T3 Defense (DFNS) risk factors, FY2024 10-K

Risks Related to Nukkleus’s Business

1. 01Failure to complete the acquisition of Star may result in paying a termination fee to Star and could harm our common stock price and future business and operations
2. 02If the conditions to the Star Agreement are not satisfied or waived, the acquisition may not occur
3. 03We have a limited operating history in an evolving and highly volatile industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful
4. 04If we do not effectively manage our growth and the associated demands on our operational, risk management, sales and marketing, technology, compliance and finance and accounting resources, our business may be adversely impacted
5. 05We face intense and increasing competition and, if we do not compete effectively, our competitive positioning and our operating results will be harmed
6. 06Cyberattacks and security breaches of our systems, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results and financial condition
7. 07Any significant disruption in our technology could adversely impact our brand and reputation and our business, operating results, and financial condition
8. 08We are subject to credit risks in respect of counterparties, including financial institutions
9. 09Our banking relationships for transaction processing are concentrated in a small number of partners
10. 103. High Risk — applying enhanced due diligence
11. 113. Documentation — this can be done with one document only and need not be independently certified
12. 127. Requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar customer due diligence standards
13. 13The ownership structure of the company appears unusual or excessively complex given the nature of the company’s business
14. 14Third leg countries identified by credible sources as having a low level of corruption or other criminal activity
15. 15Product or Service Products or transactions that might favour anonymity Life insurance policies for which the premium is low
16. 16Low risk factors Normal risk factors High risk factors
17. 17Company must have documented procedures
18. 18Risk Types Assessment factors Information sources
19. 19Organizational Risk The inherent organizational risks in relation to financial crime and convoluted organizational structures in relation to shareholdings and establishing the UBO’s
20. 20Our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, operating results, and financial condition. We rely on third parties for some of our KYC and other compliance obligations
21. 21We rely on connectivity with blockchain networks for our Platforms
22. 22If we fail to develop, maintain, and enhance our brand and reputation, our business, operating results, and financial condition may be adversely affected. Moreover, unfavorable media coverage could negatively affect our business
23. 23Concerns about the environmental impacts of blockchain technology could adversely impact usage and perceptions of Nukkleus, its subsidiaries and our Platforms
24. 24As a remote-first company, we are subject to heightened operational and cybersecurity risks

Risks Related to Nukkleus’s Platforms

1. 25Due to unfamiliarity and some negative publicity associated with blockchain technology, our customer base may lose confidence in products and services that utilize blockchain technology

Risks Related to Nukkleus’s Financial Condition

1. 26There is no assurance that we will maintain profitability or that our revenue and business models will be successful
2. 27We are subject to complex income and non-income tax laws and regulations in the United States and a variety of foreign jurisdictions. Both the United States and foreign jurisdictions may revise corporate income tax and other non-income tax laws which could impact the amount of tax due in such jurisdiction
3. 28If our estimates or judgment relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected
4. 29The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies. If financial accounting standards undergo significant changes, our operating results could be adversely affected
5. 30Business metrics and other estimates are subject to inherent challenges in measurement, and our business, operating results, and financial condition could be adversely affected by real or perceived inaccuracies in those metrics
6. 31We are subject to changes in financial reporting standards or policies, including as a result of choices made by us, which could materially adversely affect our reported results of operations and financial condition and may have a corresponding material adverse impact on capital ratios
7. 32As a public company, we are required to develop and maintain proper and effective internal controls over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our stock
8. 33We might require additional capital to support business growth, and this capital might not be available or may require stockholder approval to obtain
9. 34We may be affected by fluctuations in currency exchange rates

Risks Related to Nukkleus’s Employees and Other Service Providers

1. 35In the event of employee or service provider misconduct or error, our business may be adversely impacted
2. 36The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could adversely impact our business, operating results, and financial condition
3. 37Our culture emphasizes innovation, and if we cannot maintain this culture as we grow, our business and operating results could be adversely impacted

Risks Related to Government Regulation

1. 38We are subject to various laws and regulations, and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition
2. 39Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations
3. 40The financial services industry is subject to intensive regulation. Major changes in laws and regulations, as well as enforcement actions, could adversely affect our business, financial position, results of operations and prospects
4. 41Our consolidated balance sheets may not contain sufficient amounts or types of regulatory capital to meet the changing requirements of our various regulators worldwide, which could adversely affect our business, operating results, and financial condition
5. 42We obtain and process a large amount of sensitive customer data. Any real or perceived improper use of, disclosure of, or access to such data could harm our reputation, as well as have an adverse effect on our business
6. 43We are and may continue to be subject to litigation, including individual and class action lawsuits, as well as regulatory audits, disputes, inquiries, investigations and enforcement actions by regulators and governmental authorities

Risks Related to Nukkleus’s Intellectual Property

1. 44In the future we may be sued by third parties for alleged infringement of their proprietary rights
2. 45Our and our ecosystem partners’ products and services, including the blockchain technologies on which our Platforms are built, contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could harm our business
3. 46Adverse economic conditions may adversely affect our business
4. 47We may be adversely affected by natural disasters, pandemics, and other catastrophic events, and by man-made problems such as war or terrorism, that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster
5. 48Acquisitions, joint ventures or other strategic transactions create certain risks and may adversely affect our business, financial condition or results of operations
6. 49Delaware law and our Certificate of Incorporation and Bylaws will contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable
7. 50Such provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Nukkleus Board or management