DEF: Nukkleus Seeks Shareholder Nod for Star Acquisition, Capital Raises

Nukkleus Inc. calls a Special Meeting to approve the acquisition of Star Capital 26, Inc., along with significant equity issuances for warrants and an equity line of credit, all requiring Nasdaq compliance.

Summary

• A Special Meeting of Stockholders is scheduled for December 16, 2025, at 10:00 a.m. eastern time, to be held virtually.
• Shareholders will vote on four key proposals: the Star Purchase Proposal, the Warrant Shares Proposal, the ELOC Issuance Proposal, and the Preferred Stock Conversion Issuance Proposal.
• The Star Purchase Proposal seeks approval for the acquisition of 100% of Star Capital 26, Inc. (Star) for a total consideration of $21,000,000 (via a $16,000,000 promissory note and $5,000,000 cash), 4,770,340 shares of Nukkleus common stock, a five-year warrant to purchase 12,017,648 shares at $1.50 per share, $3,000,000 in cash, and a 6-month promissory note for $3,000,000 (8% interest).
• The 4,770,340 shares issued for the Star acquisition represent 28.7% of Nukkleus's outstanding common stock as of the Record Date (November 17, 2025).
• If the Star Warrant is fully exercised, Star Equity Holders could hold 16,787,988 shares, representing 100.9% of outstanding shares as of the Record Date, or 50.2% after giving effect to the Star Agreement shares and warrant exercise.
• The Warrant Shares Proposal seeks approval for the issuance of 3,191,400 shares of Common Stock upon exercise of restricted common stock purchase warrants at an exercise price of $5.405 per share.
• The ELOC Issuance Proposal seeks approval for the issuance of common stock in connection with a Common Stock Purchase Agreement with Esousa Group Holdings, LLC for up to $250,000,000, which could exceed Nasdaq's 20% issuance limit.
• The Preferred Stock Conversion Issuance Proposal seeks approval for the issuance of common stock upon conversion of Series A Convertible Preferred Stock (initially convertible into 2,044,800 shares) and warrants (initially exercisable into 3,191,400 shares) issued for an aggregate purchase price of $10,000,000, also exceeding Nasdaq's 20% issuance limit.
• The Board of Directors unanimously recommends a 'FOR' vote on all proposals, stating they are in the best interests of the Company and its stockholders.
• Menachem Shalom, CEO and director of Nukkleus, is also the CEO, director, and controlling shareholder of Star, and recused himself from voting on the Star acquisition due to this conflict of interest.

Sentiment

Score: 4

Explanation: While the strategic entry into the defense sector and the potential for growth are positive, the significant dilution for existing shareholders, the company's pre-acquisition financial struggles, and the related-party nature of the Star acquisition temper enthusiasm. The pro forma financials show a large loss for 2024, though 9M 2025 shows a profit (likely non-cash). The need for multiple shareholder approvals for large equity issuances highlights the company's reliance on external funding and the potential for substantial share price impact.

Positives

• Strategic entry into the growing defense and aerospace sector through the acquisition of Star Capital 26, Inc.
• Star's portfolio includes B. Rimon Agencies Ltd. (defense technology, generators for Iron Dome, specialty vehicles), a 67% interest in Water.IO Ltd. (smart hydration technology), and a convertible loan to I.T.S. Industrial Techno-logic Solutions Ltd. (electro-mechanical machines).
• The defense industry is projected to grow significantly, with the defense technology market estimated at a 15.9% Compound Annual Growth Rate (CAGR) from 2022 to 2027.
• Star's valuation by C Value Business Consulting was estimated at $40.4 million as of November 25, 2024, which was successfully negotiated down to $32.26 million.
• The announcement of the Star acquisition led to a significant rise in Nukkleus's share price and allowed it to raise $10 million.
• The Equity Line of Credit (ELOC) provides access to up to $250,000,000 in capital, offering funding flexibility for future operations and acquisitions.
• The Series A Convertible Preferred Stock issuance raised $10,000,000, providing additional capital.
• The management team, led by Menachem Shalom, possesses international and sector-specific expertise, particularly in Israeli business operations and the defense sector.

