T3 Defense Inc 10-Q for FY2025 Q2
T3 Defense Inc. (DFNS)
About this 10-Q
T3 Defense Inc filed this 10-Q on August 14, 2025, covering the quarter ended June 30, 2025 (FY2025 Q2).
Headline figures
Quarter ended June 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $3.02M
- compared with a net loss of $1.62M a year earlier
- Diluted EPS
- $0.54
- compared with -$0.90 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
| Class | Outstanding August 13, 2025 | |
| Common Stock, $0.0001 par value per share |
NUKKLEUS INC.
FORM 10-Q
June 30, 2025
TABLE OF CONTENTS
i
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that involve a number of risks and uncertainties which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis or Plan of Operation” and “Description of Business,” as well as other sections in this report. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that may cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock may decline. These factors include, but are not limited to, the following:
| ● | the availability and adequacy of capital to support and grow our business; |
| ● | economic, competitive, business and other conditions in our local and regional markets; |
| ● | actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities; |
| ● | competition in our industry; |
| ● | changes in our business and growth strategy, capital improvements or development plans; |
| ● | the availability of additional capital to support development; and |
| ● | other factors discussed elsewhere in this quarterly report. |
The cautionary statements made in this quarterly report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.
We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.
All references in this Form 10-Q that refer to the “Company”, “Nukkleus”, “we,” “us” or “our” refer to Nukkleus Inc. and its consolidated subsidiaries.
ii
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
(Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Note receivable - related party | ||||||||
| Due from affiliates | ||||||||
| Other current assets | ||||||||
| Current assets from discontinued operations | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Right-of-use asset, operating lease | ||||||||
| Fixed assets, net | ||||||||
| Other assets from discontinued operations | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Operating lease liability, current portion | ||||||||
| Convertible notes payable, net | ||||||||
| Note payable, net | ||||||||
| Due to affiliates | ||||||||
| Loans payable - related parties, current | ||||||||
| Interest payable - related parties, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Stock purchase warrant liabilities | ||||||||
| Derivative liability | ||||||||
| Current liabilities from discontinued operations | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Loan payable - related parties, net of current portion | ||||||||
| Interest payable - related parties, net of current portion | ||||||||
| Non-current liabilities from discontinued operations | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES - (Note 12) | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock ($ | ||||||||
| Common stock ($ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) income | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
1
NUKKLEUS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| REVENUES | ||||||||||||||||
| Revenue - general support services - related party | $ | $ | $ | $ | ||||||||||||
| Revenue - financial services | ||||||||||||||||
| Total revenues | ||||||||||||||||
| COSTS OF REVENUES | ||||||||||||||||
| Cost of revenue - general support services - related party | ||||||||||||||||
| Cost of revenue - financial services | ||||||||||||||||
| Total costs of revenues | ||||||||||||||||
| GROSS PROFIT (LOSS) | ||||||||||||||||
| Gross profit - general support services - related party | ||||||||||||||||
| Gross profit (loss) - financial services | ||||||||||||||||
| Total gross profit (loss) | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Compensation and related benefits | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSE) INCOME: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense - related parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on settlement of vendor obligations | ( | ) | ( | ) | ||||||||||||
| Penalty - late registration | ( | ) | ( | ) | ||||||||||||
| Change in fair value - convertible note embedded derivative | ||||||||||||||||
| Change in fair value - stock purchase warrant liabilities | ||||||||||||||||
| Unrealized gain (loss) | ||||||||||||||||
| Realized gain (loss) | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ||||||||||||
| INCOME TAXES | ||||||||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||||||||||
| NET LOSS FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| COMPREHENSIVE INCOME (LOSS): | ||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| OTHER COMPREHENSIVE (LOSS) INCOME | ||||||||||||||||
| Unrealized foreign currency translation (loss) gain | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| NET INCOME (LOSS) PER COMMON SHARE: | ||||||||||||||||
| Continuing operations, basic | ( | ) | $ | ( | ) | |||||||||||
| Discontinued operations, basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Continuing operations, diluted | ( | ) | $ | ( | ) | |||||||||||
| Discontinued operations, diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
2
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three and Six Months Ended June
30, 2025
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Deficit | |||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Issuance of common stock from exercise of pre-funded warrants | - | $ | $ | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | $ | |||||||||||||||||||||||||||||||||
| Net income for the three months ending March 31, 2025 | - | - | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock in relation to settlement agreement | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in relation to conversion of note | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock from exercise of options | ( | ) | ||||||||||||||||||||||||||||||||||
| Net income for the three months ending June 30, 2025 | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
3
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three and Six Months Ended June 30, 2024
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Other | Total | ||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Deficit | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock as compensation for services | - | |||||||||||||||||||||||||||||||
| Net loss for the three months ending March 31, 2024 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Allocated value of warrants related to issuance of convertible debt | - | - | ||||||||||||||||||||||||||||||
| Allocated value of warrants related to debt issuance | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock to settle debt | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss for the three months ending June 30, 2024 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of June 30, 2024 | - | $ | $ | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
NUKKLEUS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended | ||||||||
| June 30, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | ( | ) | ||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
| Net income (loss) from continuing operations | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount | ||||||||
| Depreciation expense | ||||||||
| Stock-based compensation | ||||||||
| Loss on settlement of vendor obligations | ||||||||
| Change in fair value - convertible note embedded derivative | ( | ) | ||||||
| Change in fair value - stock purchase warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Due from affiliates | ( | ) | ||||||
| Accounts payable | ||||||||
| Due to affiliates | ||||||||
| Interest payable - related parties | ||||||||
| Accrued liabilities and other payables | ||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities from discontinued operations | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of computer equipment | ( | ) | ||||||
| Advance to target of planned acquisition | ( | ) | ||||||
| Net cash (used in) provided by investing activities from continuing operations | ( | ) | ||||||
| Net cash (used in) provided by investing activities from discontinued operations | ||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from loan payable - related parties | ||||||||
| Repayment of note payable | ( | ) | ||||||
| Payments of penalty – late registration | ( | ) | ||||||
| Proceeds from issuance of convertible debt and warrants, net of issuance costs | ||||||||
| Proceeds from issuance of note payable and warrants | ||||||||
Net cash (used in) provided by financing activities from continuing operations | ( | ) | ||||||
| Net cash provided by financing activities from discontinued operations | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE ON CASH FROM CONTINUING OPERATIONS | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE ON CASH FROM DISCONTINUED OPERATIONS | ( | ) | ||||||
| Net change in cash, including cash from discontinued operations | ( | ) | ( | ) | ||||
| Cash, including cash from discontinued operations - beginning of period | ||||||||
| Cash, including cash from discontinued operations - end of period | ||||||||
| Less cash from discontinued operations | ||||||||
| Cash from continuing operations, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Fair value of pre-funded warrants exercised | $ | $ | ||||||
| Fair value of the derivative liability extinguished from conversion of convertible note | $ | $ | ||||||
| Fair value of common stock issued in connection with settlement agreement | $ | $ | ||||||
| Fair value of common stock issued in connection with conversion of convertible note | $ | $ | ||||||
| Issuance of common stock to settle accrued expenses and other current liabilities | $ | $ | ||||||
| Fair value of warrants issued | $ | $ | ||||||
| Settlement of accrued expenses and other current liabilities through issuance of common stock | $ | $ | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
NUKKLEUS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nukkleus Inc. and its wholly owned subsidiaries, were financial technology companies that were previously 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, Nukkleus Inc and its wholly owned
subsidiaries ceased its general support service operations, terminating the existing customer and supplier contracts with a related party,
and shifted its focus to the payment services operations. In November 2024, Nukkleus Inc. entered into a Settlement Agreement and Release
(the “Settlement Agreement”) with a shareholder and one of our subsidiaries to sell the subsidiary that operates the payment
services operations to the shareholder in consideration of GBP
In December 2024, Nukkleus Inc entered into a
Securities Purchase Agreement and Call Option (the “Star Agreement”) with Star 26 Capital Inc. (“Star”), the shareholders
of Star (“Star Equity Holders”) and an officer of Nukkleus, acting in his capacity as the representative of the Star Equity
Holders, to acquire a controlling
On February 14, 2025, the Board of Directors of Nukkleus Inc. and its wholly owned subsidiaries approved a change in the Company’s fiscal year end from September 30 to December 31, effective for the fiscal year beginning January 1, 2024. This change results in a transition period from October 1, 2024, to December 31, 2024.
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. Further, the Company intends to align its fiscal year with Star.
Basis of Presentation and Principles of Consolidation: On December 22, 2023 (the “Closing Date”), Brilliant Acquisition Corp (“Brilliant”) entered into a business combination agreement (the “Business Combination”) with each of the shareholders of Nukkleus Inc. (“Old Nukk”). Pursuant to the Business Combination, Brilliant acquired all of the issued and outstanding shares of common stock from the Old Nukk shareholders.
On the Closing Date, and in connection with the closing of the Business Combination, Brilliant changed its name to Nukkleus Inc (the “Company”) and the Company’s common stock began trading on the NASDAQ under the ticker symbol NUKK. Old Nukk was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The determination was primarily based on Old Nukk’s shareholders prior to the Business Combination having a majority of the voting interests in the combined company, Old Nukk’s ability to exert control over the majority of the board of directors of the combined company, and given the board of directors election and retention provisions, Old Nukk’s ability to maintain control of the board of directors on a go-forward basis, Old Nukk’s senior management comprising the senior management of the combined company; and old Nukk’s operations prior to the Business Combination comprise the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Old Nukk issuing stock for the net assets of Brilliant, accompanied by a recapitalization. The net assets of Brilliant were stated at historical cost, with no goodwill or other intangible assets recorded.
While Brilliant was the legal acquirer in the Business Combination, because Old Nukk was deemed the accounting acquirer, the historical financial statements of Old Nukk became the historical financial statements of the combined company, upon consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Old Nukk prior to the Business Combination; (ii) the combined results of Brilliant and Old Nukk following the closing of the Business Combination; (iii) the assets and liabilities of Old Nukk at their historical cost; and (iv) the Company’s equity structure for all periods presented.
6
Effective October 24, 2024, the Company amended
its amended and restated certificate of incorporation to implement a one-for-eight reverse stock split of its common stock (the “2024
Reverse Stock Split”) and increased the number of authorized shares of the Company’s common stock from
In accordance with guidance applicable to these
circumstances, the equity structure has been restated in all comparative periods to give effect to the number of shares of the Company’s
common stock, $
The accompanying consolidated financial statements include the accounts of Nukkleus Inc, and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation. The consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Any reference in these footnotes to the applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Due to the Company’s inability to access complete financial data from a subsidiary classified as discontinued operations, estimates were used to present this entity’s financial results for the three months ended June 30, 2025 (see Note 4).
The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal
course of business. As of June 30, 2025, the Company had cash of approximately $
If additional equity or debt financing is required from outside sources, the Company may not be able to raise it on terms acceptable to it or at all. If the Company is unable to raise additional capital on acceptable terms when needed, its results of operations and financial condition would be materially and adversely affected. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact the Company business.
As a result of the above, in connection with the Company’s assessment of going concern considerations in accordance with Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Company’s liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern through twelve months from the date these financial statements are available to be issued. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
7
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Emerging growth company: The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups (“JOBS”) Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as to those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Use of estimates: The preparation of the financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. The Company’s most significant estimates and judgments involve valuation of share-based compensation, valuation of equity-classified stock purchase warrants, valuation of liability-classified stock purchase warrants, valuation of derivative liability, classification of gains and losses on settlement of related party liabilities, the useful lives of long-lived assets, assumptions used in assessing impairment of long-lived assets, valuation of deferred tax assets and the associated valuation allowances, and estimates of financial results for a subsidiary classified as discontinued operations. For the three months ended June 30, 2025, the Company used estimates to report the financial results of this subsidiary.
Segment reporting: ASC 280, Segment
Reporting (“ASC 280”), defines operating segments as components of an enterprise where discrete financial information
is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources
and in assessing performance.
Cash and cash equivalents: The Company considers all highly liquid instruments with a maturity date of three months or less at the time of purchase and money market accounts to be cash equivalents. The Company had cash equivalents at June 30, 2025 and December 31, 2024.
