NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended December 31, 2021

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Three Months Ended December 31, 2020

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

NUKKLEUS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of these statements.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –THE COMPANY HISTORY AND NATURE OF THE BUSINESS

Nukkleus Inc. (f/k/a Compliance & Risk Management Solutions Inc.) (“Nukkleus” or the “Company”) was formed on July 29, 2013 in the State of Delaware as a for-profit Company and established a fiscal year end of September 30.

On February 5, 2016, Charms Investments, Ltd (“Charms”), the former majority shareholder of theThe Company sold 146,535,140 shares of common stock to Currency Mountain Holdings Bermuda, Limited (“CMH”), the parent of the Company. CMH is wholly-owned by an entity thata financial technology company which is owned by Emil Assentato, the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chairman. In addition,focused on the same date, CMH acquired 3,937,000 shares of common stock from another non-affiliated company. The aggregate purchase price paid by CMH was $347,500.

On May 24, 2016, Nukkleus, its wholly-owned subsidiary, Nukkleus Limited, a Bermuda limited company (the “Subsidiary”), Charms, the former majority shareholder, and CMH entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which the Company purchased from CMH certain intellectual property, hardware,providing software and other assets (collectively,technology solutions for the “Assets”) in consideration of 48,400,000 shares of common stock of the Company. The Asset Purchase Agreement closed on May 24, 2016. As a result of such acquisition, the Company’s operations are now focused on the operation of aworldwide retail foreign exchange (“FX”) trading business utilizing the assets acquired from CMH.

On May 24, 2016, the Subsidiary entered into a General Service Agreement to provideindustry. The Company primarily provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package to FML MaltaTriton Capital Markets Ltd. In December 2017, the Subsidiary, FML Malta Ltd. and(“TCM”), formerly known as FXDD Malta Limited (“FXDD Malta”) entered into a letter agreement providing that there was an error in drafting. The FXDD brand (e.g., see FXDD.com) is the General Service Agreement and acknowledging that the correct counter-party to Subsidiarybrand utilized in the retail forex trading industry by TCM.

Nukkleus Limited, a wholly-owned subsidiary of the Company, provides its software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a General ServiceServices Agreement is FXDD Malta. Accordingly, all references(“GSA”) to FML Malta Ltd. have been replaced with FXDD Malta. FXDD MaltaTCM. TCM is a private limited liability company formed under the laws of Malta. The General Service Agreement entered with FXDD MaltaGSA provides that FXDD MaltaTCM will pay the SubsidiaryNukkleus Limited at minimum $2,000,000 per month. On October 17, 2017, the Subsidiary entered into an amendment of the General Service Agreement with FXDD Malta. In accordance with the amendment, which was effective as of October 1, 2017, the minimum amount payable by FXDD Malta to the Subsidiary for services was reduced from $2,000,000 per month to $1,600,000 per month. Emil Assentato is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato, who is our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and chairman, is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of FXDD Malta.TCM.

In addition, on May 24, 2016, in order to appropriately service FXDD Malta, the SubsidiaryTCM, Nukkleus Limited entered into a General Service AgreementGSA with FXDirectDealer LLC (“FXDIRECT”), which provides that the SubsidiaryNukkleus Limited will pay FXDIRECT a minimum of $1,975,000$1,575,000 per month in consideration of providing personnel engaged in operational and technical support, marketing, sales support, accounting, risk monitoring, documentation processing and customer care and support. FXDIRECT may terminate this agreement upon providing 90 days’ written notice. On October 17, 2017, the Subsidiary entered into an amendment of the General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, the minimum amount payable by the Subsidiary to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Currency Mountain Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.

In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated Markets Direct Technology Group Ltd (“MDTG”), formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer pursue the regulatory licensing necessary to operate an exchange in Malta.

On August 27, 2020, the Company renamed Nukkleus Exchange Malta Ltd. to Markets Direct Technology Group Ltd (“MDTG”). MDTG manages the technology and IP behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the IP rights to the brands such as Markets Direct and TCM. MDTG then leases out the rights to use these names/brands licenses to the appropriate entities.