Negatives

• Significant potential dilution for existing shareholders from all four proposed equity issuances.
• The Star acquisition alone could result in Star Equity Holders holding 28.7% of outstanding shares initially, and potentially 100.9% (or 50.2% post-transaction) if Star Warrants are fully exercised.
• The Warrant Shares Proposal could lead to 3,191,400 new shares, representing 32.4% of outstanding shares if all 7,978,500 registered shares were issued.
• The ELOC could result in the issuance of up to 48,000,000 shares, representing up to 74.3% of outstanding shares (based on an assumed $5.21/share for $250M).
• The Preferred Stock Conversion could lead to the issuance of up to 5,112,000 shares, representing 23.5% of outstanding shares.
• Nukkleus's pre-acquisition financial situation included a lack of funds, late SEC filings, Nasdaq delisting notices, severe negative cash flow, and a losing operating subsidiary (DRFQ).
• The Star acquisition involves substantial expenses and potential litigation costs.
• A conflict of interest exists with CEO Menachem Shalom, who is also the CEO, director, and controlling shareholder of Star.
• The Initial Conversion Price of Series A Preferred Stock ($4.89) is subject to downward adjustment upon stockholder approval or based on market price.
• If stockholder approval for the Preferred Stock Conversion is not obtained by September 4, 2026, holders can redeem the Series A Preferred Stock at 105% of its Stated Value, creating a potential liability.

Risks

• Substantial expenses will be incurred in connection with the Star Agreement, including costs associated with any related litigation.
• There is a risk of possible volatility, at least in the short term, of the trading price of the Common Stock resulting from the announcement of the Star Agreement.
• The Star Purchase might not be consummated in a timely manner or at all, which could have an adverse effect on the Company's reputation.
• The business, operations, and financial results could be adversely affected if the Star Purchase is not consummated.
• The value of the acquired assets could decline after the execution and announcement of the Star Agreement, as the purchase price consideration would not be adjusted to reflect such declines.
• The significant portion of outstanding Common Stock that could be issued as part of the Star Purchase will result in substantial dilution to existing stockholders.
• A conflict of interest exists due to CEO Menachem Shalom being the CEO, director, and controlling shareholder of Star.
• The Company's pre-acquisition financial state included a lack of funds, late filings with the SEC and Nasdaq delisting notices, severe negative cash flow, and a losing operating subsidiary (DRFQ).
• The number of shares of Common Stock to be sold pursuant to the ELOC over the term of the agreement could exceed the ELOC Exchange Cap, leading to substantial dilution without further shareholder consent.
• The sale of a substantial number of Common Stock to the ELOC Investor, or the anticipation of such sales, could make it more difficult for the Company to sell equity or equity-related securities in the future at a favorable time and price.
• The Common Stock issuable pursuant to the terms of the ELOC may represent overhang, which could adversely affect the market price of the Common Stock.
• If stockholder approval for the Preferred Stock Conversion Issuance Proposal is not obtained by September 4, 2026, the Series A Preferred Stock is redeemable at the option of the holder at a price per Share equal to 105% of the Stated Value.
• The issuance of Common Stock to Star and other changes in stock ownership may result in an ownership change within the meaning of Section 382 of the U.S. Internal Revenue Code, potentially limiting the Company's ability to use its pre-Closing Net Operating Losses (NOLs) to offset future taxable income.
• Geopolitical and military conditions affecting Israel, such as the ongoing conflict in Gaza, Lebanon, and Iran, could materially and adversely affect Star's business and operations, despite potential short-term increased demand.
• Star may encounter intense competition from other entities, including blank check companies (SPACs), leveraged buyout funds, operating businesses, and private equity groups, in identifying and acquiring target businesses.
• Star's ability to acquire larger target businesses will be limited by its available financial resources.
• Future acquisition targets may be financially unstable or in early stages of development or growth, and Star cannot assure that it will properly ascertain, assess, or protect against all significant risk factors.
• Star and its subsidiaries are subject to various government regulations, including U.S. and other defense acquisition approvals, procurement regulations, anti-bribery/corruption laws, cybersecurity and data privacy regulations, audit regulations, competition laws, and environmental, health, and safety regulations, which could impose restrictions, costs, or penalties.