The Company’s cash and cash equivalents
are potentially subject to concentration of credit risk. Cash and cash equivalents are primarily placed with financial institutions which
are of high credit quality. The Company invests cash and cash equivalents primarily in highly liquid, highly rated instruments which are
uninsured. The Company may also have corporate deposit balances with financial institutions which exceed the Federal Deposit Insurance
Corporation insurance limit of $
8
Fair value measurements: ASC 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows
| ● | Level 1 – Inputs based on unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| ● | Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable or can be corroborated by observable market data. |
| ● | Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement. |
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value are based on one or more of the following techniques noted in ASC 820:
| ● | Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
| ● | Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost). |
| ● | Income approach: Techniques to convert future amounts to a single present value amount based upon market expectations (including present value techniques, option pricing, and excess earnings models). |
The Company believes its valuation methods are appropriate and consistent with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The Company’s financial instruments with a carrying value that approximates fair value consist of cash, advances, other current assets, accounts payable, due to affiliates, accrued expenses and other current liabilities, interest payable – related parties, and short-term borrowings due to their liquid or short-term nature or expected settlement dates of these instruments. If these financial instruments were recorded at fair value, they would be based on Level 1 inputs, except for short-term borrowings which would be based on Level 2 and Level 3 inputs, respectively.
The Company’s non-financial assets, such as intangible assets, and financial assets are adjusted to fair value when an impairment charge is recognized. The impairment charge recognized on non-financial assets that consist of acquired intangible assets is based on Level 3 inputs, including a comparison of the Company’s results with expectations and expectation for future profits. The impairment charge recognized for financial assets that consist of investment in privately held equity securities is based on Level 3 inputs, including the global economic environment, adjustments for investment-specific developments and the rights and obligations of the securities the Company holds.
The Company’s financial instruments that are measured at fair value on a recurring basis consist of liability-classified stock purchase warrants and liability-classified derivative financial instruments (see Note 10).
9
Related parties: The Company considers parties to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation. The Company reviews the relationships of its vendors, customers, shareholders, and board members to determine whether there are any parties meet the criteria to be considered related. Any party that is deemed to be related to the Company is referred to as an “affiliate” or “related party” in these consolidated financial statements.
Due from affiliates and notes receivable – related parties, net: Due from affiliates and notes receivable – related parties, net are contractual rights to receive cash on demand or on fixed or determinable dates and are recognized as an asset on the consolidated balance sheets. Due from affiliates consist of amounts owed from affiliates of the Company for either services provided to the affiliate or expenses paid by the Company on behalf of the affiliate (see Note 11). Notes receivable – related parties, net consist of advances made to affiliates in exchange for a promissory note from the affiliate (see Note 11).
Other current assets: Other current assets primarily consist of escrow cash and prepaid miscellaneous items. The Company expects all current assets to be collected and/or realized within the next 12 months.
Leases: The Company determines if an arrangement is a lease at inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities, net of current portion in the accompanying consolidated balance sheets.
ROU assets represent the Company’s right to use underlying assets for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the contracts. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.
The Company’s vehicle leases may include transfer rights or options to purchase at the end of the lease that the Company is reasonably certain to exercise. Interest expense is recognized using the effective interest rate method, and the ROU asset is amortized over the useful life of the underlying asset.
Impairment of long-lived assets: In accordance with ASC 360, Impairment or Disposal of Long-Lived Assets (“ASC 360”), the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets.
Note payable, loans payable – related parties, convertible notes payable: Debt issuance costs, including original issue discounts, will be recorded to debt discount, reducing the face amount of the note. Debt issuance costs will be amortized to interest expense over the contractual term of the respective debt obligation using the effective interest method. If a conversion of the underlying debt occurs, a proportionate share of the unamortized discount is immediately expensed.
10
The Company evaluates convertible notes payable in accordance with ASC 470, “Debt with Conversion and Other Options” (“ASC 470”) to determine if embedded conversion features present in the convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Debt issuance costs are allocated proportionately to the debt host and conversion feature.
Derivative financial instruments: The Company accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). The Company’s objectives and strategies for using derivative instruments, and how the derivative instruments and related hedged items are accounted for affect the consolidated financial statements. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.
The Company evaluates all of its financial instruments, including notes payable and warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company applies significant judgment to identify and evaluate complex terms and conditions in its contracts and agreements to determine whether embedded derivatives exist. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated embedded derivatives are classified with the related host contract on the Company’s balance sheet.
An evaluation of specifically identified conditions is made to determine whether the fair value of the derivative issued is required to be classified as equity or as a derivative liability. Changes in the estimated fair value of the liability-classified derivative financial instruments are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss.
Stock purchase warrants: The Company accounts for stock purchase warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing liabilities from equity (“ASC 480”), and ASC 815. The assessment considers whether the stock purchase warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the stock purchase warrants meet all of the requirements for equity classification under ASC 815, including whether the stock purchase warrants are indexed to the Company’s own common shares and whether the holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance, modification, and as of each subsequent quarterly period end date while the stock purchase warrants are outstanding.
For issued or modified stock purchase warrants that meet all of the criteria for equity classification, the stock purchase warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.
For issued or modified stock purchase warrants that do not meet all the criteria for equity classification, the stock purchase warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the liability classified stock purchase warrants are recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss.
The Company assesses the classification of its common stock purchase warrants at each reporting date to determine whether a change in classification between equity and liability is required. For modified stock purchase warrants that result in a change of classification from equity to liability, a liability is recognized equal to the fair value on the date of modification, additional paid-in capital is adjusted by the fair value of the warrant on the date of issuance, and the difference is recognized as a non-cash gain or loss on the accompanying consolidated statements of operations and comprehensive loss.
11
Assets held for sale: Assets held for sale represent property, equipment, and leasehold improvements less accumulated depreciation as well as any other assets that are held for sale in conjunction with the sale of a business. The Company records assets held for sale in accordance with ASC 360 at the lower of carrying value or fair value less costs to sell. Fair value is the amount obtainable from the sale of the asset in an arm’s length transaction. The reclassification takes place when the assets are available for immediate sale and the sale is highly probable. These conditions are usually met from the date on which a letter of intent or agreement to sell is ready for signing.
Discontinued operations: A component of an entity is identified as operations and cash flows that can be clearly distinguished, operationally and financially, from the rest of the entity. Under ASC 205-20, “Presentation of Financial Statements - Discontinued Operations” (“ASC 205-20”), a discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale and represents a strategic shift that has or will have a major effect on the entity’s operations and financial results, or a newly acquired business or nonprofit activity that upon acquisition is classified as held for sale. Discontinued operations are presented separately from continuing operations in the consolidated statements of Operations and the consolidated statements of cash flows (see Note 4). For long-lived assets or disposals groups that are classified as held for sale but do not meet the criteria for discontinued operations, the assets and liabilities are presented separately on the balance sheet of the initial period in which it is classified as held for sale.
Advertising: Costs related to advertising are expensed as incurred.
Stock-based compensation: The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based awards, including stock options and stock grants, based on estimated grant-date fair values. The Company measures employee, director and nonemployee awards at the date of grant, which generally is the date at which the Company and the nonemployee reach a mutual understanding of the key terms and conditions of a share-based payment award.
The Company estimates the grant date fair value of each stock option award using the Black-Scholes option-pricing model. The model requires management to make a number of assumptions, including the fair value and expected volatility of the Company’s underlying common stock price on the date of grant, expected live of the option, risk-free interest rate and expected dividend yield. The Company sets the grant date fair value of each stock grant equal to the fair value of the Company’s common stock on the date of grant.
The Company uses the straight-line attribution method to allocate compensation cost to reporting periods over the requisite service period during which the employee, board member, director, or advisor is required to provide services in exchange for the award. The Company has elected to account for forfeitures of awards as they occur, with previously recognized compensation reversed in the period that the awards are forfeited.
Income taxes: The Company accounts for income taxes using the asset and liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when management estimates that it is more likely than not that deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future pre-tax earnings, the reversal of temporary differences between book and tax income, and the expected rates in future periods.
The Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are more likely than not of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount that is initially recognized. The Company recognizes interest and penalties related to income tax matters in general and administrative expense.
For U.S. federal tax purposes, digital asset transactions are treated on the same tax principles as property transactions. The Company recognizes a gain or loss when digital assets are exchanged for other property, in the amount of the difference between the fair market value of the property received and the tax basis of the exchanged digital assets. Receipts of digital assets in exchange for goods or services are included in taxable income at the fair market value on the date of receipt.
12
Foreign currency translation: The Company’s consolidated financial statements are presented in the reporting currency of the U.S. dollar. Functional currencies of the Company and its wholly-owned subsidiaries is the local currency used in each entities primary economic environment, some of which are different than the reporting currency. Assets and liabilities of the Company are translated into the reporting currency using the exchange rate in effect at the balance sheet dates. Equity transactions are translated using the historical exchange rate in effect on the date of the transaction, except for the change in accumulated deficit during the year, which is the results of the operations translation process. Results of operations and cash flows are translated using the weighted average exchange rates in effect during the period. As a result, amounts relating to the assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the accompanying consolidated balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into the reporting currency are recorded as a component of comprehensive income (loss). The realized foreign currency exchange gain (loss) and the unrealized foreign currency exchange gain (loss) for the three and six months ended June 30, 2025 and 2024 is included as a component of net loss from discontinued operations on the accompanying consolidated statements of operations and comprehensive loss.
Remeasurement gains and losses from transactions that are not denominated in the functional currency are recorded as a component of other income in the consolidated statements of operations and comprehensive loss. Most of the Company’s revenue transactions are transacted in the functional currency of the Company. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Comprehensive loss: Comprehensive loss is comprised of net loss and all changes to the statements of equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and six months ended June 30, 2025 and 2024 consisted of net loss and unrealized loss from foreign currency translation adjustment.
Net loss per share: Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period, excluding the effects of any potential dilutive securities. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common share equivalents had been issued and if the additional common shares were dilutive. Earnings per share excludes all potential dilutive shares of common shares if their effect is anti-dilutive
For the three and six months ended June 30, 2025 and 2024, potentially dilutive common shares consist of the common shares issuable upon the exercise of common stock options and warrants (using the treasury stock method) and the conversion of convertible notes payable. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact.
The following table summarizes the potentially dilutive securities excluded from the computation of diluted shares outstanding because the effect of including these potential shares was anti-dilutive:
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Options to purchase common stock | ||||||||
| Convertible notes payable that convert into common stock | ||||||||
| Stock purchase warrants to acquire common stock | ||||||||
| Total potentially dilutive securities | ||||||||
Recently issued accounting pronouncements, adopted
ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures (“ASU 2023-07”), requires enhanced disclosures related to significant segment expenses and a description of how the chief operating decision maker utilizes segment operating profit or loss to assess segment performance. ASC 2023-07 is effective for fiscal years beginning after December 15, 2023 and for interim reporting periods starting after December 15, 2024, and is to be applied retrospectively. The Company adopted ASU 2023-07 for the six months ended June 30, 2025 and its adoption did not have a material impact on the consolidated financial statements.
13
Recently issued accounting pronouncements, not yet adopted
ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”) incorporates several disclosure and presentation requirements currently residing in SEC Regulation S-X and S-K into the ASC. The amendments are applied prospectively and are effective when the SEC removes the related requirements from Regulation S-X and S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. Early adoption is prohibited. The Company is currently evaluating the potential impact of this guidance on its disclosures.
ASU 2023-09, Income Taxes (“ASU 2023-09”), requires disclosure of specific categories and disaggregation of information in the rate reconciliation table and expands disclosures related to income taxes paid. The new standard is effective for fiscal years beginning after December 15, 2024 and is to be applied prospectively. The Company is currently evaluating the impact, if any, adoption will have on its consolidated financial statements and disclosures.
ASU 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements (“ASU 2024-02”) updates accounting standards for revenue recognition (ASC 606), lease accounting (ASC 842), and impairment of long-lived assets (ASC 360). ASU 2024-02 provides enhanced guidance for estimating variable consideration, accounting for contract modifications, determining lease terms, and simplifying impairment testing for long-lived assets. It also introduces increased disclosure requirements for financial instruments and derivatives. ASU 2024-02 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its consolidated financial statements and disclosures.
