S-1/A: Nukkleus Inc. Pivots to Defense Sector with Star 26 Acquisition Amidst Financial Restructuring and Going Concern Doubts

Nukkleus Inc. is strategically shifting its business focus from financial technology to the defense sector through the acquisition of Star 26 Capital Inc., while grappling with significant historical losses, a working capital deficit, and ongoing going concern uncertainties.

Summary

• Nukkleus Inc. (NUKK) is undergoing a significant strategic transformation, pivoting from its historical financial technology and foreign exchange (FX) trading business to focus on the defense sector.
• The company has entered into an agreement to acquire a controlling 51% interest in Star 26 Capital Inc., an Israeli defense acquisition company, for an aggregate investment of $21,000,000, consisting of $5,000,000 in cash and a $16,000,000 promissory note, plus shares and warrants.
• Star 26 Capital Inc. holds 100% of B. Rimon Agencies Ltd. (Rimon), an Israeli defense company supplying generators for Iron Dome launchers, masts, lighting solutions, and tactical vehicles, primarily to Israeli defense forces and intelligence agencies.
• Nukkleus Inc. is divesting its Digital RFQ (DRFQ) subsidiary, which provided blockchain-enabled payment solutions, for GBP 1,000 (approximately $1,294) due to its 'continuing net loss' and the company's desire to focus on the defense sector.
• The company completed a one-for-eight reverse stock split effective October 24, 2024, and is currently in an inquiry with DTCC regarding a request to issue 182,004 shares for fractional share interests, which it disputes.
• Nukkleus Inc. changed its fiscal year end from September 30 to December 31, effective January 1, 2024, to align financial reporting with the calendar year and its proposed acquisition, Star 26 Capital Inc.
• For the three months ended March 31, 2025, Nukkleus reported a net income of $102,958,139, primarily driven by a non-cash gain of approximately $104.3 million from the change in fair value of liability-classified stock purchase warrants.
• Despite the recent net income, Nukkleus Inc. reported a net loss of $(160,787,979) for the three months ended December 31, 2024, and an accumulated deficit of $(98,117,604) as of March 31, 2025.
• The company has a significant working capital deficit of $(56,246,392) as of March 31, 2025, and its ability to continue as a going concern is dependent on managing expenses and obtaining necessary financing.
• Star 26 Capital Inc. reported revenues of $4,994,000 for the year ended December 31, 2024, an increase of 31.52% from 2023, but incurred a net loss of $(555,000) in 2024, compared to a net income of $407,000 in 2023.
• Star 26 Capital Inc. is actively pursuing additional acquisitions, including agreements to purchase shares and options in Mia Dynamics Motors Ltd. and to lend to and potentially acquire controlling interests in Water IO Ltd. and I.T.S. Industrial Tecno-logic Solutions Ltd. (ITS).

Sentiment

Score: 3

Explanation: The company faces severe financial distress, including recurring losses, a substantial accumulated deficit, and a significant working capital deficit, leading to a going concern warning. While the strategic pivot to the defense sector and the Star acquisition offer potential future growth, the immediate financial health is precarious. The recent net income is largely non-cash, stemming from fair value adjustments, and the acquired entity (Star) also reported a net loss in its most recent full year. The termination of the primary revenue-generating GSA and the sale of a loss-making subsidiary further highlight past business model failures. The overall sentiment is negative due to the fundamental financial instability, despite the strategic shift.

Positives

• Nukkleus Inc. is strategically pivoting to the defense sector, which it believes will experience significant growth due to increasing global conflicts and demand for defense solutions.
• Star 26 Capital Inc., the target acquisition, demonstrated strong revenue growth of 31.52% in 2024, reaching $4,994,000, driven by increased demand for its products, particularly masts and generators, in the Israeli market due to geopolitical events.
• Star's gross profit improved by 75% from $657,000 in 2022 to $1,149,000 in 2023, with gross margin increasing from 24.4% to 30.3% due to a favorable product mix and operational efficiencies.
• Nukkleus Inc. reported a net income of $102,958,139 for the three months ended March 31, 2025, primarily due to a non-cash gain of $104,278,287 from the change in fair value of liability-classified stock purchase warrants.
• The company successfully raised $10,000,000 through a private placement in December 2024, providing capital for its operations and strategic initiatives.
• Star 26 Capital Inc. has a stated strategy of acquiring small and medium-sized businesses with positive and stable earnings, aiming for organic growth, add-on acquisitions, and operational improvements.
• The conversion of Menachem Shalom's Class B shares in Star to Class A shares eliminates super-majority voting rights, potentially improving corporate governance and alignment with other shareholders.