Future Outlook

Nukkleus will strategically pivot to focus on the defense sector following the Star acquisition, aiming for significant organic growth through acquiring small and medium-sized businesses in fragmented markets, particularly in the U.S. and Israeli defense and aerospace industries. The company anticipates higher-than-average demand for defense products and services due to ongoing global conflicts. Star expects to finance future acquisitions primarily through additional equity and debt offerings. Nukkleus intends to file registration statements for the resale of shares issued under the ELOC and Series A Preferred Stock, and Star will continue due diligence for the ITS acquisition.

Management Comments

• "After careful consideration, the Board of Directors of the Company (the Board) unanimously determined that (i) the Star Agreement and the transactions contemplated thereby, (ii) the issuance of the shares of Common Stock upon exercise of the Warrant; (iii) the ELOC Issuance Proposal and (iv) the Preferred Stock Conversion Issuance Proposal, are in the best interests of the Company and its stockholders, and approved each of the aforementioned matters, and recommends that you vote FOR..."
• "The Board believes, based in part on the judgment, advice, and analysis of its Board with respect to the potential strategic, financial, and operational benefits of the Star Agreement, that the Star Agreement represents an attractive market opportunity following the completion of the Star Purchase as the Board viewed the defense sector as growing."
• "The Board concluded that the Star Agreement would provide the existing stockholders a significant opportunity to participate in the potential growth of the Company following the closing of the Star Purchase."
• "The Board also considered that the post Star Purchase company will continue to be led by Menachem Shalom, the existing CEO of the Company, who is an experienced senior manager with considerable experience."
• "The Board firmly considers that the proposed acquisition is in the best interest of the Company and its shareholders."
• "The Board of Directors, after careful consideration, determined that obtaining a fairness opinion was not necessary for the proposed acquisition of Star."

Industry Context

The acquisition of Star Capital 26, Inc. marks a strategic pivot for Nukkleus into the defense and aerospace sector, an industry currently experiencing significant growth and increased attention due to global conflicts in Ukraine, Israel, and rising tensions with China. Israel is highlighted as a major player in the global defense market, accounting for 2.3% of global military exports and ranking as the 10th largest defense exporter from 2018 to 2022. The defense technology market is projected to grow at a 15.9% CAGR from 2022 to 2027. Star's strategy aims to capitalize on market dislocations and a perceived lack of capital and experienced leadership within the Israeli defense market by acquiring small to medium-sized businesses.

Comparison to Industry Standards

• Star's valuation was compared to publicly traded defense companies including Transdigm Group Incorporated, Howmet Aerospace Inc, Huntington Ingalls Industries Inc, Textron Inc, and General Dynamics Corp.
• The average Enterprise Value-to-EBITDA (EV/EBITDA) multiple for the selected comparable companies was 22.98 (median 20.26) for the period between September 30, 2023, and September 30, 2024.
• The average Enterprise Value-to-Revenue (EV/Revenue) multiple for the selected comparable companies was 4.63 (median 1.96) for the same period.
• Star's negotiated valuation of $32.26 million implies an Enterprise Value / Revenue (2026) of 0.81 and an Enterprise Value / EBITDA (2026) of 4.44.
• Star's implied multiples are significantly lower than the average and median multiples of the comparable defense companies, suggesting a potentially undervalued acquisition or reflecting Star's earlier stage and smaller scale compared to large, established defense contractors.

Management Changes

Corporate Governance

Legal Proceedings

• Star and its subsidiaries may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business, but are not currently aware of any material adverse legal proceedings or claims.
• Nukkleus's pre-acquisition situation included 'multiple claims and threatened litigation by various third parties.'
• If the Star Agreement is terminated due to Nukkleus failing to perform or observe its covenants or agreements, Star shall be entitled to a payment from Nukkleus in the amount of $3,000,000.