ASU 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”), requires public companies to disaggregate key expense categories, such as inventory purchases, employee compensation and depreciation in their financial statements. This aims to improve investor insight into company performance. ASU 2024-03 is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact, if any, adoption will have on its consolidated financial statements and disclosures.
NOTE 4 – DISCONTINUED OPERATIONS
In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major impact on an entity’s operations and financial results when the components of an entity meets the criteria in ASC paragraph 205-20-45-10. In the period in which the component meets the held for sale or discontinued operations criteria the major assets, other assets, current liabilities and non-current liabilities shall be reported as a component of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the income (loss) of continuing operations.
Disposition of a Subsidiary: On
November 8, 2024, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with a shareholder
of the Company and a subsidiary of the Company to sell the subsidiary to the shareholder or his nominee subject to the Company obtaining
shareholder approval. As required by the Settlement Agreement, a Share Purchase Agreement was entered into between the same parties dated
December 23, 2024 providing that the Company, subject to it obtaining shareholder approval, will sell the subsidiary to the officer of
the Company in consideration of GBP
The subsidiary comprises our financial services operating segment. As a result of the planned disposition of the subsidiary, the financial services operating segment meets the held for sale criteria of ASC 205-20. Accordingly, the historical results of operations of the financial services operating segment has been reflected as discontinued operations in our consolidated financial statement for all periods prior to the Settlement Agreement on November 8, 2024.
During the preparation of the consolidated financial statements for the quarter ended June 30, 2025, management was unable to obtain complete financial data from the subsidiary due to the subsidiary’s personnel being uncooperative, not providing the information needed and loss of direct access to the subsidiary’s systems. As a result, the financial results of the discontinued operations for the three months ended June 30, 2025 are based on reasonable estimates derived from historical operating trends and partial information available to the Company. Management believes the estimates used are reasonable under the circumstances.
14
Summary Reconciliation of Discontinued Operations
The following tables present the balance sheets and the results of operations of the Company classified as discontinued operations for the periods presented:
NUKKLEUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Customer custodial funds | ||||||||
| Customer digital currency assets | ||||||||
| Digital assets | ||||||||
| Due from affiliates | ||||||||
| Other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Intangible assets, net | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer custodial cash liabilities | ||||||||
| Customer digital currency liabilities | ||||||||
| Due to affiliates | ||||||||
| Loans payable - related parties, current | ||||||||
| Interest payable - related parties, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Loan payable - related parties, net of current portion | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
15
NUKKLEUS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| REVENUES | ||||||||||||||||
| Revenue - financial services | | |||||||||||||||
| Total revenues | ||||||||||||||||
| COSTS OF REVENUES | ||||||||||||||||
| Cost of revenue - financial services | ||||||||||||||||
| Total costs of revenues | ||||||||||||||||
| GROSS PROFIT (LOSS) | ||||||||||||||||
| Gross profit (loss) - financial services | ||||||||||||||||
| Total gross profit (loss) | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Advertising | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Compensation and related benefits | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Other general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSE) INCOME: | ||||||||||||||||
| Interest expense - related parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME TAXES | ||||||||||||||||
| NET LOSS FROM DISCONTINUED OPERATIONS | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
16
NOTE 5 – LOANS PAYABLE – RELATED PARTIES
The Company’s loans payable – related parties consisted of the following:
During the twelve months ended September 30, 2024,
the Company issued promissory notes in the aggregate principal of $
| October 2023 | $ | |||
| December 2023 | ||||
| January 2024 | ||||
| February 2024 | ||||
| March 2024 | ||||
| April 2024 | ||||
| May 2024 | ||||
| June 2024 | ||||
| July 2024 | ||||
| August 2024 | ||||
| September 2024 | ||||
| Total Shareholder 2024 Loans | $ |
The 2024 Shareholder Loans bear interest of
In July 2024, a shareholder of the Company made
payments on the Company’s behalf to settle an obligation with an affiliate in which the shareholder has a controlling interest.
The shareholder entered into an assignment of debt agreement with the affiliate whereby the affiliate assigned its right, title obligation
and interest in the obligation by the Company to the shareholder (the “July 2024 Loan”). The July 2024 Loan is noninterest
bearing and was due and payable at issuance. In December 2024, the Company repaid approximately $
Consisting of the above-mentioned loans, the Company’s loans payable – related parties is summarized as follows:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Shareholder 2024 Loans | $ | $ | ||||||
| July 2024 Loan | ||||||||
| Less: repayments to date | ( |
) | ( |
) | ||||
| Loans payable – related parties, current and noncurrent | $ | $ | ||||||
In June 2024, as part of the terms of a note payable
entered into,
For the three and six months ended June 30, 2025,
the interest expense related to above loans payable – related parties amounted to $
For the three and six months ended June 30, 2024,
the interest expense related to above loans payable – related parties amounted to $
As of June 30, 2025 and December 31, 2024, the
related accrued and unpaid interest for above loans was $
The loans payable – related parties mature as follows:
| For the Period Ending: | ||||
| June 30, 2025 | $ | |||
| June 30, 2026 | ||||
| $ | ||||
17
NOTE 6 – NOTE PAYABLE, NET
In April 2024, the Company issued a promissory
note in the principal amount of $
Amortization of the debt discount and interest
expense related to the April 2024 Loan amounted to $
The balance of the April 2024 Loan, net of unamortized
discount, was and $
NOTE 7 – CONVERTIBLE NOTES PAYABLE, NET
The Company’s convertible notes payable consisted of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| August 2024 Note | $ | $ | ||||||
| December 2024 Note | ||||||||
| Less: debt issuance costs | ( | ) | ||||||
| Convertible notes payable, net | $ | $ | ||||||
August 2024 Note: In August 2024, the Company
issued a senior unsecured promissory note (the “August 2024 Note”) in the principal amount of $
The August 2024 Warrant was determined to be an
equity classified warrant and fair value was calculated as $
In June 2025, the lender sold August 2024 Note and the August 2024 Warrant to an unaffiliated third party.
18
December 2024 Note: On December 3, 2024,
the Company issued a convertible promissory note (the “December 2024 Note”) in the principal amount of $
Conversion rights – The
December 2024 Note and accrued and unpaid interest is convertible at the option of the lender (the “Conversion Option”) into
shares of the Company’s common stock at a per share conversion price of the lower of (i) $
Interest – The December
2024 Note bears interest of
Optional redemption –
The December 2024 Note is redeemable by the Company in the event that the VWAP of the Company’s common stock was less than the Fixed
Price on the date the Company provides the redemption notice to the lender. The redemption price will be equal to the outstanding principal
amount of the December 2024 Note plus the
Event of Default – If any event of default as defined in the December 2024 Note occurs, the full unpaid principal amount of the December 2024 Note, accrued and unpaid interest, and other amounts owed become at the lender’s election immediately due and payable in cash. The lender has the right, but not the obligation, to convert all or part of the December 2024 Note in accordance with the terms of the December 2024 Note.
Exchange Cap – The lender
shall not have the right to convert any portion of the December 2024 Note to the extent that after giving effect to such conversion, the
lender, along with its affiliates, would beneficially own in excess of
Amortization Event – In
no event shall the lender be allowed to effect a conversion if such conversion, along with all other shares of common stock then beneficially
owned by the lender and its affiliates would exceed
Embedded Derivatives –
The optional redemption and event of default include an exercise contingency, which requires the Company to obtain shareholder approved
for conversions subject to the Exchange Cap, which fails the equity classification guidance in ASC 815 and is thus precluded from being
classified in equity. Therefore, the embedded derivatives are required to be bifurcated from the December 2024 Note and accounted for
at fair value at each reporting date. A fair value of $
During the three months ended June 30, 2025, the
lender exercised conversion of the December 2024 Note and
For the three and six months ended June 30, 2025,
amortization of debt discount and interest expense related to convertible promissory notes amounted to $
19
NOTE 8 – STOCKHOLDERS’ DEFICIT
As a result of the 2024 Reverse Stock Split, each
eight pre-split shares of common stock outstanding automatically combined and converted to one issued and outstanding share of common
stock without any action on the part of stockholders. No fractional shares of common stock were issued to any stockholders in connection
with the 2024 Reverse Stock Split. Each stockholder was entitled to receive one share of common stock in lieu of the fractional share
that would have resulted from the 2024 Reverse Stock Split. The number of the Company’s authorized common stock remain unchanged,
and the par value of the common stock following the 2024 Reverse Stock Split remained at $
Preferred Stock: The Company is authorized
to issue
Common stock: The Company is authorized
to issue
| Convertible notes payable | ||||
| Stock options issued and outstanding | ||||
| Stock purchase warrants | ||||
Dividend rights: the holders of common stock are entitled to receive dividends and other distributions, as and if declared by the Board out of assets or funds of the Company legally available and shall share equally on a per share basis.
Voting rights: the common stock possesses
all voting power of the Company. Each share of common stock is entitled to
Liquidation: In the event of any liquidation, dissolution or winding up of the Company, after payment or provision of payment of the debts and other liabilities of the Company, the holders of common stock are entitled to receive the remaining assets of the Company available for distribution ratably in proportion to the number of shares of common stock held by them.
Common Stock Issuances:
On December 18, 2024, the Company entered into
a securities purchase agreement for a private placement (the “Private Placement”) pursuant to which an investor purchased
from the Company
The Pre-funded Warrant and the Private Placement
Warrant permit the investor to acquire a fixed amount of shares of the Company’s common stock at a per share price of $
20
In February 2025, the
investor sold
In April 2025, the Company
issued
In May 2025, the Company
issued
In May and June 2025,
the Company issued a total of
During the six months
ending June 30, 2024, the Company issued
Warrants:
Public Warrants: On June 26, 2020, Brilliant
completed an initial public offering that included warrants for shares of common stock (the “Public Warrants’). Each Public
Warrant entitles the holder the right to purchase
Private Warrants: Simultaneous with Brilliant’s
initial public offering in June 2020, Brilliant sold warrants to its sponsor and certain of its directors and advisors in a private placement
(the “Private Warrants”). The Private Warrants may not be redeemed by the Company so long as the Private Warrants are held
by the initial purchasers, or such purchasers’ permitted transferees. The Private Warrants have terms and provisions identical to
the Public Warrants, including as to exercise price, exercisability and exercise period, except if the Private Warrants are held by someone
other than the initial purchasers’ permitted transferees, then the Private Warrants are redeemable by the Company and exercisable
by such holders on the same basis as the Public Warrants. On the Closing Date, there were
As a result of the Business Combination which
was completed on December 22, 2023, Public Warrants and Private Warrants totaling
Stock Purchase Warrants: In connection
with certain note payable agreements (see Note 6) certain convertible notes payable (see Note 7), and the Private Placement (see Note
8) the Company issued stock purchase warrants to certain lenders and investors that permit the lender or investor to acquire a fixed amount
of shares of the Company’s common stock at a per share price that ranges between $
Certain warrants were determined to be equity-classified at issuance, and as such, were recorded to additional-paid-in capital at the time of issuance. Certain warrants were determined to be liability-classified at issuance, and as such, were recorded at fair value as a liability on the accompanying consolidated balance sheets and re-measured to fair value each reporting period with the change in fair value recorded as a component of other income (expense) on the accompanying consolidated statements of operations and comprehensive loss. Certain warrants were modified during the three months ended December 31, 2024 at which time the warrant’s classification was re-assessed and the classification changed from equity to liability.