On May 27, 2016,24, 2021, the Company and the shareholders of Match Financial Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”), entered into a Stock Purchase and Sale Agreement (“SPA”(the “Match Agreement”), pursuant to acquire, from IBIH Limited, a BVI corporation (“IBIH”) 2,200 issued and outstanding common stock for $1,000,000, representing 9.9% of IBIH. In addition,which the Company, on May 28, 2021, acquired 100%1,152 ordinary shares of Match representing 70% of the issued and outstanding ordinary shares of GVS Limited (“Iron BVI”), which is the parent corporationMatch in consideration of GVS (AU) Pty Ltd. (“Iron Australia”) for 24,156,00070,000,000 shares of common stock of the Company (“First Closing”(the “Initial Transaction”). On August 30, 2021, the Company exercised its option pursuant to which it acquired from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. Match is engaged in providing financial services to enable conversion of fiat currencies to cryptocurrencies and vice versa.

TheOn October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to which the Company agreed to acquire 5.0% of the remaining 20,000issued and outstanding ordinary shares of IBIH for 219,844,000Jacobi in consideration of 20,000,000 shares of its common stock subject to IBIH obtaining regulatory approvals from the Financial Conduct Authority in the United Kingdom (“London FCA”) and from the regulators in Cyprus (“Second Closing”). The Second Closing was subject toof the Company signing(the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that were assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an option agreement with FXDD Malta and FXDD Trading Limited operating units (the “Option”), which are affiliates through common ownership, providingAmendment to Stock Purchase Agreement agreeing that the Company may acquire both entities for $1. These transactions were subject to regulatory approval, where applicable.

The terms of the Agreement stipulated that if the Second Closing did not occur before November 28, 2016, the $1,000,000 wouldJacobi Transaction will be returned toentered between the Company and the First Closing would be unwound. AsNew Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a result ofcompany focused on digital asset management that has received regulatory approval to launch the First Closing being contingent on the Second Closing, the $1,000,000 cash paid and value of the 24,156,000 shares issued was recorded as a “deposit on potential acquisition”, which was repaid to and returned to the Company in theworld’s first fiscal quarter of 2018 (See next paragraph), and the 24,156,000 shares was recorded as “contingent common stock” due to the uncertainty of the closing of the transaction.tier one Bitcoin ETF. 

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – THE COMPANY HISTORY AND NATURE OF THE BUSINESS (continued)

On November 17, 2017,December 30, 2021, the Company IBIH, Terra (FX) Offshore Limited, Ludico Investments Limited, Currency Mountain Holdings LLC and the IBIH Shareholdersshareholder (the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a SettlementPurchase and Sale Agreement and Mutual Release (the “Iron Settlement Agreement”)“Digiclear Agreement) pursuant to which the Stock Purchase Agreement was terminated, all differences between the parties were resolved and settled and the parties fully released the other parties from any liability. Pursuant to the Iron Settlement Agreement, the Company agreed to (i) haveacquire 5,400,000 of the registered office of Iron Australia changed, (ii) have its director designees resign as directors of Iron Australia, (iii) appoint Markos Kashiouris, Petros Economidesissued and Yun Ma as directors of Iron Australia; (iv) and make all required changes with the Australian Securities and Investments Commission. With respect to Iron BVI, pursuant to the Iron Settlement Agreement, the Company agreed to (i) have the registered office of Iron BVI changed, (ii) have its director designee resign as a director of Iron BVI, (iii) appoint Cymora Limited as director of Iron BVI; (iv) and make all required changes with the BVI Registrar of Companies. Further, the Company agreed to return the 2,200outstanding ordinary shares of capital stockDigiclear in consideration of IBIH to the IBIH Shareholders and return 100% of its interest in Iron BVI to IBIH. IBIH agreed to return the 24,156,00015,151,515 shares of common stock of the Company (the “Digiclear Transaction”). The Digiclear Transaction is expected to close in March 2022.

The unaudited condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company incurred a net loss for the three months ended December 31, 2021 of $1,944,839, and had a working capital deficit of $2,251,170 at December 31, 2021. The Company’s ability to continue as a going concern is dependent upon the management of expenses and ability to obtain necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.

