S-1/A: Nukkleus Inc. Pivots to Defense Sector Amidst Financial Restructuring and Significant Losses

Nukkleus Inc. is undergoing a major strategic shift from financial technology to the defense sector through the acquisition of Star 26 Capital, while grappling with substantial historical losses, a working capital deficit, and ongoing capital needs.

Summary

• Nukkleus Inc. is transitioning its core business from financial technology (FX trading and blockchain payment solutions) to the defense sector.
• This strategic pivot involves the planned acquisition of a controlling 51% interest in Star 26 Capital Inc., an Israeli defense acquisition company that owns B. Rimon Agencies Ltd., a supplier of generators and defense products.
• The Company has ceased its general support services (FX operations) as of January 1, 2024, which historically generated a substantial portion of its revenue (81.2% in FY2024).
• Nukkleus is also in the process of selling its Digital RFQ (blockchain payment solutions) subsidiary for a nominal sum of GBP 1,000 (approximately $1,338) due to its continuing net losses and the company's new defense focus.
• For the three months ended March 31, 2025, Nukkleus reported a net income of $102,958,139, primarily driven by a non-cash gain from the change in fair value of liability-classified stock purchase warrants ($104,278,287) and convertible note embedded derivatives ($567,413).
• Despite the recent net income, the company reported significant net losses from continuing operations in prior periods: $(160,630,004) for the three months ended December 31, 2024, and $(7,377,599) for the year ended September 30, 2024.
• As of March 31, 2025, Nukkleus had a working capital deficit of $56,246,392 and an accumulated deficit of $98,117,604, raising substantial doubt about its ability to continue as a going concern.
• The acquisition of Star 26 Capital involves an aggregate investment of $21,000,000, comprising cash, a $16,000,000 promissory note, 2,385,170 shares of common stock, and 6,907,859 stock purchase warrants.
• Star 26 Capital reported revenues of $903,000 and a net income of $70,000 for the three months ended March 31, 2025, and a net loss of $555,000 for the year ended December 31, 2024.
• Nukkleus completed a 1-for-8 reverse stock split effective October 24, 2024, and changed its fiscal year end from September 30 to December 31, effective January 1, 2024.
• The company raised $10,000,000 through a private placement in December 2024, issuing units consisting of common stock and warrants.

Sentiment

Score: 3

Explanation: The company faces substantial financial challenges, including a significant accumulated deficit and working capital deficit, with auditors raising going concern doubts. While a recent quarter showed net income, it was due to non-cash accounting adjustments. The strategic pivot to the defense sector through the Star acquisition is a high-risk, high-reward move, but its success is uncertain and dependent on numerous external factors and successful integration. The company's historical operations have been unprofitable or discontinued.

Positives

• Strategic pivot to the defense sector, which the company believes offers significant growth opportunities, especially in Israel due to geopolitical trends.
• Acquisition of Star 26 Capital Inc., which owns Rimon, an established Israeli defense technology company with a history since 1992 and growing demand for its products (e.g., generators for Iron Dome launchers).
• Rimon's revenue increased by 31.52% to $4,994,000 in 2024, driven by demand for masts and generators due to the situation in Israel.
• Nukkleus reported a net income of $102,958,139 for the three months ended March 31, 2025, primarily due to non-cash gains from fair value changes in warrants and derivatives.
• Successful completion of a $10,000,000 private placement in December 2024, providing capital.
• Management believes Rimon can maintain current operations without additional funding by relying on lines of credit, banks, and self-generating cash flow.