21
The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at June 30, 2025:
| Warrants Outstanding | ||||||||||||||||
| Range of Exercise Price | Number Outstanding at June 30, 2025 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | |||||||||||||
| Public and Private Warrants | $ | $ | ||||||||||||||
| April 2024 Warrants | ||||||||||||||||
| June 2024 Warrants | ||||||||||||||||
| August 2024 Warrants | ||||||||||||||||
| November 2024 Warrant | ||||||||||||||||
| Pre-funded Warrants | ||||||||||||||||
| Private Placement Warrant | ||||||||||||||||
| $ | $ | |||||||||||||||
The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at December 31, 2024:
| Warrants Outstanding | ||||||||||||||||
| Range of Exercise Price | Number Outstanding at December 31, 2024 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | |||||||||||||
| Public and Private Warrants | $ | $ | ||||||||||||||
| April 2024 Warrants | ||||||||||||||||
| June 2024 Warrants | ||||||||||||||||
| August 2024 Warrants | ||||||||||||||||
| November 2024 Warrant | ||||||||||||||||
| Pre-funded Warrants | ||||||||||||||||
| Private Placement Warrant | ||||||||||||||||
| $ | $ | |||||||||||||||
Warrant activities for the six months ended June 30, 2025 were as follows:
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2024 | ||||||||
| Exercised | ( | ) | ||||||
| Outstanding at June 30, 2025 | $ | |||||||
22
NOTE 9 – STOCK-BASED COMPENSATION
Old Nukk Equity Incentive Plan
For periods prior to the reverse recapitalization, the Old Nukk Equity Incentive Plan (the “Old Nukk Plan”) permitted the granting of various awards including stock options (including both nonqualified options and incentive options), stock appreciate rights (“SARs”), stock awards, phantom stock units, performance awards and other share-based awards to employees, outside directors and consultants, and advisors to the Company. Only stock options have been awarded to consultants and advisors under the Old Nukk Plan.
Assumed Options converted into an option to purchase a number of shares of the Company’s common stock equal to the product of the number of shares of Old Nukk common stock and the Exchange Ratio at an exercise price per share equal to the exercise price of the Assumed Options divided by the Exchange Ratio. Each Assumed Option is governed by the same terms and conditions applicable to the Assumed Options prior to the Business Combination. No further grants can be made under the Old Nukk Plan.
2024 Equity Incentive Plan
On October 11, 2024, the Company’s shareholders approved a new long-term incentive award plan (the “2024 Plan”). The 2024 Plan is administered by the Board. The selection of participants, allotment of shares, determination of price and other conditions are approved by the Board at its sole discretion to attract and retain personnel instrumental to the success of the Company.
On November 13, 2024, the Company issued
2025 Equity Incentive Plan
In February 2025, the Company established the
Nukkleus Inc 2025 Equity Incentive Plan (the “2025 Plan”) to attract, retain and motivate employees, officers, directors,
consultants, agents, advisors and independent contractors of the Company by providing them the opportunity to acquire a proprietary interest
in the Company and to align their interest and efforts to the long-term interest of the Company’s stockholders. The 2025 Plan will
be administered by the Board of Directors and has
Stock options generally vest over one to three
years, with a maximum term of ten years from the date of grant. These awards become available to the recipient upon the satisfaction a
vesting condition based on a period of service.
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2024 | $ | |||||||
| Exercised | ( | ) | ||||||
| Outstanding at June 30, 2025 | ||||||||
| Options exercisable at June 30, 2025 | $ | |||||||
| Options expected to vest | $ | |||||||
Share-based compensation expense for three and
six months ended June 30, 2025 was $
23
NOTE 10 – FAIR VALUE MEASUREMENT
Customer digital currency assets and liabilities represent the Company’s obligation to safeguard customer digital currencies. Accordingly, the Company has valued the assets and liabilities using quoted market prices for the underlying digital currencies which is based on Level 2 inputs.
The Black-Scholes option pricing model is used to estimate fair value of liability-classified stock purchase warrants issued in connection with convertible notes (see Note 7) and the liability-classified pre-funded stock purchase warrants issued in connection with the December 2024 Private Placement (see Note 8). A Monte Carlo simulation model is used to estimate the fair value of liability-classified stock purchase warrants issued in connection with the December 2024 Private Placement (see Note 8). Both models utilize the following assumptions:
| ● | Risk-free interest rates are derived from the yield on U.S. Treasury debt securities in effect on the date of measurement. |
| ● | Dividend yields are based on our historical dividend payments, which have been zero to date. |
| ● | Volatility is estimated from historical volatility of a peer group over a similar period. |
| ● | The expected term is based on the time to expiration of the warrants from the date of measurement. |
The Monte Carlo simulation model also incorporates management’s judgments for the occurrence or non-occurrence of certain events as well as the probability of certain scenarios impactful to the valuation of the liability-classified stock purchase warrants issued in connection with the December 2024 Private Placement.
The assumptions used for the Black-Scholes option pricing model for liability-classified stock purchase warrants are as follows:
| June 2024 Warrants | June 30, 2025 | November 2024 Modification | ||||||
| Expected term (years) | | | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| November 2024 Warrants | June 30, 2025 | November 2024 Issuance | ||||||
| Expected term (years) | | | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Pre-funded Warrants | June 30, 2025 | December 2024 Issuance | ||||||
| Expected term (years) | | | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
24
The assumptions used for the Monte Carlo simulation model for liability-classified stock purchase warrants are as follows:
| December 2024 Warrants | June 30, 2025 | December 2024 Issuance | ||||||
| Expected term (years) | | | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Probability of a fundamental event | % | % | ||||||
The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities measured and recorded at fair value on a recurring basis as of June 30, 2025:
| Quoted Price in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | Balance at June 30, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2025 | |||||||||||||
| Liabilities | ||||||||||||||||
| June 2024 Warrant | ||||||||||||||||
| November 2024 Warrant | ||||||||||||||||
| Pre-funded warrant liabilities | ||||||||||||||||
| Private Placement Warrants | ||||||||||||||||
| Embedded derivative liability | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2025.
The following table provides a reconciliation of the warrants measured at fair value using Level 3 inputs:
| Embedded Derivative Liability | June 2024 Warrant | November 2024 Warrant | Pre-funded Warrant | Common Stock Warrant | ||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
| Subtractions | ( | ) | ( | ) | ||||||||||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Ending balance, June 30, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
NOTE 11 – RELATED PARTY TRANSACTIONS
Note receivable – related
party: In December 2024, the Company advanced $
Due from affiliates: Amounts due from affiliates
totaled $
Due to affiliates: Amounts owed to affiliates
totaled $
Loans payable – related parties: The Company has entered into several promissory notes, and made repayments thereon, with shareholders and affiliates (see Note 5).
25
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Indemnifications: The Company has indemnity agreements with certain officers and directors of the Company pursuant to which the Company must indemnify the officer or director against all expenses, judgments, fines, and amounts paid in settlement reasonably incurred in connection with a third party proceeding, if the indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and in the case of a criminal proceeding, had no reasonable cause to believe the indemnitee’s conduct was unlawful. It is not possible to determine the maximum potential exposure under these indemnification agreements: (i) because the facts and circumstances involved in each claim are unique and the Company cannot predict the number or nature of claims that may be made; (ii) due to the unique facts and circumstances involved in each particular agreement; and (iii) due to the requirement for a registration of the Company’s securities before any of the indemnification obligations contemplated in the IRA become effective.
Legal and regulatory proceedings: The Company is subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of its business. The Company is also subject to regulatory oversight by numerous regulatory and other governmental agencies. The Company reviews its lawsuits, regulatory investigations, and other legal proceedings on an ongoing basis and provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. In accordance with such guidance, the Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the consolidated financial statements.
White lion stock purchase agreement:
On May 17, 2022, the Company entered into a Stock Purchase Agreement (the “White Lion Agreement”) with White Lion Capital Partners,
LLC a California-based investment fund (“White Lion”). Under the terms of the White Lion Agreement, the Company had the right, but
not the obligation, to require White Lion to purchase shares of its common stock up to a maximum amount of $
Private Placement: On December 18, 2024,
the Company entered into a securities purchase agreement for a private placement offering (the “Private Placement”) pursuant
to which an investor purchased from the Company
Securities Purchase Agreement: On
December 15, 2024, the Company entered into a Securities Purchase Agreement and Call Option, as amended by Amendment No. 1 dated
February 11, 2025, Amendment No. 2 dated May 13, 2025, and Amendment No. 3 dated June 15, 2025 (the “Star Agreement”) with Star 26
Capital Inc. (“Star”), the shareholders of Star (“Star Equity Holders”) and an officer of the Company acting in his capacity as the
representative of the Star Equity Holders, to acquire a controlling
| ● | A minimum amount of $ |
| ● | a promissory note in the principal amount of $ |
| ● |
| ● |
The Star Equity Holders granted the Company an
option (the “Option”) to purchase the balance of their equity in Star (
| ● | $ |
| ● | a promissory note in the principal amount of $ |
26
| ● |
| ● |
If, for a period of 12 months after the closing of the Star Agreement, the Company’s shares of common stock are delisted from Nasdaq, Star shall have the right, at its own discretion, to require the Company to exchange the Investment Note for all the shares of Star then held by the Company, provided, however, the Option shall be automatically cancelled and Star shall retain any cash payments made by the Company to Star and the Company shall retain an equity interest in Star equivalent to all cash payments. The closing of the Transaction is subject to customary closing conditions, including regulatory approvals, third-party consents, fairness opinion, and approval by the Company’s shareholders as required under applicable Nasdaq listing rules.
If the Star Agreement is canceled because stockholder
approval was not obtained within 90-days after the date of the Star Agreement and the failure was a result of the Company failing to perform
or observe the covenants or agreements of the Company provided for in the terms of the Star Agreement, the Seller is entitled to damages
of $
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.
NOTE 13 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
In August 2025, the Company determined that it no longer had a controlling financial interest in Digital RFQ due to loss of access to financial records. Accordingly, the Company expects to deconsolidate Digital RFQ during the third quarter of fiscal year 2025. The results of discontinued operations for the three months ended June 30, 2025 remain included in these financial statements on an estimated basis (see Note 4).
On August 5, 2025, the Company was notified that
on July 29, 2025, Match Financial Limited, a wholly-owned subsidiary of the Company, was placed into administration in the United Kingdom
pursuant to the Insolvency Act 1986 resulting in the appointment of two administrators (the “Administrators”) and the Administrators
completed a pre-packaged sale of Match Financial’s entire shareholding in DRFQ to Match Financial Holdings Limited, a newly formed entity
owned by Mr. Khurshid, for nominal consideration of £
On July 25, 2025, the Company entered into Amendment No. 4 to the Star Agreement. Pursuant to the terms of Amendment No. 4, Menachem Shalom, the holder of all Class B common stock of Star, agreed that all said shares shall be converted to Class A common stock of Star. The objective of such cancellation and conversion is to eliminate the disparity between the voting rights and the economic rights of the common stock of Star.
On July 30, 2025 the Company entered into a warrant
agreement with Synthetic Darwin LLC (“Darwin”), enabling the Company to acquire up to
Between July 2, 2025 and August 11, 2025, a total
of
On August 11, 2025, the Company entered into a
settlement agreement with the current holder (the “Holder”) of the August 2024 Note and August 2024 Warrant. Pursuant to the
terms of the settlement agreement, the Holder agreed to waive all events of default in relation to the August 2024 Note. Additionally,
the Holder agreed to convert the August 2024 Note into
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q includes forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are statements in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the transition period from September 30, 2024 to December 31, 2024, as filed with the Securities and Exchange Commission (the “SEC”) on May 8, 2025, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| ● | the availability and adequacy of capital to support and grow our business; | |
| ● | economic, competitive, business and other conditions in our local and regional markets; | |
| ● | actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities; | |
| ● | competition in our industry; | |
| ● | the availability of additional capital to support development; | |
| ● | the retention and availability of key personnel; | |
| ● | our ability to successfully implement our business plan; and | |
| ● | other factors discussed elsewhere in this quarterly report. |
We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report, except as required by law.
As used in this Quarterly Report and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our,” refer to Nukkleus Inc. and its consolidated subsidiaries.