We cannot be certain that such necessary capital through equity or debt financings will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. In the event that there are any unforeseen delays or obstacles in obtaining funds through the aforementioned sources, Currency Mountain Holdings Bermuda, Limited (“CMH”), which is wholly-owned by an entity that is majority-owned by Mr. Assentato, has committed to inject capital into the Company in order to maintain the ongoing operations of the business.

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the Company for cancellation and to pay the Company $1,000,000. Further, Markos Kashiouris, Petros Economides and Efstathios Christophi resigned as directors of the Company and waived any directorship fees payable to them under their letter of appointment dated August 1, 2016. The $1,000,000 has been paid to the Company, net of approximately $70,000 of legal expenses, in the first fiscal quarter of 2018 and IBIH has returned the certificate representing the 24,156,000 shares of common stock of the Company and the shares have been cancelled by the Company.pandemic.

NOTE 2 – BASIS OF PRESENTATION

These interim condensed consolidated financial statements of the Company and its wholly-owned subsidiarysubsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)of America (U.S. GAAP).

The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.consolidated subsidiaries. These accounts were prepared under the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 20172021 filed with the Securities and Exchange Commission on December 27, 2017.29, 2021. The consolidated balance sheet as of September 30, 20172021 contained herein has been derived from the audited consolidated financial statements as of September 30, 2017,2021, but does not include all disclosures required by the generally accepted accounting principles in the U.S. GAAP.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of AmericaU.S. GAAP requires management to make 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. Actual results could differ from these estimates. Significant estimates during the three months ended December 31, 20172021 and 20162020 include the useful life of intangible assets, assumptions used in assessing impairment of long-term assets, valuation of deferred tax assets and the associated valuation allowances.allowances, and valuation of stock-based compensation. 

As described in Note 1, in fiscal year 2021, the Company completed its acquisition of Match in accordance with the terms of the Match Agreement. In February 2022, a third party valuation report in connection with the acquisition was completed. As a result, the Company adjusted the previous estimated allocation to reflect the results of the third party valuation. The Company decreased its cost of intangible assets by $2,861,631 and adjusted the estimated useful life of trade names and regulatory licenses from 10 years to 3 years and the estimated useful life of technology from 10 years to 5 years. This change in accounting estimate was effective in the first quarter of fiscal year 2022. Based on the carrying value of intangible assets as of September 30, 2021 and those adjustments during the three months ended December 31, 2021, the effect of this change in estimate was an increase in amortization expense of $559,802 and an increase in net loss of $559,802.

Cash and cash equivalents

At December 31, 2021 and September 30, 2021, the Company’s cash balances by geographic area were as follows:

Fair value of financial instruments and fair value measurements

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts reportedrepresented in the unauditedaccompanying condensed consolidated balance sheets for cash, prepaid expense, deposit on potential acquisition,financial statements, primarily due to affiliates, accrued liabilities, and accrued liabilities – related party approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of December 31, 2017 and September 30, 2017.nature.

NUKKLEUS INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSCredit risk and uncertainties

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentration of credit risk

The Company maintains a portion of its cash in bank and financial institution deposits within U.S. that at times may exceed federally insured limits.Asfederally-insured limits of December 31, 2017 and September 30, 2017, the Company’s$250,000. The Company manages this credit risk by concentrating its cash balances in bank accounts had approximately $650,000high quality financial institutions and $0 in excessby periodically evaluating the credit quality of the federally-insured limits, respectively.primary financial institutions holding such deposits. The Company has not experienced any losses in itssuch bank accounts through and asbelieves it is not exposed to any risks on its cash in bank accounts. At December 31, 2021, the Company’s cash balances in United States bank accounts were not in excess of the date of this report.federally-insured limits.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. A portion of the Company’s sales are credit sales which is to the customer whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to short-term payment terms. The following table summarizes customer revenue concentrations:Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

The following table summarizes vendor expense concentrations:Accounts receivable and allowance for doubtful accounts

Prepaid expenseAccounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. Management believes that the accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its accounts receivable at December 31, 2021 and September 30, 2021. The Company historically has not experienced significant uncollectible accounts receivable.