Negatives

• Nukkleus Inc. has a substantial accumulated deficit of $98,117,604 as of March 31, 2025, and a working capital deficit of $56,246,392.
• The company's ability to continue as a going concern is in substantial doubt due to recurring losses from operations and limited capital resources.
• Historical revenue from general support services (FX operations) with TCM, which accounted for 81.2% of revenue in FY2024, has been terminated, leading to a significant revenue loss from this segment.
• The Digital RFQ (blockchain payment solutions) subsidiary, which is being sold, has consistently generated net losses.
• The net income for the three months ended March 31, 2025, is largely due to non-cash fair value adjustments of liabilities, rather than operational profitability.
• Significant net losses from continuing operations were incurred in recent periods: $(160,630,004) for the three months ended December 31, 2024, and $(7,377,599) for the year ended September 30, 2024.
• The CEO, Menachem Shalom, holds multiple CEO positions in other companies (Star 26 Capital Inc., Motomova Inc., Hold Me Ltd.), raising concerns about divided attention and potential conflicts of interest.
• The company is facing a potential liability of $3,000,000 to Star if the Star Agreement is terminated due to Nukkleus's failure to perform or maintain its Nasdaq listing.
• Nukkleus does not intend to issue 182,004 shares of common stock requested by DTCC for fractional shares from the reverse stock split, believing the request is incorrect, which could lead to potential liability.

Risks

• Failure to complete the acquisition of Star 26 Capital Inc. could result in a termination fee of $3,000,000 and harm the common stock price and future business.
• The company has a limited operating history in an evolving and highly volatile industry (defense, blockchain), which makes future prospects difficult to evaluate.
• Inability to effectively manage growth and associated demands on operational, risk management, sales, marketing, technology, compliance, and finance resources could adversely impact the business.
• Intense and increasing competition from payment platforms, banks, and other financial institutions could harm competitive positioning and operating results.
• Cyberattacks and security breaches of systems, or those impacting customers or third parties, could adversely impact brand, reputation, business, operating results, and financial condition.
• Any significant disruption in technology could adversely impact brand, reputation, business, operating results, and financial condition.
• Reliance on third parties (financial institutions, blockchain networks) for critical aspects of the business creates additional risk, including potential inability to maintain existing relationships or enter new ones.
• Concentration of banking relationships in a small number of partners poses a risk if these relationships deteriorate or services are discontinued.
• The company's products and services may be exploited to facilitate illegal activity such as fraud, money laundering, gambling, tax evasion, and scams, leading to liability and reputational harm.
• Compliance and risk management methods might not be effective, potentially resulting in adverse outcomes for reputation, operating results, and financial condition.
• The future development and growth of blockchain-enabled platforms are subject to unpredictable factors and reliance on third parties, which could adversely affect the business.
• Due to unfamiliarity and negative publicity associated with blockchain technology, the customer base may lose confidence in products and services utilizing it.
• Uncertainty regarding existing financial services laws and regulations globally for blockchain-enabled payment processing services could limit or restrict product offerings.
• There is no assurance that the company will achieve and maintain profitability or that its revenue and business models will be successful.
• Changes in U.S. and foreign tax laws, as well as their application, could adversely impact financial position and operating results.
• If estimates or judgments relating to critical accounting policies prove incorrect, operating results could be adversely affected.
• Changes in financial reporting standards or policies could materially adversely affect reported results of operations and financial condition.
• Failure to maintain proper and effective internal controls over financial reporting may adversely affect investor confidence and stock value.
• The company might require additional capital to support business growth, and this capital might not be available or may require stockholder approval, potentially leading to dilution or restrictive debt covenants.
• Fluctuations in currency exchange rates could adversely affect financial condition and results of operations.
• Employee or service provider misconduct or error could lead to legal liability, financial losses, and regulatory sanctions.
• The loss of key personnel, or failure to attract and retain highly qualified personnel, could adversely impact business.
• Inability to maintain an innovative corporate culture as the company grows could adversely impact business.
• Subject to various laws and regulations, and any adverse changes or failure to comply could adversely affect brand, reputation, business, operating results, and financial condition.
• Legislative and regulatory actions may increase costs and impact business, governance structure, financial condition, or results of operations.
• The regulatory environment gives rise to various licensing requirements, legal and financial compliance costs, and non-compliance could result in monetary and reputational damages.
• Intensive regulation in the financial services industry, with major changes and enforcement actions, could adversely affect business.
• Subject to laws, regulations, and executive orders regarding economic and trade sanctions, anti-bribery, anti-money laundering, and counter-terror financing, which could impair international competition or subject to liability.
• Consolidated balance sheets may not contain sufficient amounts or types of regulatory capital to meet changing requirements, which could adversely affect business.
• Complex and evolving laws related to data privacy, data protection, and information security could harm business by impairing customer trust and subjecting to fines.
• Subject to litigation, including individual and class action lawsuits, as well as regulatory audits, disputes, inquiries, investigations, and enforcement actions.
• Potential lawsuits by third parties for alleged infringement of proprietary rights.
• Adverse economic conditions may adversely affect the business.
• Natural disasters, pandemics, and other catastrophic events, or man-made problems like war or terrorism, could disrupt business operations.
• Acquisitions, joint ventures, or other strategic transactions create certain risks and may adversely affect business.
• Delaware law and the company's Certificate of Incorporation and Bylaws contain anti-takeover provisions that limit stockholder actions and could delay or discourage takeover attempts.