Negatives

• Nukkleus Inc. has a history of recurring losses from operations, with an accumulated deficit of $(98,117,604) as of March 31, 2025, and $(201,075,743) as of December 31, 2024.
• The company faces substantial doubt about its ability to continue as a going concern due to its recurring losses, a significant working capital deficit of $(56,246,392) as of March 31, 2025, and insufficient cash generated from operating activities.
• Nukkleus Inc. terminated its General Services Agreement (GSA) with Triton Capital Markets Ltd. (TCM) and FXDirectDealer LLC (FXDD) effective January 1, 2024, which historically generated substantially most of its revenue (81.2% of revenue for the year ended September 30, 2024 was from TCM).
• The Digital RFQ (DRFQ) subsidiary, which provided blockchain payment solutions, is being sold for a nominal consideration of GBP 1,000 due to 'continuing net loss generated by DRFQ'.
• Star 26 Capital Inc. reported a net loss of $(555,000) for the year ended December 31, 2024, a significant decline from a net income of $407,000 in 2023, primarily due to increased general and administrative expenses, particularly professional services.
• Star's gross margin decreased from 30.26% in 2023 to 23.75% in 2024, mainly due to rising prices of materials.
• Nukkleus Inc. incurred a significant non-cash loss of $(140,584,780) for the three months ended December 31, 2024, from the change in fair value of liability-classified stock purchase warrants.
• The company is in a dispute with DTCC regarding a request to issue 182,004 shares of common stock for fractional share interests resulting from the reverse stock split, and may face potential liability if required to issue these shares.
• Menachem Shalom, the CEO, has commitments to other companies (Star 26 Capital Inc., Motomova Inc., Hold Me Ltd.), which may limit his attention to Nukkleus and could lead to conflicts of interest.
• Nukkleus Inc. has a concentrated banking relationship with a small number of partners, and the deterioration or discontinuation of these relationships could severely impact its ability to process payments.
• The company is subject to a potential $3,000,000 payment to Star if the Star Agreement is terminated due to Nukkleus failing to perform covenants or maintain its Nasdaq listing.