Prepaid expense represents cash paid in advance for professional service charge. The amount isand other current assets

Prepaid expense and other current assets primarily consist of prepaid OTC Markets listing fees, which are recognized as expense over the related servicelisting periods. At bothAs of December 31, 20172021 and September 30, 2017,2021, prepaid expense and other current assets amounted $750.to $12,588 and $12,221, respectively.

Software development costsCost method investment

Investment in which the Company does not have the ability to exercise significant influence over operating and financial matters is accounted for using the cost method. Under the cost method, investment is recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received. The Company periodically evaluates its cost method investment for impairment due to decline considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in “Other income (expense), net” in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss, and a new basis in the investment is established.

At December 31, 2017, software development costs totaled $50,000,Intangible assets

Intangible assets consist of trade names, regulatory licenses and technology, which represents software development that management expects to complete and place in service in June 2018. Projected capitalized costs of this software development is approximately $200,000. Capitalized costs related to the software under development are treated as an asset until the development is completed. The Company will amortize the software costsbeing amortized on a straight-line basismethod over the estimated useful life of 3 - 5 years.

Impairment of long-lived assets

In accordance with ASC Topic 360, the software, commencingCompany reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the softwaresum of expected undiscounted future cash flows is put into productive use.less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There were no triggering events requiring assessment of impairment as of December 31, 2021 and September 30, 2021. For the three months ended December 31, 2021 and 2020, no impairment of long-lived assets was recognized.

Revenue recognition

Because theThe Company provides its applications as services, it followsaccounts for revenue under the provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104; Revenue Recognition. The Company recognizes revenue when all of the following conditions are met:ASC Topic 606.

The Company’s revenues are derived from providing:

The Company records

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Disaggregation of revenues and expenses related to the General Service Agreements at gross as the Company is deemed to be a principal in the transactions. Revenues are recognized when the services are completed and expenses are recognized as incurred. 

Income taxesThe Company’s revenues stream detail are as follows:

The Company recorded no income tax expense

In the following table, revenues are disaggregated by segment for the three months ended December 31, 20172021 and 2016 because2020:

Advertising and marketing costs

All costs related to advertising and marketing are expensed as incurred. For the estimated annual effective tax rate was zero. As ofthree months ended December 31, 2017,2021 and 2020, advertising and marketing costs amounted to $35,222 and $0, respectively, which was included in other general and administrative expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Stock-based compensation

The Company continuesaccounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to provide a valuation allowance against its net deferred tax assets sinceemployees and non-employees including grants of stock options, to be recognized as expense in the statements of operations based on their grant date fair values. The Company believes it is more likely than not its deferred tax assets will not be realized.estimates the grant date fair value of each option award using the Black-Scholes option-pricing model.

Income taxes

In December 2017,The Company accounts for income taxes pursuant to Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes. Deferred tax assets and liabilities are determined based on temporary differences between the United States Government passed newbases of certain assets and liabilities for income tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income the Company may have, the legislation affects the way the Company can use and carryforward net operating losses previously accumulated and results in a revaluation offinancial reporting purposes. The deferred tax assets and liabilities recordedare classified according to the financial statement classification of the assets and liabilities generating the differences.

The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the balance sheet. Given that currentexistence of sufficient taxable income within the carry-forward period under the Federal and foreign tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax assets are offset by a fullasset. Any change in the valuation allowance these changes will have no net impact onbe included in income in the balance sheet. However, whenperiod of the Company becomes profitable, the Company will receive a reduced benefit from such deferred tax assets.change in estimate.

6The Company follows the provisions of FASB ASC 740-10 Uncertainty in Income Taxes (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. 