Future Outlook

Nukkleus's business will be focused on the defense sector following the closing of the Star acquisition and the sale of DRFQ. The company expects professional fees and other general and administrative expenses to increase as it integrates Star operations. Star 26 Capital Inc. intends to build a portfolio of small and medium businesses, primarily in the defense, industrial machinery, manufacturing, transportation, information technology, and aerospace industries, aiming for organic growth, add-on acquisitions, and operational improvements. Star believes the global defense sector is poised for significant growth due to increasing conflicts and rising defense budgets, presenting opportunities for acquisitions. Nukkleus intends to align its fiscal year with Star 26 Capital Inc. (December 31).

Management Comments

• "The Company believes the sale of DRFQ is in the best interest of the Company due to continuing net loss generated by DRFQ and the Companys desire to focus on the defense sector."
• "The acquisition [of Star] comes at a time of what the Company believes will be growth and transformation within the global defense sector."
• "The Company will integrate Star operations into its existing business structure while continuing to explore additional opportunities for growth."
• "We expect that our professional fees will increase in the near future as consultancy agreements were entered into during the fourth quarter with outsourced executives and other personnel of the Company that we anticipate to be in place for the entire fiscal year 2025."
• "We expect that our compensation and related benefits will increase in the near future if the pending acquisition of Star completes during fiscal year 2025."
• "We expect that our other general and administrative expenses will continue to increase in the near future as we continue to increase our focus on business expansion in the defense sector."
• "Star believes there is a significant opportunity for organic growth via the acquisition of small and medium size businesses... that may be operating in highly fragmented markets throughout the world, including the U.S. and Israel, which are owned and operated by persons within isolated networks of family offices, entrepreneurs, and intermediaries, each of which with the potential to generate attractive returns for our stockholders and investors."
• "Star believes that the defense sector is poised to experience significant growth in the next few years due to the increasing number of violent conflicts in the world, which may cause an increase in direct demand for defense solutions from conflict participants and their allies."
• "Star also anticipate seeing indirect, additional defense industry growth for, as we have observed, countries not involved in or participating in conflicts tend to increase their defense budgets and spending in anticipation of additional future conflicts in which they may become involved."
• "It is Stars belief that acquiring companies in the defense sector will help us establish a unique marketing network and build expertise in the greater defense sector, thus enabling us to cross-sell products to our large customers and facilitate higher success rates in our sales efforts."
• "Star believes that its detailed target company review process will enable us to effectively evaluate the prospects and upside of any given acquisition opportunity."
• "Star believes that its Managers collective investment experience and approach to executing its investment strategy will enable it to have several competitive advantages."

Industry Context

Nukkleus Inc. is undergoing a significant industry pivot, moving away from the volatile and evolving financial technology sector (retail foreign exchange and blockchain payments) towards the defense industry. This shift aligns with broader global trends of increasing defense spending driven by geopolitical conflicts. The document highlights Israel's strong position as a defense exporter (10th largest globally from 2018-2022) and the projected growth of the U.S. defense technology market (from $76.1 billion in 2022 to $184.7 billion by 2027, a 15.9% CAGR). The company aims to capitalize on the perceived high demand and fragmented market within the defense sector, particularly in Israel, by acquiring and optimizing smaller businesses. This contrasts sharply with the challenges faced in the blockchain space, which is characterized by regulatory uncertainty and negative public perception.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of business.
• No material adverse effect on business, financial condition, or operating results is currently known from these proceedings.
• The company settled outstanding claims with Silverback Capital Corporation (SCC) on May 28, 2024, through the issuance of common stock.