Risks

• Failure to complete the acquisition of Star 26 Capital Inc. may result in a termination fee of $1.0 million and could harm the common stock price and future business.
• The company has a limited operating history in an evolving and highly volatile industry, making it difficult to evaluate future prospects and increasing the risk of not being successful.
• 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, non-bank financial institutions, and foreign exchange processors 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, including reliance on third-party blockchain networks, could adversely impact brand, reputation, business, operating results, and financial condition.
• Reliance on third parties for critical aspects of the business, including financial services institutions and blockchain networks, creates additional risk if relationships cannot be maintained or new ones established.
• Exposure to credit risks in respect of counterparties, including financial institutions, and concentration of banking relationships in a small number of partners.
• Historical reliance on a single large customer (TCM) for a significant share of revenue (81.2% in FY2024), with the agreement now terminated, poses a risk to future revenue.
• Products and services may be exploited to facilitate illegal activity such as fraud, money laundering, gambling, and tax evasion, 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 business if growth expectations are not met.
• Due to unfamiliarity and negative publicity associated with blockchain technology, the customer base may lose confidence in products and services utilizing it.
• The innovative nature of platforms and blockchain-enabled payment processing services makes them difficult to analyze against existing financial services laws and regulations globally.
• 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.
• The nature of the business requires complex financial accounting rules with limited guidance, and significant changes could adversely affect reported results.
• Business metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies could adversely affect the business.
• Changes in financial reporting standards or policies could materially adversely affect reported results and capital ratios.
• Failure to develop and 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, leading to dilution or restrictive debt covenants.
• Fluctuations in currency exchange rates may adversely affect the business, particularly for international operations.
• Employee or service provider misconduct or error could lead to legal liability, financial losses, regulatory sanctions, and reputational harm.
• The loss of key personnel or failure to attract and retain highly qualified personnel could adversely impact business, operating results, and financial condition.
• Inability to maintain an innovative corporate culture as the company grows could adversely impact business and operating results.
• Adverse changes to, or failure to comply with, various laws and regulations (financial services, securities, money transmission, blockchain, privacy, sanctions, anti-bribery, anti-money laundering) 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 management time, with non-compliance potentially resulting in monetary and reputational damages.
• Intensive regulation of the financial services industry, with major changes and enforcement actions, could adversely affect business, financial position, results of operations, and prospects.
• Compliance with economic and trade sanctions, anti-bribery, anti-money laundering, and counter-terror financing laws could impair ability to compete internationally or subject to criminal/civil liability.
• Consolidated balance sheets may not contain sufficient regulatory capital to meet changing requirements, potentially affecting business, operating results, and financial condition.
• Complex and evolving laws related to data privacy, protection, and information security across different markets could harm business by impairing customer trust and subjecting to fines and reputational harm.
• The company is and may continue to be subject to litigation, including individual and class action lawsuits, as well as regulatory audits, disputes, inquiries, investigations, and enforcement actions.
• Potential future lawsuits by third parties for alleged infringement of proprietary rights could cause significant expenses, damages, or operational restrictions.
• Use of third-party open-source software components and failure to comply with their licenses could harm the business.
• Adverse economic conditions, natural disasters, pandemics, war, or terrorism could disrupt business operations.
• Acquisitions, joint ventures, or other strategic transactions create certain risks and may adversely affect business, financial condition, or results of operations.
• Delaware law and the company's Certificate of Incorporation and Bylaws contain anti-takeover provisions that could limit stockholder actions and delay or discourage takeover attempts.

Future Outlook

Nukkleus Inc. intends to focus its business on the defense sector following the anticipated closing of the Star 26 Capital Inc. acquisition and the sale of its Digital RFQ subsidiary. The company believes the defense sector is poised for significant growth due to increasing global conflicts and will integrate Star's operations into its existing structure while exploring additional growth opportunities. Star 26 Capital Inc. plans to continue its acquisition strategy, targeting small and medium businesses in defense, industrial machinery, manufacturing, transportation, IT, and aerospace, particularly in the U.S. and Israel, aiming for operational efficiencies and increased enterprise value. The company expects to finance future acquisitions primarily through additional equity and debt offerings.

Management Comments

• The company believes the sale of DRFQ is in its best interest due to continuing net loss generated by DRFQ and the company's desire to focus on the defense sector.
• The acquisition of Rimon 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.
• The decision to change the fiscal year end was made to align the company's financial reporting with the calendar year, which is expected to enhance operational efficiency, improve comparability with industry peers, and better serve the needs of shareholders.
• The company intends to align its fiscal year with Star 26 Capital Inc., the company's proposed acquisition.
• The company does not believe the number of shares (182,004) being requested by DTCC for fractional shares from the reverse stock split is correct based on the historical number of shareholders and is aware of similar occurrences for other companies.
• Star 26 Capital Inc. believes there is a significant opportunity for organic growth via the acquisition of small and medium-sized businesses with an enterprise value of less than $200 million in highly fragmented markets.
• Star 26 Capital Inc. believes that the economic and market dislocations resulting from the conflict in Israel, as well as other conflicts worldwide, provide an opportunity for companies in the defense industry to see higher-than-average demand for their products and services.
• Star 26 Capital Inc. is confident that the expertise of its management team and the relationships they can bring to an acquisition represent a compelling value proposition for any potential acquisition target looking to add working capital, a pathway to exit, and a solid leadership base.