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Per share data

ASC Topic 260, “EarningsEarnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net earnings per share are computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per share is computed by dividing net earnings applicable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted earnings per share reflectsFor the potential dilution that could occur if securities were exercised or converted intothree months ended December 31, 2021 and 2020, potentially dilutive common stock or other contracts to issueshares consist of the common stock resulting inshares issuable upon the issuanceexercise of common stock that would then shareoptions (using the treasury stock method) and the conversion of Series A preferred stock (using the if-converted method). Common stock equivalents are not included in the Company’s earnings subject to anti-dilution limitations.calculation of diluted net loss per share if their effect would be anti-dilutive. 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. For

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:

Asset and liability accounts at December 31, 2021 and September 30, 2021 were translated at 0.7389 GBP and 0.7426 GBP to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rate applied to the statement of operations for the three months ended December 31, 2017 and 2016, potentially dilutive common shares consist of common stock issuable2021 was 0.7422 GBP to $1.00. Cash flows from the Company’s operations are calculated based upon the conversion of Series A preferred stock (usinglocal currencies using the if-converted method).average translation rate.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Comprehensive loss

Comprehensive loss is comprised of basic and diluted net loss per share:

Duringand 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 months ended December 31, 20172021 and 2016, all potentially dilutive securities are excluded2020 consisted of net loss and unrealized loss from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact.foreign currency translation adjustment.

ReclassificationsSegment reporting

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. The Company has reclassified certain prior period amounts in the accompanying unaudited condensed consolidated statementsdetermined that it has two reportable business segments: general support services segment, and financial services segment. These reportable segments offer different types of operations in order to be consistent with the current period presentation. These reclassifications had no effect on the previously reported resultsservices and products, have different types of operations.revenue, and are managed separately as each requires different operating strategies and management expertise.

Recently issued accounting pronouncements

In May 2014,June 2016, the FASB issued Accounting Standards UpdateASU 2016-13, Financial Instruments - Credit Losses (“ASU”Topic 326”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will requireintroduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requiresearlier recognition of credit losses and additional disclosure aboutdisclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the nature, amount, timing and uncertaintyrecognition of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtaincredit losses at the time the financial asset is originated or fulfill a contract.acquired. ASU 2014-092016-13 is effective for interim and annual periodsperiod beginning after December 15, 2017 (quarter ending December 31, 2018 for the Company). Early adoption is permitted only in2022, including interim reporting periods within those annual reporting periods. The Company expects that the adoption will not have a material impact on its unaudited condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2016, including2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim periods therein. Entities can transition toor annual period presented in the standard either retrospectively or as a cumulative-effect adjustment as of the dateinitial fiscal year of adoption. The Company is currently evaluating the effectsadoption of adopting ASU 2014-09 and the implementation approach to be used, butthis guidance as of the date of this filing, the adoption isOctober 1, 2020 did not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

NUKKLEUS INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently issued accounting pronouncements (continued)

In February 2016,December 2019, the FASB issued ASU No. 2016-02, Leases (Topic 842): Amendments2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the Leases Analysis, which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. This pronouncement is effective for reporting periods beginning after December 15, 2018 including interim periods within those annual reporting periods (quarter ending December 31, 2019 for the Company) using a modified retrospective adoption method. The Company is currently evaluating the impact of adopting the new lease standard on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments add further guidance on identifying performance obligations and also improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. This pronouncement has the same effective date as the new revenue standard, which is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017 (quarter ending December 31, 2018 for the Company). The Company is currentlygeneral principles in the process of evaluating the impact of the adoption on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvementsexisting guidance for income taxes and Practical Expedients.making other minor improvements. The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years (quarter ending December 31, 2018 for the Company), with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period.ASU are effective for the Company on October 1, 2021. The Company is currently evaluating the impact it may have on its consolidated financial statements, but the adoption isof this guidance as of October 1, 2021 did not expected to have a significantmaterial impact as ofon the filing of this report.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for acquisitions (or disposals) of assets or business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods (quarter ending December 31, 2018 for the Company). The Company is currently evaluating the impact of adopting ASU 2017-01 on itsCompany’s unaudited condensed consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017 (quarter ending December 31, 2018 for the Company). Early adoption is permitted. The Company is currently evaluating the impact it may have on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.

NUKKLEUS INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently issued accounting pronouncements (continued)

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – ACCRUED LIABILITIESINVESTMENT, AT COST

At December 31, 20172021, cost method investment amounted to $6,602,000. The investment represents the Company’s minority interest in Jacobi Asset Management Holdings Limited (“Jacobi”), a private company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF.

On December 15, 2021, the Company issued 20,000,000 shares of its common stock to Jacobi’s shareholders for acquisition of 5.0% equity interest of Jacobi. These shares were valued at $6,602,000, the fair market value on the grant date using the reported closing share price of the Company on the date of grant.

