditure. We expect that other general and administrative expenses will remain in its current quarterly level with minimal decrease in the near future.
Previous wording
Other income, net, totaled $19,134 for the three months ended December 31, 2023, as compared to $2,573 for the three months ended December 31, 2022, an increase of $16,561, or 643.6%, which was attributable to an increase in other miscellaneous income of approximately $24,000, offset by an increase in related parties’ interest expense of approximately $7,000.
Current wording
Other income, net, totaled $9,566 for the six months ended March 31, 2024, as compared to $3,288 for the six months ended March 31, 2023, an increase of $6,278, or 190.9%, which was attributable to an increase in other miscellaneous income of approximately $24,000, offset by an increase in related parties’ interest expense of approximately $18,000.
Previous wording
As a result of the factors described above, our net loss was $8,928,095, or $0.85 per share (basic and diluted), for the three months ended December 31, 2023, as compared to $1,133,922, or $0.11 per share (basic and diluted), for the three months ended December 31, 2022, an increase of $7,794,173 or 687.4%.
Current wording
As a result of the factors described above, our net loss was $2,429,417, or $0.17 per share (basic and diluted), for the three months ended March 31, 2024, as compared to $805,649, or $0.08 per share (basic and diluted), for the three months ended March 31, 2023, an increase of $1,623,768 or 201.5%.
Previous wording
The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. The financial statements of our subsidiaries whose functional currency is the GBP or Euro or CAD are translated to U.S. dollars using period end rates of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $63,313 and $27,983 for the three months ended December 31, 2023 and 2022, respectively. This non-cash loss had the effect of increasing our reported comprehensive loss.
Current wording
The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar, the functional currency of Match Financial Limited and its subsidiary, Digital RFQ, is the British Pound (“GBP”), the functional currency of Digital RFQ’s subsidiary, DRFQ Europe UAB, is Euro, and the functional currency of Digital RFQ’s subsidiary, DRFQ Pay North America, is CAD. The financial statements of our subsidiaries whose functional currency is the GBP or Euro or CAD are translated to U.S. dollars using period end rates of exchange for assets and liabilities, average rate of exchange for revenues, costs, and expenses and cash flows, and at historical exchange rates for equity. Net gains and losses resulting from foreign exchange transactions are included in the results of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $26,582 and a foreign currency translation loss of $2,721 for the three months ended March 31, 2024 and 2023, respectively. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $36,731 and $30,704 for the six months ended March 31, 2024 and 2023, respectively. This non-cash gain/loss had the effect of decreasing/increasing our reported comprehensive loss.
Previous wording
As a result of our foreign currency translation adjustment, we had comprehensive loss of $8,991,408 and $1,161,905 for the three months ended December 31, 2023 and 2022, respectively.
Current wording
As a result of our foreign currency translation adjustment, we had comprehensive loss of $2,402,835 and $808,370 for the three months ended March 31, 2024 and 2023, respectively.
Previous wording
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 December 31, 2023 and September 30, 2023, we had cash of approximately $204,000 and $19,000, respectively, exclusive of customer custodial cash. We had working capital deficit of approximately $9,663,000 as of December 31, 2023. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. As described below, we have raised additional capital through the sale of equity and debt and we plan to raise additional capital in the future through the sale of equity or debt to implement our business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, if at all.
Current wording
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 March 31, 2024 and September 30, 2023, we had cash of approximately $306,000 and $19,000, respectively, exclusive of customer custodial cash. We had working capital deficit of approximately $10,984,000 as of March 31, 2024. In addition, the current cash balance cannot be projected to cover our operating expenses for the next twelve months from the release date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. As described below, we have raised additional capital through the sale of equity and debt and we plan to raise additional capital in the future through the sale of equity or debt to implement our business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to us on satisfactory terms and conditions, if at all.
Previous wording
Our working capital deficit increased by $3,467,736 to $9,662,793 at December 31, 2023 from $6,195,057 at September 30, 2023. The increase in working capital deficit was primarily attributable to a significant decrease in due from affiliates of approximately $2,010,000 which was primarily attributable to our receivable from TCM was written off after exhaustive efforts at collection in the three months ended December 31, 2023, a decrease in note receivable – related parties, net, of approximately $128,000 driven by repayments received from note receivable – related parties in the three months ended December 31, 2023, an increase in accounts payable of approximately $157,000 due to our financial services business expansion, an increase in customer digital currency liabilities of approximately $996,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, and an increase in due to affiliates of approximately $1,370,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the three months ended December 31, 2023, offset by an increase in cash of approximately $185,000, an increase in customer digital currency assets of approximately $996,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, and a decrease in customer custodial cash liabilities of approximately $112,000 resulting from fulfillment of our direct obligations to our customers.