The following discussion and analysis summarizes the significant factors affecting our financial condition, operating results, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
28
Overview
We are a financial technology company that 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 December 2024, we entered into a Securities Purchase Agreement and Call Option (the “Star Agreement”) with Star 26 Capital Inc. (“Star”), the shareholders of Star (“Star Equity Holders”) and an officer of Nukkleus, acting in his capacity as the representative of the Star Equity Holders, to acquire a controlling 51% interest in Star, an Israeli corporation engaged as a supplier of generators for “iron dome” launchers and other defense products. On February 11, 2025, the Company, Star and the Star Equity Holders, entered into an Amendment No. 1 to the Star Agreement (the “Amendment”) providing that the consideration to be invested by the Company into Star shall be increased. Mr. Shalom, who is the Chief Executive Officer and a director of the Company, is a controlling shareholder, Chief Executive Officer and a director of Star. Pursuant to the Star Agreement, the Company at closing will acquire 51% of the issued and outstanding capital of Star in consideration of (i) $15,000,000 in a combination of cash in the minimum amount of $5,000,000 and a promissory note for the remaining balance maturing in 12 months following the closing (the “Investment Note”), (ii) the Company issuing the Seller 2,385,170 shares of common stock of the Company and (iii) the Company issuing Star a five-year warrant to purchase an aggregate of 6,907,859 shares of the Company’s common stock for an exercise price of $1.50 per share. The Star Equity Holders granted the Company an option (the “Option”) to purchase the balance of their equity in Star (49%) for an aggregate of $16,084,250 (the “Option Exercise Price”) in consideration for the issuance to the Star Equity Holders five-year warrants to purchase an aggregate of 720,000 shares of the Company’s common stock for an exercise price of $1.50 per share. The Option Exercise Price to be paid by the Company to the Star Equity Holders will consist of $3,000,000 in cash, a promissory note in the principal amount of $3,000,000, which shall accrue interest at the rate of 8% and be due and payable six (6) months after the issuance thereof, 2,385,170 shares of common stock of the Company and a five-year warrant to purchase 5,109,789 shares of the Company’s common stock for an exercise price of $1.50 per share. On May 13, 2025, the parties entered into Amendment No. 2 increasing the amount that the Company will lend to Star prior to the closing date from $1,800,000 to $3,000,000 and removing the closing condition that a fairness opinion be delivered at closing. Star also executed a promissory note memorializing the previous $2,000,000 funded by the Company as well as future advances to be provided to Star up to a total of $3,000,000.
If, for a period of 12 months after the closing, the Company’s shares of common stock are delisted from Nasdaq, Star shall have the right, at its own discretion, to require the Company to exchange the Investment Note for all the shares of Star then held by the Company, provided, however, the Option shall be automatically cancelled and Star shall retain any cash payments made by the Company to Star and the Company shall retain an equity interest in Star equivalent to all cash payments.
Subject to the closing of the acquisition of Star, our business will be focused on the defense sector.
29
Recent Developments
Amendments to Star Agreement
On June 15, 2025, the parties entered into Amendment No. 3 to the Star Agreement whereby they clarified that if the Company fails to make all payments by the agreed time or if the Star Agreement is terminated as a result of the Company failing to perform or observe the covenants or agreements of the Company or if Company fails to maintain its listing on Nasdaq, Star shall be entitled to a payment from the Company in the amount of $3,000,000.
On July 25, 2025, the Company entered into Amendment No. 4 to the Star Agreement. Pursuant to the terms of Amendment No. 4, Menachem Shalom, the holder of all Class B common stock of Star, agreed that all said shares shall be converted to Class A common stock of Star. The objective of such cancellation and conversion is to eliminate the disparity between the voting rights and the economic rights of the common stock of Star.
Darwin Labs Warrants
On July 30, 2025 the Company entered into a warrant agreement with Synthetic Darwin LLC (“Darwin”), enabling the Company to acquire up to 200 million Darwin tokens, a new class of self-evolving AI network tokens developed by Darwin. Darwin is a self-training and evolving AI that can be used to test and simulate multiple scenarios in finance, healthcare and defense. This software aims to allow companies to run scenarios and find the best configuration for financial services, drugs, defense-related software and more. The Company has identified the potential in such AI software and decided to enter into this warrant agreement for Darwin tokens, which will allow the Company and the Company’s future subsidiaries to use this platform.
Components of Results of Operations
Operating expenses consist of professional fees, compensation and related benefits, and other general and administrative expenses.
Professional fees consists of professional services, such as audit fees, legal service fees, advisory fees, and consulting fees.
30
Compensation and related benefits consists of personnel related expenses incurred in operating our business, including cash compensation and our benefit programs.
Other general and administrative consists of personnel-related expenses incurred to support our business, including executive, customer support, compliance, finance, human resources, legal, and other support operations, and include rent, filing fee, platform fee, travel and entertainment, miscellaneous taxes, and other miscellaneous items.
Other (expense) income, net consists of interest expense, gain (loss) on extinguishment of liabilities, day one loss on issuance of liability-classified stock purchase warrants and embedded derivatives within convertible notes, change in fair value of liability-classified stock purchase warrants and derivative liabilities.
Because these components fluctuate with market conditions, other (expense) income, net can vary widely between periods.
Results of Operations
| Three Months Ending June 30, | Changes in | |||||||||||||||
| 2025 | 2024 | Amount | Percentage | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | $ | 737,937 | $ | 881,947 | $ | (144,010 | ) | (16.3 | )% | |||||||
| Compensation and benefits | 71,490 | 25,000 | 46,490 | 186.0 | % | |||||||||||
| Other general and administrative | 238,873 | 122,426 | 116,447 | 95.1 | % | |||||||||||
| Impairment loss | - | - | - | - | ||||||||||||
| Total operating expenses | 1,048,300 | 1,029,373 | 18,927 | 1.8 | % | |||||||||||
| Other (expense) income, net | ||||||||||||||||
| Interest expense | (207,049 | ) | (39,707 | ) | (167,342 | ) | 421.4 | % | ||||||||
| Interest expense – related parties | (16,920 | ) | (12,703 | ) | (4,217 | ) | 33.2 | % | ||||||||
| Loss on settlement of vendor obligations | - | (176,399 | ) | 176,399 | (100.0 | )% | ||||||||||
| Penalty – late registration | (800,000 | ) | - | (800,000 | ) | 100.0 | % | |||||||||
| Change in fair value – convertible note embedded derivative | 20,377 | — | 20,377 | 100.0 | % | |||||||||||
| Change in fair value – stock purchase warrant liabilities | 5,127,524 | — | 5,127,524 | 100.0 | % | |||||||||||
| Unrealized gain (loss) | 3,575 | - | 3,575 | 100.0 | % | |||||||||||
| Realized gain (loss) | 142,480 | - | 142,480 | 100.0 | % | |||||||||||
| Other income (expense) | 14,854 | (14 | ) | 14,868 | (106,200.0 | )% | ||||||||||
| Total other (expense) income, net | 4,284,841 | (228,823 | ) | 4,513,664 | (1,972.6 | )% | ||||||||||
| Net income (loss) from continuing operations | 3,236,541 | $ | (1,258,196 | ) | 4,494,737 | (357.2 | )% | |||||||||
| Net loss from discontinued operations | (217,952 | ) | (358,045 | ) | 140,093 | (39.1 | )% | |||||||||
| Net income (loss) | $ | 3,018,589 | $ | (1,616,241 | ) | $ | 4,634,830 | (286.8 | )% | |||||||
31
| Six Months Ending June 30, | Changes in | |||||||||||||||
| 2025 | 2024 | Amount | Percentage | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | $ | 1,692,079 | $ | 2,713,694 | $ | (1,021,615 | ) | (37.6 | )% | |||||||
| Compensation and benefits | 135,000 | 55,000 | 80,000 | 145.5 | % | |||||||||||
| Other general and administrative | 728,328 | 345,855 | 382,473 | 110.6 | % | |||||||||||
| Impairment loss | - | - | - | - | ||||||||||||
| Total operating expenses | 2,555,407 | 3,114,549 | (559,142 | ) | (18.0 | )% | ||||||||||
| Other (expense) income, net | ||||||||||||||||
| Interest expense | (371,625 | ) | (39,707 | ) | (331,918 | ) | 835.9 | % | ||||||||
| Interest expense – related parties | (50,761 | ) | (22,728 | ) | (28,033 | ) | 33.2 | % | ||||||||
| Loss on settlement of vendor obligations | - | (176,399 | ) | 176,399 | (100.0 | )% | ||||||||||
| Penalty – late registration | (800,000 | ) | - | (800,000 | ) | 100.0 | % | |||||||||
| Change in fair value – convertible note embedded derivative | 587,790 | — | 587,790 | 100.0 | % | |||||||||||
| Change in fair value – stock purchase warrant liabilities | 109,405,811 | — | 109,405,811 | 100.0 | % | |||||||||||
| Unrealized gain (loss) | 3,575 | - | 3,575 | 100.0 | % | |||||||||||
| Realized gain (loss) | 142,480 | - | 142,480 | 100.0 | % | |||||||||||
| Other income (expense) | 15,572 | (14 | ) | 15,586 | (111,328.6 | )% | ||||||||||
| Total other (expense) income, net | 108,932,842 | (238,848 | ) | 109,171,690 | (45,707.6 | )% | ||||||||||
| Net income (loss) from continuing operations | 106,377,435 | $ | (3,353,397 | ) | 109,730,832 | (3,272.2 | )% | |||||||||
| Net loss from discontinued operations | (400,707 | ) | (692,261 | ) | 291,554 | (42.1 | )% | |||||||||
| Net income (loss) | $ | 105,976,728 | $ | (4,045,658 | ) | $ | 110,022,386 | (2,719.5 | )% | |||||||
Comparison For the Three and Six Months Ended June 30, 2025 Versus the Three and Six Months Ended June 30, 2024
Revenue
We had no revenue from continuing operations during the three and six months ended June 30, 2025 and 2024, due to the discontinuation of subsidiary DRFQ’s operations since DRFQ has been classified as held-for-sale. We expect to report revenue upon the closing of the Star acquisition, which we expect to be complete by and near the end of the third quarter of this year. At this time, the Company does not expect to generate revenue from other sources prior to the closing of the Star acquisition.
Operating Expenses
Professional fees
For the three months ended June 30, 2025, professional fees decreased by approximately $144,000, or 16.3%, as compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, professional fees decreased by approximately $1,022,000, or 37.6%. This decrease was primarily attributable to a decrease in advisory service fees of $965,500 and consulting fees of approximately $310,000, offset by an increase in legal fees of approximately $123,000 and audit fees of approximately $131,000. This net decrease in professional fees is mainly attributable to the one-time costs incurred in early 2024 in relation to the business combination. We expect that our professional fees will remain consistent in the near future with a possible marginal increase between now and the closing of the Star acquisition. Subsequent to the closing of the Star acquisition, we expect professional fees to decrease slightly as we anticipate the frequency of one-time costs of professional fees to come down.
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Compensation and related benefits
For the three months ended June 30, 2025, our compensation and related benefits increased by approximately $46,000, or 186.0%, as compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, our compensation and related benefits increased by approximately $80,000, or 145.5%, as compared to the six months ended June 30, 2024. 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, as the Company expects to employ several individuals immediately following the closing of the acquisition. Our compensation and related benefits have been significantly lower than our professional fees due to the engagement of several professionals working for the Company on a consulting basis.
Other general and administrative expenses
For the three months ended June 30, 2025, total other general and administrative expenses increased by approximately $116,000, or 95.1%, as compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, total other general and administrative expenses increased by approximately $382,000, or 110.6%, as compared to the six months ended June 30, 2024. The increase was mainly attributable to additional costs associated with operating as a public company, including an increase in D&O insurance of approximately $168,000, marketing fees of approximately $110,000, rent expenses of approximately $73,000 attributable to new offices established in Israel and New York, entertainment and travel of approximately $89,000 attributable to the travel by our CEO and other business expenses of approximately $93,000, offset by a decrease in filing fees of approximately $150,000. We expect that other general and administrative expenses will continue to increase in the near future if the pending acquisition of Star completes during fiscal year 2025, as the Company expects to incur higher costs such as insurance, rent, advertising, and travel expenses.
Other Income (Expense)
For the three months ended June 30, 2025, other income (expense), net, increased approximately $4,514,000, or 1,972.6%, as compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, other income (expense), net, increased approximately $109,172,000, or 45,707.6%, as compared to the six months ended June 30, 2024. The increase was attributable to, an increase in gain from change in fair value – stock purchase warrant liabilities of approximately $109,406,000, a gain from change in fair value – convertible note embedded derivative of approximately $588,000, realized and unrealized gains of approximately $146,000, and a decrease in loss on debt settlement of approximately $176,000, offset by an increase in penalties – late registration, payable to the investor in connection with the December 2024 Private Placement, of $800,000, interest expense due to amortization of debt discounts of approximately $279,000, and interest expense on debt of approximately $81,000. The significant changes in fair value recognized on the Company’s stock purchase warrant liabilities are directly related to several warrants granted during fiscal year 2024. For the duration of the life of these warrants, the Company expects to continue to recognize significant gains or losses heavily driven by any changes in the Company’s stock price at each quarterly and annual report date.