Related Party Transactions

• **Star Agreement**: Nukkleus Inc. is acquiring a controlling interest in Star 26 Capital Inc., where Menachem Shalom (Nukkleus CEO and Director) is a controlling shareholder, CEO, and director of Star. Nukkleus has advanced $1,800,000 to Star as of March 31, 2025, which increased to $3,000,000 by May 13, 2025.
• **X Group Conversion**: X Group Fund of Funds, owned by Anastasiia Kotaieva (Nukkleus Director), converted $771,085 of debt into Nukkleus common stock and warrants in November 2024.
• **Services provided by related parties**: Oliver Worsley and Craig Vallis (shareholders) provided consulting services, for which the company recognized expenses. Jamal Khurshid (former COO/director) also provided consulting services.
• **Terminated GSA Agreements**: Historically, Nukkleus generated most of its revenue from a General Services Agreement (GSA) with Triton Capital Markets Ltd. (TCM), which is controlled by Emil Assentato (former CEO and 5%+ shareholder). This GSA was terminated effective January 1, 2024, due to non-payment. A related GSA with FXDirectDealer LLC (FXDD), also controlled by Emil Assentato, was also terminated.
• **Due from affiliates**: Balances owed from affiliates, including Jamal Khurshid, Forexware, FXDD Mauritius, and TCM.
• **Due to affiliates**: Balances owed to affiliates, including Currency Mountain Holdings Bermuda, FXDD Trading, Markets Direct Payments (all controlled by Emil Assentato), Craig Vallis, and Match Fintech Limited.
• **Notes Receivable related parties**: A promissory note to a shareholder ($35,000) and a $1 million line of credit to a related party client of Digital RFQ, which was largely written off.
• **Loans Payable related parties**: Several promissory notes with shareholders and affiliates, including $1,353,639 in Shareholder 2024 Loans and a $213,349 July 2024 Loan.
• **Star's Related Party Transactions**: Star 26 Capital Inc. has loans from Nukkleus Inc. and a loan from Menachem Shalom. Star's manager, Zero One Capital LLC, is formed and managed by Menachem Shalom, and provides management services to Star and Rimon.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from warrant exercises and future capital raises. Potential for value creation if the defense pivot is successful, but also risk of substantial loss due to going concern doubts and historical losses. Anti-takeover provisions limit shareholder actions.
• **Employees**: Shift in business focus may impact employees from discontinued operations (Digital RFQ, FX services). New opportunities in the defense sector are anticipated. Compensation includes equity awards.
• **Customers**: Existing FX and blockchain payment customers will be impacted by the discontinuation/sale of these services. The company will now focus on defense sector customers (governments, defense forces).
• **Suppliers**: Changes in business focus will alter supplier relationships. Rimon, the acquired defense company, relies on exclusive distributorship agreements.
• **Creditors**: Existing debt obligations, including related party loans, are significant. The company's going concern status poses a risk to creditors.

Next Steps

• Complete the acquisition of Star 26 Capital Inc., subject to regulatory approvals, third-party consents, and shareholder approval.
• Sell the Digital RFQ subsidiary.
• Integrate Star operations into Nukkleus's existing business structure.
• Explore additional growth opportunities in the defense sector.
• Star 26 Capital Inc. to complete due diligence and obtain bank consent for the ITS acquisition by July 7, 2025.
• Star 26 Capital Inc. to hold a shareholders' meeting for Water IO Ltd. transaction approval.
• Nukkleus Inc. to obtain shareholder approval for the 2025 Equity Incentive Plan during Q2 2025.
• Nukkleus Inc. to resolve the discrepancy regarding the 182,004 shares requested by DTCC for fractional shares.
• Nukkleus Inc. to file a further amendment to the registration statement to become effective.

Key Dates

Recommendation

Keywords

Defense Technology, Acquisition, Financial Technology, SEC Filing, Nukkleus Inc., Star 26 Capital, Rimon Agencies, Strategic Pivot, Going Concern, Private Placement, Warrants, Reverse Stock Split, Corporate Governance, Risk Management, Blockchain, Foreign Exchange, Israel Defense Industry, Nasdaq Listing