Current wording
Our working capital deficit increased by $4,788,493 to $10,983,550 at March 31, 2024 from $6,195,057 at September 30, 2023. The increase in working capital deficit was primarily attributable to a decrease in customer custodial cash of approximately $327,000 due to the decrease in cash maintained in our bank accounts held for the benefit of our customers, a significant decrease in due from affiliates of approximately $1,989,000 which was primarily attributable to our receivable from TCM was written off after exhaustive efforts at collection in the six months ended March 31, 2024, a decrease in note receivable – related parties, net, of approximately $128,000 driven by repayments received from note receivable – related parties in the six months ended March 31, 2024, an increase in accounts payable of approximately $172,000, an increase in due to affiliates of approximately $1,176,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the six months ended March 31, 2024, an increase in short-term loan payable – related parties of approximately $732,000 resulting from issuance of loans to related parties to fund our working capital needs, and an increase in accrued professional fees of approximately $1,089,000 mainly due to the increase in professional services providers, offset by an increase in cash of approximately $286,000, and a decrease in customer custodial cash liabilities of approximately $561,000 resulting from fulfillment of our direct obligations to our customers.
Previous wording
Cash Flow for the Three Months Ended December 31, 2023 Compared to the Three Months Ended December 31, 2022
Current wording
Cash Flow for the Six Months Ended March 31, 2024 Compared to the Six Months Ended March 31, 2023
Previous wording
The following summarizes the key components of our cash flows for the three months ended December 31, 2023 and 2022:
Current wording
The following summarizes the key components of our cash flows for the six months ended March 31, 2024 and 2023:
Previous wording
Net cash flow used in operating activities for the three months ended December 31, 2023 was $737,831, which primarily reflected our consolidated net loss of approximately $8,928,000, and the changes in operating assets and liabilities, primarily consisting of an increase in customer digital currency assets of approximately $971,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, a significant increase in due from affiliates of approximately $4,134,000 due to the payments made to our affiliates and monies that we paid on behalf of our affiliates in the three months ended December 31 2023, and a decrease in customer custodial cash liabilities of approximately $172,000 driven by fulfillment of our direct obligations to our customers in the three months ended December 31, 2023, offset by an increase in accounts payable of approximately $147,000 due to our business expansion, an in customer digital currency liabilities of approximately $971,000 due to the increase in customer digital currency controlled by us in the three months ended December 31, 2023, a significant increase in due to affiliates of approximately $4,078,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the three months ended December 31, 2023, and the non-cash items adjustment primarily consisting of stock-based compensation and service expense of approximately $2,090,000, and provision for bad debt of approximately $6,146,000.
Current wording
Net cash flow used in operating activities for the six months ended March 31, 2024 was $1,878,608, which primarily reflected our consolidated net loss of approximately $11,358,000, and the changes in operating assets and liabilities, primarily consisting of a significant increase in due from affiliates of approximately $4,149,000 due to the payments made to our affiliates and monies that we paid on behalf of our affiliates in the six months ended March 31, 2024, and a decrease in customer custodial cash liabilities of approximately $608,000 driven by fulfillment of our direct obligations to our customers in the six months ended March 31, 2024, offset by an increase in accounts payable of approximately $166,000, a significant increase in due to affiliates of approximately $3,887,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the six months ended March 31, 2024, andan increase in accrued professional fees of approximately $1,089,000 mainly due to the increase in professional services providers, and the non-cash items adjustment primarily consisting of stock-based compensation and service expense of approximately $2,915,000, and provision for bad debt of approximately $6,146,000.
Previous wording
Net cash flow provided by operating activities for the three months ended December 31, 2022 was $5,834,320, which primarily reflected the non-cash items adjustment primarily consisting of amortization of intangible assets, mainly representing intangible assets acquired on Match acquisition, of approximately $593,000, and stock-based compensation and service expense of approximately $147,000 due to options granted for professional services, and the changes in operating assets and liabilities, primarily consisting of a decrease in due from affiliates of approximately $285,000 resulting from the payments received from our affiliates in the first quarter of fiscal 2023, a significant increase in customer custodial cash liabilities of approximately $5,875,000 resulting from our business expansion, an increase in due to affiliates of approximately $93,000 driven by the payments received from our affiliates and expenses paid by our affiliates on behalf of us in the first quarter of fiscal 2023, offset by our consolidated net loss of approximately $1,134,000.