Discontinued Operations
Net loss from discontinued operations was estimated to be $217,952 for the three months ended June 30, 2025 compared to $358,045 for the three months ended June 30, 2024. Net loss from discontinued operations was estimated to be $400,707 for the six months ended June 30, 2025 compared to $692,261 for the six months ended June 30, 2024. These decreases were due to a decrease in net loss from the operations of the Company’s wholly owed subsidiary DRFQ, which is the sole driver of the Company’s former financial services segment. The Company expects to recognize a deconsolidation of DRFQ in the third quarter due to the sale of this subsidiary, which will cease discontinued operations of the Company.
Liquidity and Capital Resources
We generated a pre-tax net income from continuing operations of $106,377,435 for the six months ended June 30, 2025 and incurred a pre-tax net loss from continuing operations of $3,353,397 for the six months ended June 30, 2024, and have an accumulated deficit of $95,099,015 as of June 30, 2025 and $201,075,743 at December 31, 2024. As of June 30, 2025, we had a working capital deficit of $53,463,528, including $1,519,647 of cash. The pre-tax net income from continuing operations of approximately $106,000,000 for the six months ended June 30, 2025 is primarily due to the applicable accounting treatment used to recognize gains from changes in fair value of liability-classified warrants which does not impact our cash position. During the six months ended June 30, 2025 the most significant use of the Company’s cash was for the purpose of advance cash payments to Star of $1,500,000 pursuant to the amended terms of the Star transaction. The Company intends to make an additional final advance payment of $500,000 subsequent to June 30, 2025.
We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. However, we expect to generate revenue beginning immediately after the closing of the Star acquisition, which we expect to be completed near the end of the third quarter of 2025. Since our inception, we have raised capital through private sales of common stock and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.
To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and cash and other requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Even if debt financing is available, the cost of additional financing may be significantly higher than our current debt.
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The risks and uncertainties surrounding the Company’s ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company’s ability to continue as a going concern for twelve months from the issuance of these consolidated financial statements. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern.
Cash Flows
The following summarizes the key components of our cash flows for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (2,693,898 | ) | $ | (1,820,714 | ) | ||
| Net cash used in investing activities | (1,514,847 | ) | - | |||||
| Net cash provided by (used in) financing activities | (878,000 | ) | 1,505,456 | |||||
| Effect of exchange rate on cash | 102,697 | (9,580 | ) | |||||
| Net change in cash | $ | (4,984,048 | ) | $ | (324,838 | ) | ||
Operating activities
Net cash flow used in operating activities for the six months ended June 30, 2025 was approximately $2,694,000, which primarily reflected our consolidated net income of approximately $105,977,000, adjusted for changes in working capital accounts and certain non-cash income (expenses) of approximately $109,492,000 (including the change in fair value of our liability-classified stock purchase warrants and derivative liabilities of approximately $109,994,000, offset by amortization of debt discount of approximately $322,000, stock-based compensation of approximately $178,000, and depreciation expense of approximately $1,500).
Net cash flow used in operating activities for the six months ended June 30, 2024 was $1,821,000, which primarily reflected our consolidated net loss of approximately $4,046,000, adjusted for changes in working capital accounts and certain non-cash expense of approximately $362,000 (including loss on settlement of vendor obligations of approximately $176,000, stock-based compensation of approximately $149,000, and amortization of debt discount of approximately $36,000).
Investing activities
Net cash flow used in investing activities was approximately $1,515,000 for the six months ended June 30, 2025, which consisted of an additional advance payment to Star of $1,500,000 in connection with the plan acquisition of Star, and a purchase of computer equipment of approximately $15,000.
There were no cash flows provided by investing activities for the six months ended June 30, 2024.
Financing activities
Net cash flow used in financing activities was approximately $878,000 for the six months ended June 30, 2025, which consisted of a repayment of note payable of $78,000 and payments of penalty – late registration of $800,000.
Net cash flow provided by financing activities was approximately $1,505,000 for the six months ended June 30, 2024, which consisted of proceeds from loan payable – related parties of approximately $545,000, proceeds from issuance of convertible debt, net of issuance costs of approximately $300,000, proceeds from issuance of note payable of approximately $78,000, and cash provided by financing activities from discontinued operations of approximately $583,000.
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Off-Balance Sheet Arrangements
We had no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Estimates
Our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, operating results, and cash flows will be affected.
See Note 3. Summary of Significant Accounting Policies of the Notes to our consolidated financial statements included in Part II, Item 8 of this Quarterly Report on Form 10-Q for a summary of significant accounting policies and significant estimates and assumptions and their effects on our financial statements. Below are the significant estimates and assumptions that we consider critical because they involve a significant amount of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.
Discontinued Operations
As discussed in Note 4 to the unaudited financial statements in this Quarterly Report on Form 10-Q, the Company was unable to obtain complete financial information from a subsidiary for the three months ended June 30, 2025. Consequently, management relied on historical trends and partial records to estimate the operating results of the discontinued operations for the three months ended June 30, 2025.
The inability to verify actual results introduces a level of uncertainty into the reported net loss from discontinued operations. Management continues to monitor the situation and may adjust its estimates in future filings should additional information become available.
Stock-based Compensation
We account for share-based payments that involve the issuance of shares of our common stock to employees and nonemployees and meet the criteria for share-based awards as stock-based compensation expense based on the grant-date fair value of the award. The Company has elected to recognize the adjustment to stock-based compensation expense in the period in which forfeitures occur. We recognize compensation expense for awards with only service conditions on a straight-line basis over the requisite service period for the entire award.
If factors change, and we utilize different assumptions including the probability of achieving performance conditions, share-based compensation cost on future award grants may differ significantly from share-based compensation cost recognized on past award grants. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or incur incremental cost. Share-based compensation cost affects our compensation and benefits expenses.
Warrants
Classification: The Company determines the accounting classification of warrants it issues as either liability or equity classified by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480”), then in accordance with ASC 815-40 (“ASC 815”), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing variable number of shares. If warrants do not meet liability classification under ASC 480, the Company assesses the requirements under ASC 815, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815, and in order to conclude equity classification, the Company also assesses whether the warrants are indexed to its Common Stock and whether the warrants are classified as equity under ASC 815 or other applicable GAAP. After all relevant assessments, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date.
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We assess the classification of our stock purchase warrants at each reporting date to determine whether a change in classification between equity and liability is required. For modified stock purchase warrants that result in a change of classification from equity to liability, a liability is recognized equal to the fair value on the date of modification, additional paid-in capital is adjusted by the fair value of the warrant on the date of issuance, and the difference is recognized as a non-cash gain or loss on the consolidated statements of operations and comprehensive loss.
Valuation: The fair value of our equity-classified stock purchase warrants and liability-classified stock purchase warrants are determined utilizing Level 3 inputs using a Black-Scholes-Merton option valuation model and a Monte Carlo simulation model, respectively.
In both models, the fair value of an award is affected by our stock price on the date of measurement as well as other assumptions, including the estimated volatility of our stock price over the term of the stock purchase warrant as of the measurement date and the estimated period of time that we expect third parties to hold the stock purchase warrants at the measurement date. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the stock purchase warrant.
As our stock has limited trading history on NASDAQ, we use the historical volatility of our peer companies in order to estimate future stock price trends. We expect third parties to hold their stock purchase warrants for the contractual term as we do not have any history to support a shorter term and do not anticipate stock purchase warrants to be exercised prior to the end of the term. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.
We use the Monte Carlo simulation model for our liability-classified stock purchase warrants in order to incorporate other subjective assumptions based on the terms of the specific stock purchase warrant agreements or the related host contract. For our liability-classified stock purchase warrants as of June 30, 2025, we included the probability of a fundamental event, as defined in the relevant agreements, occurring in our assumptions.
The aforementioned inputs entered into the models we use to fair value our stock purchase warrants are subjective estimates and changes to these estimates will cause the fair value of our stock purchase warrants and related debt issuance discount we recognize to vary.
Derivative Financial Instruments
Classification: We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations and comprehensive loss included in this Report under “Item 8. Financial Statements”. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. Bifurcated embedded derivatives are classified with the related host contract on the Company’s balance sheet.
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Valuation: We use the Monte Carlo simulation model for our bifurcated embedded derivatives in order to incorporate subjective assumptions based on the terms of the specific host contracts. For our bifurcated embedded derivatives issued in connection with our December 2024 convertible note payable, we included the probability of a fundamental event, as defined in the relevant agreements, occurring in our assumptions in addition to the estimated volatility of our stock price over the term of the bifurcated embedded derivative as of the measurement date, the remaining term of the host contract at the measurement date, the risk-free interest rate based upon United States Treasury interest rates appropriate for the expected term, the conversion discount, and the redemption premium.
Legal and other contingencies
We are subject to various legal proceedings and claims that arise in the ordinary course of business, the outcomes of which are inherently uncertain, and such uncertainty may be enhanced due to the industry in which we operate. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. In addition, we record recoveries of these losses when it is probable that they will be collected. These estimates are highly sensitive to change and involve variables that are not completely within our control nor practicable to model, including decisions made by regulators and settlement negotiations. Resolution of legal and other contingencies in a manner inconsistent with management’s expectations could have a material impact on our financial condition and results of operations.
Recently Issued Accounting Pronouncements
For information about recently issued accounting standards, refer to Note 3 to our Consolidated Financial Statements appearing elsewhere in this report.
Foreign Currency Risk
Foreign currency transaction risk
Revenues, expenses, and financial results of our foreign subsidiaries are recorded in the functional currency of these subsidiaries. Our foreign currency exposure is primarily related to transactions denominated in British Pounds attributable to cash, customer custodial funds and customer custodial cash liabilities and intercompany transactions where the transaction currency is different from a subsidiary’s functional currency. Changes in foreign exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our results of operations as expressed in U.S. dollars. We have experienced and will continue to experience fluctuations in our results of operations as a result of gains or losses on the settlement and the remeasurement of monetary assets and liabilities denominated in foreign currencies that are not the functional currency of the respective entity.
If an adverse 10% foreign currency exchange rate change was applied to the largest foreign currency exposure (e.g. British Pound) or to all foreign currency exposures in aggregate, of monetary assets, liabilities, and commitments denominated in currencies other than its functional currency as of June 30, 2025 and December 31, 2024, it would not have a material impact on our financial results.
From time to time, we may enter into derivatives or other financial instruments in an attempt to hedge our exposure to foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations. Additionally, the volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our international operations increase our exposure to exchange rate fluctuations and, as a result, such fluctuations could have a material impact on our future results of operations and cash flows.
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Fluctuations in functional currencies from our net investment in international subsidiaries expose us to foreign currency translation risk, where changes in foreign currency exchange rates may adversely affect our results of operations upon translation into U.S. dollars. See the consolidated statements of comprehensive income (loss) in Part II, Item 8 of this Quarterly Report on Form 10-Q for translation adjustments for the three and six months ended June 30, 2025 and 2024, a 10% increase or decrease in foreign currency exchange rates used in translating the financial statements of subsidiaries with functional currencies other than our reporting currency would not have a material impact on our financial results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls
Our management conducted an evaluation, with the participation of its Chief Executive Officer, who is also its Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a—15(e) and 15d—15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer concluded that our disclosure controls and procedures were not effective in reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act, because of material weaknesses in internal control over financial reporting as of June, 2025, as described below.