Industry Context

Nukkleus Inc.'s strategic shift from financial technology, particularly blockchain-enabled payment solutions, to the defense sector is a significant pivot. This move aligns with a broader trend of increased global defense spending and geopolitical instability, which is driving demand for defense products and services. The filing highlights that the U.S. defense industry market size was approximately $76.1 billion in 2022 and is estimated to grow to $184.7 billion by 2027, with a compound annual growth rate of 15.9%. This indicates a perceived high-growth environment for the defense sector, contrasting with the challenges faced in the fintech and blockchain payment space, as evidenced by the divestiture of the loss-making Digital RFQ subsidiary. The acquisition of Rimon, an Israeli defense company, positions Nukkleus within a market that is a 'heavyweight in the global defense market,' particularly due to its advanced military industries and successful missile defense systems like Iron Dome.

Comparison to Industry Standards

• The U.S. defense industry market size was approximately $76.1 billion in 2022 and is estimated to grow to $184.7 billion by 2027, with a compound annual growth rate of approximately 15.9% from 2022 to 2027, indicating a high-growth sector for Nukkleus's new focus.
• Israel, where Star's subsidiary Rimon operates, is noted as the 10th largest defense exporter globally from 2018 to 2022, accounting for 2.3% of global military exports, suggesting a strong and established defense market.
• Rimon's products, such as generators for Iron Dome launchers, are supplied to major Israeli defense companies with global reach, including Rafael (manufacturer of Iron Dome), Israel Aviation Industries, and Elbit Systems, indicating a presence within a high-tier defense supply chain.
• The filing mentions successful sales of Israeli defense systems, such as the U.S. approval of David's Sling to Finland for over 300 million euros, highlighting the global demand and value of Israeli defense technology.

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 its business, with outcomes inherently uncertain.
• The company is currently in an inquiry with DTCC regarding a request to issue 182,004 shares of common stock for fractional share interests resulting from the reverse stock split, and may face potential liability if it fails to issue these shares.
• The company is subject to regulatory oversight by numerous regulatory and other governmental agencies, and non-compliance could lead to fines, license revocations, reputational harm, and other consequences.
• The company is and may continue to be subject to litigation, including individual and class action lawsuits, as well as regulatory audits, disputes, inquiries, investigations, and enforcement actions by regulators and governmental authorities.
• The company may be sued by third parties for alleged infringement of their proprietary rights, which could result in significant expenses, damages, or restrictions on operations.

Related Party Transactions

• Nukkleus Inc. is acquiring a controlling 51% interest in Star 26 Capital Inc., where Menachem Shalom, Nukkleus's CEO and a director, is also a controlling shareholder, CEO, and director of Star.
• Nukkleus Inc. has advanced $3,000,000 to Star 26 Capital Inc. as of March 31, 2025, which will be deducted from the total investment consideration upon closing of the Star Agreement.
• The General Services Agreement (GSA) with Triton Capital Markets Ltd. (TCM), which historically generated most of Nukkleus's revenue (81.2% in FY2024), was with a related party. Emil Assentato, former CEO of Nukkleus, is the majority member of Max Q Investments LLC, which owns 79% of Currency Mountain Malta LLC, the sole shareholder of TCM. This GSA was terminated effective January 1, 2024.
• The GSA with FXDirectDealer LLC (FXDD), where Nukkleus paid for services, was also with a related party, as FXDD is controlled by Currency Mountain Holdings LLC, in which Max Q is the majority shareholder. This GSA was terminated effective December 31, 2023.
• Nukkleus Inc. entered into a Settlement Agreement and Release with Jamal Khurshid (former COO and director) and Match Financial Ltd. to sell the Digital RFQ (DRFQ) subsidiary to Mr. Khurshid or his nominee for GBP 1,000.
• Nukkleus Inc. issued promissory notes to X Group Fund of Funds, a related party, and later converted $771,085 of this debt into common stock and warrants. Anastasiia Kotaieva, a director of Nukkleus, is the owner of X Group Fund of Funds Limited Partnership.
• Nukkleus Inc. issued 1,337,500 restricted stock grants to various executive officers, directors, and consultants, including Menachem Shalom (500,000 shares) and Anastasiia Kotaieva (150,000 shares), as compensation for services.
• Loans payable to related parties totaled $1,566,988 as of March 31, 2025, including Shareholder 2024 Loans and the July 2024 Loan.
• Amounts owed to affiliates totaled $45,078 as of March 31, 2025, which are short-term, non-interest bearing, unsecured, and repayable on demand.
• Star 26 Capital Inc. has a loan from a related party (Menachem Shalom) which was repaid in full as of March 31, 2025, and also receives loans from Nukkleus Inc. (related party).