Related Party Transactions

• Menachem Shalom, the Chief Executive Officer and a director of Nukkleus, is also the Chief Executive Officer, a director, and the controlling shareholder of Star, owning 54.95% of Star's issued and outstanding shares.
• The Star acquisition involves Nukkleus acquiring 100% of Star, with consideration including cash, promissory notes, Nukkleus common stock, and warrants, which will be assigned pro-rata to Star Equity Holders (including Mr. Shalom).
• Star is managed by Zero One Capital LLC, a New York limited liability company formed and managed by Menachem Shalom, under a Management Services Agreement that includes management fees (greater of $300,000/year or 2% of adjusted net assets) and a transaction services fee (1.75% of total enterprise value).
• Star issued a demand grid promissory note to Menachem Shalom for $265,000 (increased to $511,000 by December 31, 2024) to reimburse him for out-of-pocket costs related to the Rimon acquisition and operating loans, with its maturity extended to February 15, 2026.
• Esousa Group Holdings, LLC, the institutional investor for the ELOC, also holds Series A Convertible Preferred Stock and warrants, and Michael Wachs, its owner, has voting and dispositive control over these securities.

Stakeholder Impact

• Shareholders will experience significant dilution from the proposed equity issuances related to the Star acquisition, warrants, ELOC, and preferred stock conversion, potentially reducing their ownership interest and ability to influence corporate decisions.
• The Star acquisition could result in a change of control, as Star Equity Holders could hold 28.7% of outstanding shares, potentially becoming the largest ownership position.
• Shareholders are presented with an opportunity to participate in the potential growth of the Company following its strategic pivot into the defense and aerospace sector.
• Employees of Star's operating subsidiary, Rimon (14 people), and Star's single full-time employee, will become part of the combined entity, with no immediate changes to Nukkleus's management structure.
• Customers and suppliers of Star's defense business (Rimon), including Israeli military and governmental bodies, may see increased demand for products and services due to global conflicts.
• Creditors will be impacted by the issuance of $19,000,000 in promissory notes as part of the Star acquisition consideration, and the potential redemption of Series A Preferred Stock at 105% of Stated Value if shareholder approval for conversion is not obtained.

Next Steps

• Hold a Special Meeting of Stockholders on December 16, 2025, to vote on the Star Purchase Proposal, Warrant Shares Proposal, ELOC Issuance Proposal, and Preferred Stock Conversion Issuance Proposal.
• If approved, proceed with the closing of the acquisition of Star Capital 26, Inc.
• If approved, issue shares upon the exercise of warrants as per the Warrant Shares Proposal.
• If approved, issue shares under the Equity Line of Credit (ELOC) agreement up to the $250,000,000 commitment.
• If approved, issue shares upon conversion of the Series A Convertible Preferred Stock.
• File a registration statement for the resale of shares issued under the ELOC and Series A Preferred Stock.
• Star to continue due diligence for the I.T.S. Industrial Techno-logic Solutions Ltd. (ITS) acquisition until December 29, 2025.
• Star to pursue organic growth opportunities and additional acquisitions in the defense sector.

Key Dates

Recommendation

The strategic pivot into the defense sector through the Star acquisition presents a compelling growth opportunity, especially given the current geopolitical climate and projected industry growth. The company has also secured significant capital through the ELOC and preferred stock issuance, which is crucial given its prior financial struggles. However, the substantial potential for dilution from these multiple equity issuances, the related-party nature of the Star acquisition, and the company's historical financial challenges (lack of funds, delisting notices, negative cash flow) introduce considerable risk. A 'hold' recommendation reflects the balance between the strategic upside and the significant execution and dilution risks, suggesting investors monitor the integration of Star, the effective deployment of capital, and the impact of dilution on share price before making further investment decisions.

Keywords

Nukkleus Inc., Star Capital 26 Inc., Acquisition, Defense Industry, Aerospace, Nasdaq Listing Rules, Shareholder Approval, Dilution, Warrants, Equity Line of Credit, Convertible Preferred Stock, Corporate Governance, Risk Factors, Menachem Shalom, B. Rimon Agencies Ltd., Water.IO Ltd., I.T.S. Industrial Techno-logic Solutions Ltd., Capital Raise, SEC Filing