Plan of Remediation of Material Weaknesses in Internal Control Over Financial Reporting
Following the identification and communication of the material weakness described above, management commenced remediation actions relating to this material weakness beginning in the fourth quarter of fiscal year 2024, as follows:
| ● | We are utilizing the services of external consultants for non-routine and/or technical accounting issues as they arise. |
| ● | We are expanding and improving our review process for complex accounting transactions. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals. |
| ● | We are implementing enhancements and process improvements, including the design and implementation of well-defined controls and related control attributes. |
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The material weaknesses identified above will not be considered fully remediated until these additional controls and procedures have operated effectively for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate. If not remediated, these material weaknesses could result in material misstatements to our annual or interim consolidated financial statements that may not be prevented or detected on a timely basis or result in a delayed filing of required periodic reports. If we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected, and we could become subject to litigation or investigations by Nasdaq, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Notwithstanding the above, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in accordance with generally accepted accounting principles.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resources constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting, known to the Chief Executive Officer that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to any material legal proceedings.
Item 1A. Risk Factors
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-KT for the period ended December 31, 2024 as filed with the SEC on May 8, 2025, as amended July 9, 2025 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Except as set forth below, there were no sales of equity securities sold during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
On April 4, 2025, the Company entered into a settlement agreement with a former consultant of the Company. Pursuant to the terms of the settlement agreement, the Company issued 12,500 shares of common stock to the consultant.
On May 13, 2025, a consultant submitted a cashless exercise of 100,000 options granted in November 2024, which resulted in an issuance of 84,276 shares of common stock.
During the three months ended June 30, 2025, YA II PN, LTD. converted all principal and accrued interest on the $500,000 note issued December 3, 2024 for 260,300 shares of common stock.
The above issuance[s] did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
During the quarter ended June
30, 2025, no director or officer
On November 8, 2024, the Company, Jamal Khurshid and Match Financial Limited (“Match Financial”), a wholly-owned subsidiary of the Company entered a settlement agreement. This agreement contemplated the sale of Match Financial’s shares in Digital RFQ Limited (“DRFQ”) to Mr. Khurshid subject to the Company obtaining shareholder approval.
Match Financial, incorporated on March 6, 2019, operates as a holding company and is the sole shareholder of DRFQ, an FCA-registered electronic money directive agent specializing in cross-border digital payments utilizing blockchain technology. The Company acquired Match Financial in 2021 as part of its strategy to expand in the financial technology and cryptocurrency sectors. Match Financial holds minimal assets beyond its investment in DRFQ.
On August 5, 2025, the Company was notified that on July 29, 2025, Match Financial was placed into administration in the United Kingdom pursuant to the Insolvency Act 1986 resulting in the appointment of two administrators (the “Administrators”). The administration was initiated by the sole director of Match Financial, Jamal Khurshid. According to the notice sent to the Company, on July 29, 2025, the Administrators completed a pre-packaged sale of Match Financial’s entire shareholding in DRFQ to Match Financial Holdings Limited, a newly formed entity owned by Mr. Khurshid, for nominal consideration of £102,000. The transaction results in the divestiture of DRFQ.
The Company does not expect the administration of Match Financial to have a material adverse impact on its consolidated financial position or operations, as Match Financial contributed negligible revenue and assets to the Company.
The Company continues to pursue its defense business related initiatives. The Company is presently seeking shareholder approval of the Securities Purchase Agreement and Call Option (the “Star Agreement”) with Star 26 Capital Inc. (“Star”) initially entered in December 2024 with the shareholders of Star (“Star Equity Holders”) and an officer of the Company, acting in his capacity as the representative of the Star Equity Holders, to acquire a controlling 51% interest in Star, a Nevada Corporation, owning 100% or Rimon, an Israeli corporation engaged as a supplier of generators for “iron dome” launchers and other defense products.
On August 11, 2025, the Company entered into a settlement agreement with the current holder (the “Holder”) of the August 2024 Note and August 2024 Warrant. Pursuant to the terms of the settlement agreement, the Holder agreed to waive all events of default in relation to the August 2024 Note. Additionally, the Holder agreed to convert the August 2024 Note into 243,155 shares of common stock based on the post-reverse stock split conversion price of $2.50 per share. In consideration of such waiver and conversion, the Company agreed to issue to the Holder a pre-funded warrant to purchase 1,702,088 shares of the Company’s common stock. Furthermore, on August 11, 2025, the Company agreed to exchange the August 2024 Warrant for a new warrant (the “Exchange Warrant”) in form and substance similar to the August 2024 Warrant, provided that such Exchange Warrant permitted the Holder to exercise such Exchange Warrant on a cashless basis. The Holder then exercised the Exchange Warrant on a cashless basis, resulting in an issuance of 123,860 shares of the Company’s common stock.
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Item 6. Exhibits
The following exhibits are incorporated into this Form 10-Q Quarterly Report:
| Incorporated by Reference | ||||||||
| Exhibit | Description | Schedule/ Form |
Exhibits | Filing Date | ||||
| 10.1 | Form of Exchange Warrant – August 2025 | |||||||
| 10.2 | Form of Pre-funded Warrant – August 2025 | |||||||
| 10.3 | Settlement Agreement between Nukkleus and X ABS dated August 11, 2025 | |||||||
| 31.1 | Rule 13a-14(a) Certification of the Chief Executive Officer and Principal Financial Officer | |||||||
| 32.1 | Section 1350 Certification of Chief Executive Officer and Principal Financial Officer | |||||||
| 101.INS | Inline XBRL Instance Document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||
| * | Indicates management contract or compensatory plan or arrangement. |
| # | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NUKKLEUS INC. | ||
| By: | /s/ Menachem Shalom | |
| Dated: August 14, 2025 | Menachem Shalom | |
| Chief Executive Officer (Principal Executive Officer), and Principal Financial and Accounting Officer and Director | ||
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Exhibit 10.1
NEITHER THE WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATES. THE WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THE WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS. UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT.
| Right to Purchase | |
| 175,000 | |
| shares of Common Stock, | |
| par value $0.0001 per share |
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, the person named below (the “Holder”) or its registered assigns, is entitled to purchase from Nukkleus Inc., a Delaware corporation (the “Company”), at any time or from time to time during the period specified in Paragraph 2 hereof, the number of fully paid and nonassessable shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”), at an exercise price per share (the “Exercise Price”) each as are set forth in the Warrant details below.
Warrant Information.
| (a) Original Date of Warrant: | August 1, 2024 | |||
| (b) Holder: | X ABS Investments Limited Partnership | |||
| (c) Holder Address: | 22511 Telegraph Rd., Suite 202 | |||
| Southfield, MI, 48033 | ||||
| (d) Number of Warrant Shares: | 175,000 | |||
| (e) Exercise Price: | $2.00 | |||
| (f) Expiration Date: | August 1, 2029 |
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The term “Warrant Shares,” as used herein, refers to the shares of Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Shares; Payment for Shares.
(a) Subject to the provisions hereof, this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant, together with a completed notice of exercise in the form attached hereto (the “Notice of Exercise”), to the Company during normal business hours on any business day at the Company’s principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), and upon payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company of the Exercise Price for the Warrant Shares specified in the Notice of Exercise (or upon cashless exercises as described in Section 10(d) herein). The Warrant Shares so purchased shall be deemed to be issued to the Holder or such Holder’s designee, as the record owner of such Shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Notice of Exercise shall have been delivered, and payment shall have been made for such Shares as set forth above. The Company will direct the Company’s Transfer Agent to issue to the Holder the Warrant Shares to which Holder is entitled within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates or other evidence, deliver to the Holder a new Warrant representing the number of Warrant Shares with respect to which this Warrant shall not then have been exercised.
(b) All Warrant Shares will be issued in “Book Entry” form and no certificates will be issued, unless the Warrant Shares are then registered under the Securities Act, or if the Company receives a written opinion of counsel, which opinion and counsel are acceptable to the Company, to the effect that such Warrant Shares may freely transferred without registration under said Act and under applicable state securities or blue sky laws, in which case they may be issued to the Holder by DWAC, upon Holder providing the necessary information. Unless the Warrant Shares are then so registered, the Warrant Shares will be “restricted securities” under applicable securities laws and pursuant to these laws, Holder must hold the Warrant Shares indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Holder acknowledges that the Company has no obligation to register or qualify the Warrant Shares for resale.
(c) Unless the Warrant Shares are then registered under the Securities Act, the Warrant Shares shall bear a legend substantially to the following effect (as well as any legends required by applicable state corporate law or federal or state securities laws):
| “THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“THE ACT”) AND ARE “RESTRICTED SECURITIES” AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THESE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (II) UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT THESE SHARES MAY BE SOLD PURSUANT TO RULE 144 OR ANOTHER AVAILABLE EXEMPTION UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER.” |
To ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent.
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(d) Notwithstanding anything in this Warrant to the contrary, in no event shall the Holder be entitled to exercise a number of Warrants (or portions thereof) in excess of the number of Warrants (or portions thereof) upon exercise of which the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised Warrants and the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein) and (ii) the number of shares of Common Stock issuable upon exercise of the Warrants (or portions thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (i) of the preceding sentence. Notwithstanding anything to the contrary contained herein, the limitation on exercise of this Warrant set forth herein may not be amended without the written consent of the Holder and the Company.
2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date on which this Warrant is issued and delivered and before 6:00 p.m., New York, New York time on the date set forth in paragraph (f) under “Warrant Details” above (the “Exercise Period”).
3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant.
(c) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all the Company’s assets.
4. Adjustment Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Paragraph 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased.
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(b) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4(a), the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price.
(c) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the Holder will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Paragraph 4 and the obligations to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to acquire.
5. Issue Tax. The issuance of the Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Procedure on Transfer. This Warrant and the rights granted to the Holder are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered Holder as the owner and holder of this Warrant for all purposes, and the Company shall not be affected by any notice to the contrary.
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(b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the Holder at the office or agency of the Company, for new Warrants of like tenor representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by the Holder at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Paragraph 7, this Warrant shall be promptly canceled by the Company.
(e) Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel, which opinion and counsel are acceptable to the Company, to the effect that such exercise, transfer, or exchange may be made without registration under said Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment representation letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act and provides representations to that effect in form and substance acceptable to the Company; provided that no such opinion, letter or status as an “accredited investor” shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. The first holder of this Warrant, by taking and holding the same, represents to the Company that such holder is acquiring this Warrant for investment and not with a view to the distribution thereof. In no event shall the Holder be permitted to assign the Warrant unless provided with express written consent by the Company.
8. Notices. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Holder shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such holder at the address shown for such holder on the books of the Company, or at such other address as shall have been furnished to the Company by notice from such holder. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to the office of the Company or at such other address as shall have been furnished to the Holder by notice from the Company. Any such notice, request, or other communication may be sent by e-mail. All notices, requests, and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this Section 8, or, if mailed by registered or certified mail or with a recognized overnight mail courier upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be.
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9. Governing Law. This Warrant shall be enforced, governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the courts, Federal and State located in New York County, New York with respect to any dispute arising under this Warrant, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby. Both parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. Both parties further agree that service of process upon a party mailed by first class mail shall be deemed in every respect effective service of process upon the party in any such suit or proceeding. Nothing herein shall affect either party’s right to serve process in any other manner permitted by law. The party which does not prevail in any dispute arising under this Warrant shall be responsible for all fees and expenses, including attorneys’ fees, incurred by the prevailing party in connection with such dispute.
10. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the Holder.
(b) Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof.
(c) Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Warrant will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Warrant, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Warrant and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
(d) Cashless Exercise.
In lieu of exercising this Warrant, the Holder may elect to receive Warrant Shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of Warrant Shares computed using the following formula:
X= Y (A-B)
A
| Where: | X | = | the number of the Warrant Shares to be issued to the Holder. |
| Y | = | the number of the Warrant Shares purchasable under this Warrant. | |
| A | = | the fair market value of one Share on the date of determination. | |
| B | = | the per share Exercise Price (as adjusted to the date of such calculation). |
Fair Market Value. For purposes of this Section 1, the per share fair market value of the Warrant Shares shall mean: (i) If the Company’s Common Stock is publicly traded, the per share fair market value of the Warrant Shares shall be the average of the closing prices of the Common Stock as quoted on the Nasdaq Stock Market or the principal exchange on which the Common Stock is listed, in each case for the fifteen trading days ending five trading days prior to the date of determination of fair market value; or (ii) If the Company’s Common Stock is not so publicly traded, the per share fair market value of the Warrant Shares shall be such fair market value as is determined in good faith by the Board of Directors of the Company after taking into consideration factors it deems appropriate, including, without limitation, recent sale and offer prices of the capital stock of the Company in private transactions negotiated at arm’s length.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer.
| Nukkleus Inc. | ||
| By: | /s/ Menachem Shalom | |
| Menachem Shalom | ||
| Chief Executive Officer | ||
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FORM OF NOTICE OF EXERCISE
| Dated: _______ __, 20____ | ||
| To: | Nukkleus Inc. | |
| 575 Fifth Avenue, 14th Floor | ||
| New York, New York 10017 | ||
| Attn: CEO | ||
The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to purchase__________ shares of Common Stock covered by such Warrant. The undersigned intends that payment of the Exercise Price shall be made in the amount of $_______ by means of wire transfer to Company’s bank account within two banking days of the date hereof.