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential future equity financings and warrant exercises. The reverse stock split reduced the number of outstanding shares, but the dispute over fractional shares could lead to further share issuance. The strategic shift to defense introduces a new risk/reward profile. The going concern warning indicates a high risk of investment loss.
• **Employees**: The strategic shift and divestiture of DRFQ may lead to changes in staffing and skill requirements. The company's ability to attract and retain highly qualified personnel is crucial for its new defense focus. Employee compensation includes significant stock grants, aligning interests with company performance.
• **Customers**: The termination of the GSA agreements with TCM and FXDD means former customers of the FX trading business will no longer receive services from Nukkleus. Future customers will primarily be in the defense sector, particularly those seeking generators, masts, and tactical vehicles from Rimon.
• **Suppliers**: The shift in business focus will likely change the company's supplier base, moving away from fintech-related suppliers towards those in the defense industry, particularly for Rimon's products.
• **Creditors**: Face heightened risk due to the company's substantial working capital deficit and the 'going concern' warning, indicating potential challenges in meeting financial obligations. The terms of various notes and loans, including those with related parties, will dictate repayment priorities and conditions.

Next Steps

• Complete the acquisition of Star 26 Capital Inc., which is subject to customary closing conditions, including regulatory approvals, third-party consents, and approval by Nukkleus's shareholders.
• Integrate Star's operations into Nukkleus's existing business structure.
• Continue to explore additional opportunities for growth within the defense sector.
• Address the inquiry regarding the 182,004 shares of common stock requested by DTCC for fractional share interests from the reverse stock split.
• Manage expenses and obtain necessary financing to address the substantial doubt about the company's ability to continue as a going concern.
• Star 26 Capital Inc. will continue its due diligence for potential acquisitions of Water IO Ltd. and I.T.S. Industrial Tecno-logic Solutions Ltd. (ITS).
• Star 26 Capital Inc. will introduce new business activity into Water IO Ltd. worth at least NIS 40M if that transaction closes.
• Nukkleus Inc. will file a transition report on Form 10-K for the period from October 1, 2024, to December 31, 2024, to reflect the change in fiscal year end.
• The 2025 Equity Incentive Plan, reserving 1,950,000 shares, is subject to shareholder approval at a meeting scheduled during the second quarter of calendar year 2025.

Key Dates

Recommendation

Nukkleus Inc. presents an extremely high-risk investment profile, warranting a 'strong sell' recommendation. The company has a history of significant and recurring net losses, culminating in a substantial accumulated deficit and a severe working capital deficit. The explicit 'going concern' warning from auditors indicates fundamental doubts about the company's ability to continue operations without significant additional capital, which may not be available on favorable terms or at all. While the strategic pivot to the defense sector and the acquisition of Star 26 Capital Inc. (Rimon) are presented as growth opportunities, the company has limited operating history in this new sector, and Star itself reported a net loss in its most recent full fiscal year. The termination of the primary revenue-generating GSA and the divestiture of a loss-making subsidiary underscore past business model failures. The recent non-cash net income is misleading, as it stems from fair value adjustments of liabilities rather than operational profitability. Given the profound financial instability, high operational risks, and the speculative nature of the strategic pivot, the downside risk for investors is substantial, and the company's ability to generate sustainable value is highly questionable.

Keywords

Defense Industry, Acquisition, Financial Technology, SEC Filing, S-1/A, Nukkleus Inc., Star 26 Capital Inc., Rimon Agencies Ltd., Blockchain, Fintech, Corporate Governance, Risk Management, Strategic Shift, Private Placement, Reverse Stock Split, Going Concern, SEC, Nasdaq, Warrants, Promissory Notes, Israel Defense Forces, Iron Dome, Financial Reporting, Liquidity, Capital Raise