In accordance with ASC Topic 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company monitors its investment in the non-marketable security and will recognize, if ever existing, a loss in value which is deemed to be other than temporary. The Company determined that there was no impairment of this investment as of December 31, 2021.   

NOTE 5 – INTANGIBLE ASSETS

Intangible assets consist of the valuation of identifiable intangible assets acquired, representing trade names, regulatory licenses and technology. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

At December 31, 2021 and September 30, 2017,2021, intangible assets consisted of the following:

For the three months ended December 31, 2021, amortization expense amounted to $911,943. There was no comparable amortization for the three months ended December 31, 2020. Amortization of intangible assets attributable to future periods is as follows:

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

At December 31, 2021 and September 30, 2021, accounts payable and accrued liabilities consisted of the following:

NOTE 57 – SHARE CAPITAL

Authorized sharesPreferred stock

The CompanyCompany’s Board of Directors is authorized to issue, 900,000,000 shares of common stock at par value of $0.0001 andany time, without further stockholder approval, up to 15,000,000 shares of Series A preferred stock at par valuestock. The Board of $0.0001.Directors has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.  

Common stock issued for Stock Purchase Agreementcost method investment

As described in Note 1, on May 27, 2016,On December 15, 2021, the Company acquired 100%issued 20,000,000 shares of its common stock to Jacobi Asset Management Holdings Limited’s shareholders as consideration of acquisition of 5.0% of the issued and outstanding ordinary shares of Iron BVI for 24,156,000 shares of common stock of the Company. TheJacobi. These shares were valued at $.0023 per share. As a result of$6,602,000, the First Closing being contingentfair market value on the Second Closing,grant date using the 24,156,000 shares forreported closing share price on the purchasedate of IBIH wasgrant, and the Company recorded as “contingent common stock” due to the uncertaintycost method investment of the closing of the transaction.$6,602,000 (see Note 4).

On November 17, 2017, the Company entered into the Iron Settlement Agreement. As a result, IBIH has returned the certificate representing the 24,156,000 shares of common stock of the Company and the shares have been cancelled by the Company.Options

Common stock and Series A preferred stock sold for cash

The Company agreed to sell to CMH 30,900,000following table summarizes the shares of common stock and 200,000 shares of Series A preferred stock for $2,000,000 in two equal installments. The first close occurred on June 7, 2016. Originally, the second closing was to occur with the closing of the Company’s acquisitioncommon stock issuable upon exercise of IBIH. Since the acquisition of IBIH transaction was terminated, the second closing with CMH will not proceed.options outstanding at December 31, 2021:

The Series A preferred stock has

Stock option activities for the following key terms:three months ended December 31, 2021 were as follows:

The aggregate intrinsic value of both stock options outstanding and stock options exercisable at December 31, 2021 was $0.

During the first close, 15,450,000 shares of common stock and 100,000 shares of Series A preferred stock were issued and were recorded as equity and as a long-term liability, respectively. The $1,000,000 of proceeds received was allocated to the common stock and Series A preferred stock according to their relative fair values determined at the time of issuance, and as a result, the Company recorded a total discount of $45,793 on the Series A preferred stock, which is being amortized to interest expense to the date of redemption. For the three months ended December 31, 2017 and 2016, amortization of debt discount2021, stock-based compensation expense associated with stock options granted amounted to $2,290$378,746, which was recorded as professional fees on the accompanying unaudited condensed consolidated statements of operations and $2,289, respectively.comprehensive loss. There was no comparable stock-based compensation expense associated with stock options for the three months ended December 31, 2020.

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 57 – SHARE CAPITAL (continued)

Common stock and Series A preferred stock sold for cash (continued)

The termssummary of the Series A preferredstatus of the Company’s nonvested stock issued represent mandatory redeemable shares, with a fixed redemption date (in 5 years)options granted as of December 31, 2021 and the Company has a choice of redeeming the instrument either in cash or a variable number of shares of common stock based on a formula in the certificate of designation. The conversion price has a floor of $0.20 per share. As such, all dividends accrued and/or paid and any accretions are classified as part of interest expense. Forchanges during the three months ended December 31, 2017 and 2016, dividends on redeemable preferred stock amounted to $3,750. 2021 is presented below:

On February 13, 2018, the Company and CMH entered into a stock redemption agreement for 75,000 shares of preferred stock. See Note 7.