Please issue such shares of Common Stock in the name of and pay any cash for any fractional share to:
| Name: | ||
| Signature: | ||
| Address: | ||
| Note: | The above signature should correspond exactly with the name on the face of the within Warrant, if applicable. |
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Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
NUKKLEUS INC.
PRE-FUNDED COMMON STOCK PURCHASE WARRANT
Warrant Shares: 1,702,088
THIS PRE-FUNDED COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, X ABS Investments Limited Partnership, a Michigan limited partnership or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or following Shareholder Approval (as defined below) and until this Warrant is exercised in full but by no later than August 11, 2030 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Nukkleus Inc., a Delaware corporation (the “Company”), up to 1,702,088 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). The term “Shareholder Approval” means such approval as may be required by the applicable rules and regulations of Nasdaq Stock Market (or any successor entity) from the shareholders of the Company, or board of directors in lieu thereof, with respect to issuance of all of the Warrant Shares upon the exercise thereof.
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Settlement Agreement (the “Agreement”), dated August , 2025 among the Company and the Holder.
Section 2. Exercise.
a) Exercise of Warrant. Subject to Section 2(e) herein, exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after Shareholder Approval and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $0.0001, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise.
In lieu of exercising this Warrant, the Holder may elect to receive Warrant Shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of Warrant Shares computed using the following formula:
X= Y (A-B)
A
| Where: | X | = | the number of the Warrant Shares to be issued to the Holder. |
| Y | = | the number of the Warrant Shares purchasable under this Warrant. | |
| A | = | the fair market value of one Share on the date of determination. | |
| B | = | the per share Exercise Price (as adjusted to the date of such calculation). |
Fair Market Value. For purposes of this Section 1, the per share fair market value of the Warrant Shares shall mean:
| (i) | If the Company’s Common Stock is publicly traded, the per share fair market value of the Warrant Shares shall be the average of the closing prices of the Common Stock as quoted on the Nasdaq Stock Market or the principal exchange on which the Common Stock is listed, in each case for the fifteen trading days ending five trading days prior to the date of determination of fair market value; |
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| (ii) | If the Company’s Common Stock is not so publicly traded, the per share fair market value of the Warrant Shares shall be such fair market value as is determined in good faith by the Board of Directors of the Company after taking into consideration factors it deems appropriate, including, without limitation, recent sale and offer prices of the capital stock of the Company in private transactions negotiated at arm’s length. |
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement registering the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) three (3) Trading Days after the delivery to the Company of the Notice of Exercise, and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
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iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date (other than any such failure that is solely due to any action or inaction by the Holder with respect to such exercise), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
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vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re- classification.
b) Intentionally Omitted.
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock or 50% or more of the voting power of the common equity of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) ) except to the extent the Company closes the transactions contemplated by that certain Securities Purchase Agreement and Call Option between the Company, Star 26 Capital Inc., the shareholders of Star 26 Capital Inc. and Menachem Shalom, the representative of such shareholders, the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires 50% or more of the outstanding shares of Common Stock or 50% or more of the voting power of the common equity of the Company (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. For the avoidance of doubt, the Holder shall be entitled to the benefits of the provisions of this Section 3(e) regardless of (i) whether the Company has sufficient authorized shares of Common Stock for the issuance of Warrant Shares and/or (ii) whether a Fundamental Transaction occurs prior to the Shareholder Approval.
f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
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g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the holders of a majority of the then outstanding Warrants (based on the number of Warrant Shares then underlying such Warrants), reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company.
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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
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Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i), Section 2(d)(iv) and Section 3(e) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
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j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and holders of a majority of the then outstanding Warrants (based on the number of Warrant Shares then underlying such Warrants), provided that if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall also be required.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| Nukkleus Inc. | ||
| By: | /s/ Menachem Shalom | |
| Name: Menachem Shalom | ||
| Title: Chief Executive Officer | ||
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NOTICE OF EXERCISE
To: NUKKLEUS INC.
(1) The undersigned hereby elects to purchase_________Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: _________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: ___________________________________________________
Name of Authorized Signatory: _____________________________________________________________________
Title of Authorized Signatory: ______________________________________________________________________
Date: _________________________________________________________________________________________
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ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | (Please Print) | |
| Address: | ||
| (Please Print) | ||
| Phone Number: | ||
| Email Address: | ||
| Dated: ______________ _____, | ||
| _____ | ||
| Holder’s Signature: | ||
| Holder’s Address: |
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Exhibit 10.3
Settlement Agreement
This Settlement Agreement (this “Agreement”), dated as of August 11, 2025, is being entered into by and between Nukkleus Inc., a Delaware corporation (the “Company”), and X ABS Investments Limited Partnership, a Michigan limited partnership (the “Holder”).
WHEREAS, on or about August 1, 2024, the Company issued to East Asia Technology Investments Ltd. (“EATI”) a Senior Secured Promissory Note in the principal amount of $515,000, a copy of which is annexed as Schedule A hereto (the “Note”), along with a Stock Purchase Warrant to purchase 175,000 shares (1,400,000 on a pre-reverse stock split basis prior to giving effect to the Company’s eight-for-one reverse stock split effected on October 11, 2024 (the “Reverse Split”)) at an exercise price of $2.00 per share ($0.25 per share on a pre-Reverse Split basis), a copy of which is annexed as Schedule B hereto (the “Warrant”);
WHEREAS, the parties acknowledge and agree that the Note has been in default since February 1, 2025 and remains in default as of the date hereof and that as a result of regularly accruing interest and the additional interest that accrues during the pendency of an event of default, the principal amount of indebtedness and accrued interest represented by the Note is $607,889 through July 30th, 2025;
WHEREAS, on or about June 25, 2025, the Holder purchased the Note and the Warrant from EATI and simultaneously facilitated the negotiation and execution of release and settlement agreements between EATI, Palm Global Technologies Limited and the Company for the benefit of the Company; and
WHEREAS, following the acquisition of the Note, the Holder provided notice to the Company disputing the conversion price of the Note following the Reverse Split;
WHEREAS, in order to cure the outstanding event of default under the Note and to settle a dispute between the Holder and the Company related to the conversion price of the Note following the Reverse Split, the parties desire to enter into this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:
Section 1. Settlement Terms.
| a) | Acknowledgment of Amount Due under the Note. The parties agree that the amount presently due on the Note is $607,889. |
| b) | Waiver of Event of Default under the Note and Conversion of the Note. The Holder hereby agrees to waive all events of default currently in existence under the Note (the “Event of Default Waiver”). Concurrently with the execution herewith, and with no further action required by the Holder, the Holder hereby agrees to convert the Note into 243,155 shares of the Company’s common stock (the “Conversion Shares”) based on a post Reverse Split conversion price of $2.50 per share. In furtherance of the same, the Holder acknowledges and agrees that the Note is deemed satisfied and cancelled in all respects upon delivery of the Conversion Shares. |
| c) | Issuance of Pre-Funded Warrants. In connection with the Event of Default Waiver and the Holder’s agreement to convert the Note on the post Reverse Split conversion price, the Company hereby agrees to issue to the Holder pre-funded warrants to purchase up to 19.99% of the Company’s issued and outstanding shares of common stock as of the day immediately prior to the date hereof in the form attached hereto as Exhibit 1 (the “Pre-Funded Warrant”). The Pre-Funded Warrant shall be exercisable on a cashless basis at any time by the Holder and shall contain a beneficial ownership blocker. The Holder acknowledges that the Pre-Funded Warrant is a restricted security and that the shares issuable upon exercise of the Pre-Funded Warrants, if not registered, will have restrictions upon resale imposed by state and federal securities laws. To the extent required by law or the regulation by the Nasdaq Stock Market, the exercise of the Pre-Funded Warrant will be subject to approval of the Company’s shareholders. |
Section 2. Release. The Holder, on his/her/its own behalf and on behalf of each of his/her/its affiliates, and the heirs, executors, administrators, successors and assigns of each of them (collectively, “Releasors”) hereby irrevocably, unconditionally and generally release and discharge the Company and its officers, directors, employees, attorneys and agents in their respective capacities as such (collectively, “Releasees”), to the fullest extent permitted by law, from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty, equity, arbitration or otherwise, which against the Releasees, or any of them, the Releasors ever had, now has or hereafter can, shall or may have for, upon, or by reason of any matter, cause or thing whatsoever, whether known or unknown, and whether heretofore asserted or unasserted, from the beginning of the world to the date of this Agreement, including, but not limited to, claims related to the Notes, and including, but not limited to, claims under federal, state or local laws, statutes or ordinances, including any claim of tort or contract, or common law claims thereunder (collectively, the “Released Claims”). Each of the Releasors covenants that it will not bring, commence, maintain or prosecute, directly or indirectly, any action at law or proceeding in equity or any legal or administrative proceeding or other claim for damages or other relief against any of the Releasees based in whole or in part upon any of the Released Claims. Each of the Releasors further agrees that it will not, directly or indirectly, hereafter control, promote, instigate, encourage, assist, or participate in any claim, proceeding or litigation, charging any of the Releasees, with any act, cause or claim whatsoever which is in whole or in part in any way related to any of the Released Claims.
Section 3. Further Assurances. Each party will execute and deliver such further agreements, documents and instruments and take such further action as may be reasonably requested by any other party to carry out the provisions and purposes of this Agreement.
Section 4. Expenses. Except as otherwise specified in this Agreement, all expenses shall be paid by the party incurring such costs and expenses.
Section 5. Governing Law; Jurisdiction. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Delaware applicable to contracts executed in and to be performed in that State without giving effect to any choice or conflict of law provision or rule.
Section 6. Counterparts. This Agreement may be executed and delivered (including by facsimile or other electronic transmission, such as by electronic mail in “pdf” form) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.
Section 7. Independent Counsel. Each of the parties agrees and acknowledges that it has had an opportunity to have counsel of its own choosing review and represent it in connection with the execution and delivery of this Agreement. This Agreement has been and shall be construed to have been drafted by all of the parties to it so that the rule of construing ambiguities against the drafter shall have no force or effect.
Section 8. Captions. The captions used in this Agreement are intended for convenience of reference only, shall not constitute any part of this Agreement and shall not modify or affect in any manner the meaning or interpretation of any of the provisions of this Agreement.
Remainder of Page Intentionally Omitted; Signature Page Follows
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
| NUKKLEUS INC. | ||
| By: | /s/ Menachem Shalom | |
| Name: Menachem Shalom | ||
| Title: CEO | ||
| X ABS INVESTMENTS LIMITED PARTNERSHIP | ||
| By: | /s/ NLI170 Investments LLC | |
| Name: NLI170 INVESTMENTS LLC | ||
| Title: GP | ||
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Exhibit 31.1
RULE 13A-14(A) CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Menachem Shalom, Chief Executive Officer and Principal Financial Officer of Nukkleus Inc., certify that:
| 1. | I have reviewed this Form 10-Q Quarterly Report of Nukkleus Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | As sole executive officer of the Registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | As sole executive officer of the Registrant, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 14, 2025 | /s/ Menachem Shalom |
| Menachem Shalom | |
| Chief Executive Officer | |
| (Principal Executive, Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, the Chief Executive Officer and Principal Financial Officer of Nukkleus Inc (the “Company”), certifies that, to his knowledge:
| 1. | The report of the Company for the period ended June 30, 2025 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: August 14, 2025 | /s/ Menachem Shalom |
| Menachem Shalom | |
| Chief Executive Officer | |
| (Principal Executive, Financial and Accounting Officer |