Overview

Nukkleus Inc. (the “Company”) was historically focused on providing software, technology solutions, customer sales and marketing, and risk management technology hardware and software solutions packages for the worldwide retail foreign exchange (“FX”) trading industry and payment services from one fiat currency to another or to digital assets.

In January 2024, the Company ceased providing its general support services to customers, terminating its existing customer and supplier contracts with a related party, and shifted its focus to its payment services business. In November 2024, the Company entered into a Settlement Agreement and Release to sell the subsidiary that operates the payment services business to a shareholder in consideration of GBP 1,000 (approximately $1,338 at September 30, 2024).

In December 2024, the Company entered into a Securities Purchase Agreement and Call Option with Star 26 Capital Inc. (“Star”), an Israeli corporation engaged as a supplier of generators for “iron dome” launchers and other defense products, to acquire a controlling 51% interest in Star. As a result of the Settlement Agreement and subject to the closing of the acquisition of Star, the Company’s business will be focused on the defense sector.

Recent Developments

Executive Change: The Company’s Chief Executive Officer resigned in July 2024, and a new CEO was appointed. The new CEO then resigned in September 2024, and another individual was appointed as the Current CEO.

Reverse stock split: Effective October 24, 2024, the Company implemented a one-for-eight reverse stock split and increased the number of authorized shares.

Conversion Agreement: On November 8, 2024, the Company entered into a Conversion Agreement to convert outstanding principal and interest totaling $771,085 payable under convertible notes into 319,952 shares of common stock.

Sales of Securities: On November 8, 2024 and November 18, 2024, the Company sold 110,707 and 138,556 shares of common stock for aggregate gross proceeds of $231,882 and $246,145, respectively.

Disposition of Subsidiary: On November 8, 2024, the Company entered into a Settlement Agreement to sell a subsidiary that operates the payment services business to a shareholder in consideration of GBP 1,000 (approximately $1,338 at September 30, 2024).

Exit and Settlement Agreement: On November 8, 2024, the Company entered into an exit and settlement agreement with three directors, under which each director resigned and was issued 46,700 fully vested shares of common stock.

Bylaws Amendment: On November 8, 2024, the Board approved an amendment to the Company’s Bylaws to decrease the quorum requirement from a majority to one-third of the voting power.

Standby Equity Purchase Agreement: On December 3, 2024, the Company entered into a Standby Equity Purchase Agreement with an investor, under which the Company had the right to sell up to $10 million of shares. This agreement was terminated on December 19, 2024.

Securities Purchase Agreement: On December 15, 2024, the Company entered into a Securities Purchase Agreement to acquire a controlling 51% interest in Star in exchange for an aggregate investment of $15,000,000.

Private Placement: On December 18, 2024, the Company entered into a Securities Purchase Agreement for a private placement, pursuant to which an investor agreed to purchase 1,666,666 units for an aggregate purchase price of $10,000,000.

Incentive Equity Grants: On December 16, 2024, the Company issued an aggregate of 1,337,500 restricted stock grants to various executive officers, directors and consultants.

Comparability of Financial Information

The Company’s historical operations and statements of assets and liabilities may not be comparable to its operations and statements of assets and liabilities as a result of the Business Combination and becoming a public company.

Business Combination and Public Company Costs

On December 22, 2023, the Company consummated the merger contemplated by the Business Combination, with Old Nukk surviving the merger as a wholly-owned subsidiary of Brilliant. Upon the closing of the Business Combination, Brilliant’s certificate of incorporation was amended and restated.

Old Nukk was deemed the accounting acquirer in the Business Combination. As a result of the Business Combination, the Company became a Nasdaq listed company, which will require the Company to hire additional personnel and implement procedures to address public company regulatory requirements and customary practices.

Key Business Metrics

The key performance indicators that provide management with the most immediate understanding of the drivers of business performance and tracking of financial targets are:

Trading volume represents the total U.S. dollar equivalent value of spot matched trades transacted through the Company’s platform. Financial services revenue and profit (loss) are directly correlated with trading volume. The decrease in trading volume in 2024 resulted in decreases in all other key metrics.

Components of Results of Operations

Revenue consists of general support services revenue and financial services revenue. General support services revenue represents revenue earned from an affiliate for providing general support services. Financial services revenue represents transaction revenue earned from customers for processing payments involving the exchange of fiat currencies or digital assets.

Cost of revenues consists of cost of revenue for general support services and financial services. Cost of revenue for general support services represents costs paid to an affiliate that performs the general support services. Cost of revenue for financial services consists of costs of completing payment processing transactions, including broker fees, banking, and trading fees.

Operating expenses consist of advertising, professional fees, compensation and related benefits, amortization of intangible assets, bad debt expense - related parties, other general and administrative, and impairment loss.

Other (expense) income, net consists of interest expense, gain (loss) on extinguishment of liabilities, and other income.

Results of Operations

Revenues decreased by $15,384,181, or 72.2%, in 2024 compared to 2023, primarily due to the termination of the general support services contract in January 2024 and a 46.9% decrease in financial services revenue.

Cost of revenues decreased by $16,725,838, or 77.3%, in 2024 compared to 2023, primarily due to the termination of the general support services contract and a decrease in amortization of intangible assets related to the financial services business.

Gross profit margin increased from (36.6)% in 2023 to 76.2% in 2024, primarily due to the elimination of amortization expense on intangible assets.

Operating expenses decreased by $1,943,554, or 11.4%, in 2024 compared to 2023, primarily due to a decrease in impairment losses, partially offset by increases in professional fees and bad debt expense.

Other income, net increased by $5,624,697 in 2024 compared to 2023, primarily due to a gain on termination of the general support services agreement with a related party.

The Company’s net loss decreased by $8,909,908, or 51.1%, in 2024 compared to 2023, primarily due to the decrease in operating expenses and the increase in other income.

Liquidity and Capital Resources

The Company believes its existing cash, exclusive of customer custodial cash, and the $10.0 million raised through the December 2024 private placement will be sufficient to meet its short-term and long-term cash requirements and plans. The Company may seek additional equity or debt financing in the future to fund its operations and growth.

Cash Flows

Net cash used in operating activities was $3,818,443 in 2024, primarily reflecting the Company’s net loss adjusted for non-cash items. Net cash provided by investing activities was $132,826 in 2024, primarily from the repayment of a note receivable from a related party. Net cash provided by financing activities was $3,000,403 in 2024, primarily from proceeds from loans, convertible debt, and the issuance of common stock.

Critical Accounting Estimates

The Company’s critical accounting estimates include the valuation of acquired intangible assets, investments, revenue recognition, stock-based compensation, warrants, and income taxes. These estimates involve significant judgment, assumptions, and the use of unobservable inputs, which could materially impact the Company’s financial statements if the estimates or assumptions change.