Current wording
Net cash flow used in operating activities for the six months ended March 31, 2023 was $1,882,501, which primarily reflected our consolidated net loss of approximately $1,940,000, and the changes in operating assets and liabilities, primarily consisting of an increase in customer digital currency assets of approximately $114,000 due to the increase in customer digital currency controlled by us in the six months ended March 31, 2023, a decrease in customer custodial cash liabilities of approximately $1,935,000 driven by fulfillment of our direct obligations to our customers in the six months ended March 31, 2023, and a decrease in accrued liabilities and other payables of approximately $216,000 mainly due to the decrease in unearned revenue of approximately $203,000, offset by a decrease in due from affiliates of approximately $677,000 resulting from the payments received from our affiliates in the six months ended March 31, 2023, an increase in customer digital currency liabilities of approximately $114,000 due to the increase in customer digital currency controlled by us in the six months ended March 31, 2023, and an increase in accrued payroll liability and directors’ compensation of approximately $97,000, and the non-cash items adjustment primarily consisting of amortization of intangible assets of approximately $1,186,000, and stock-based compensation and service expense of approximately $222,000.
Previous wording
Net cash flow provided by investing activities was $130,137 for the three months ended December 31, 2023 as compared to net cash flow used in investing activities of $67,800 for the three months ended December 31, 2022. During the three months ended December 31, 2023, we received proceeds from note receivable – related parties of approximately $130,000. During the three months ended December 31, 2022, we made payment for note receivable of approximately $68,000.
Current wording
Net cash flow provided by investing activities was $131,492 for the six months ended March 31, 2024 as compared to net cash flow used in investing activities of $195,395 for the six months ended March 31, 2023. During the six months ended March 31, 2024, we received proceeds from note receivable – related parties of approximately $131,000. During the six months ended March 31, 2023, we made payment for investment in note receivable of approximately $154,000 and payment for purchase of intangible asset of approximately $41,000.
Previous wording
Net cash flow provided by financing activities was $746,171 for the three months ended December 31, 2023. During the three months ended December 31, 2023, we received cash in reverse recapitalization of approximately $150,000 and received proceeds from loans payable from third party and related party of approximately $678,000, offset by repayments made for loan payable – related parties of approximately $82,000.
Current wording
Net cash flow provided by financing activities was $1,666,098 for the six months ended March 31, 2024. During the six months ended March 31, 2024, we received cash in reverse recapitalization of approximately $150,000 and received proceeds from loans payable from third party and related party of approximately $1,699,000, offset by repayments made for loans payable to third party and related party of approximately $183,000.
Previous wording
There was no financing activity during the three months ended December 31, 2022.
Current wording
There was no financing activity during the six months ended March 31, 2023.
Previous wording
A portion of our operations are in United Kingdom. Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between GBP and US dollars. For the three months ended December 31, 2023 and 2022, we had an unrealized foreign currency translation loss of approximately $63,000 and $28,000, respectively, because of changes in the exchange rates.
Current wording
A portion of our operations are in United Kingdom. Thus, a portion of our revenues and operating results may be impacted by exchange rate fluctuations between GBP and US dollars. For the three months ended March 31, 2024 and 2023, we had an unrealized foreign currency translation gain of approximately $27,000 and an unrealized foreign currency translation loss of approximately $3,000, respectively, because of changes in the exchange rates. For the six months ended March 31, 2024 and 2023, we had an unrealized foreign currency translation loss of approximately $37,000 and $31,000, respectively, because of changes in the exchange rates.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
As a result of the factors described above, our net loss was $11,357,512, or $0.92 per share (basic and diluted), for the six months ended March 31, 2024, as compared to $1,939,571, or $0.19 per share (basic and diluted), for the six months ended March 31, 2023, an increase of $9,417,941 or 485.6%.
Current report — wording carried from elsewhere
As a result of our foreign currency translation adjustment, we had comprehensive loss of $11,394,243 and $1,970,275 for the six months ended March 31, 2024 and 2023, respectively.