NOTE 68 – RELATED PARTY TRANSACTIONS

Services provided by related parties

From time to time, Craig Marshak, a director of the Company, provides consulting services to the Company. Mr. Craig Marshak is a principal of Triple Eight Markets. All professional services fee payable to Craig Marshak is paid to Triple Eight Markets.As compensation for professional services provided, the Company recognized consulting expenses of $6,000 and $50,000 for the three months ended December 31, 2017 and 2016, respectively, which have been included in general and administrative expense – related party on the accompanying unaudited condensed consolidated statements of operations. As of December 31, 2017 and September 30, 2017, the accrued and unpaid services charge related to Craig Marshak amounted to $0 and $8,000, respectively, which have been included in accrued liabilities – related party on the accompanying consolidated balance sheets.

The Company uses affiliate employees for various services such as the use of accountants to record the books and accounts of the Company at no charge to those affiliates,the Company, which are considered immaterial.

Office space from related parties

The Company uses office space of affiliate companies, free of rent, which is considered immaterial.

Revenue from related party and cost of revenue from related party

On May 24, 2016, the Company entered intoThe Company’s general support services operate under a General Service AgreementGSA with FXDD Malta, a related party. The Company is to invoice FXDD Malta a minimum of $2,000,000 per month in consideration forTCM providing personnel and technical support, marketing, accounting, risk monitoring, documentation processing and customer care and support.On October 17, 2017, the Company entered into an amendment of the General Service Agreement with FXDD Malta. In according to the amendment, which was effective as of October 1, 2017, the The minimum monthly amount payable by FXDD Malta to the Company for services was reduced from $2,000,000 per month to $1,600,000 per month. Emil Assentatoreceived is also the majority member of Max Q Investments LLC (“Max Q”), which is managed by Derivative Marketing Associates Inc. (“DMA”). Mr. Assentato is the sole owner and manager of DMA. Max Q owns 79% of Currency Mountain Malta LLC, which in turn is the sole shareholder of FXDD Malta.$1,600,000.

In addition, on May 24, 2016, the Company entered intoThe Company’s general support services operate under a General Service AgreementGSA with FXDIRECT to pay a minimum of $1,975,000 per month for receiving personnel and technical support, marketing, accounting, risk monitoring, documentation processing and customer care and support. On October 17, 2017, the Company entered into an amendment of the General Service Agreement with FXDIRECT. Pursuant to the amendment, which was effective as of October 1, 2017, theThe minimum monthly amount payable by the Company to FXDIRECT for services was reduced from $1,975,000 per month to $1,575,000 per month. Currency Mountain Holdings LLC is the sole shareholder of FXDIRECT. Max Q is the majority shareholder of Currency Mountain Holdings LLC.$1,575,000.

Both of the above entities are affiliates through common ownership.

During the three months ended December 31, 20172021 and 2016, service2020, general support services provided to the related party, which was recorded as revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations wasand comprehensive loss were as follows:

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 68 – RELATED PARTY TRANSACTIONS (continued)

Revenue from related party and cost of revenue from related party (continued)

During the three months ended December 31, 20172021 and 2016, service2020, services received from the related party, which was recorded as cost of revenue – general support services - related party on the accompanying unaudited condensed consolidated statements of operations wasand comprehensive loss were as follows:

Due tofrom affiliates

At December 31, 20172021 and September 30, 2017,2021, due from related parties consisted of the following:

The balance of due from NUKK Capital represent the Company’s prior investment in digital currency that was transferred to NUKK Capital in March 2019. The balance of due from TCM represent unsettled funds due related to the General Services Agreement and monies that the Company paid on behalf of TCM.

Management believes that the related parties’ receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required on its due from related parties at December 31, 2021 and September 30, 2021. The Company historically has not experienced uncollectible receivable from the related parties.

Due to affiliates

At December 31, 2021 and September 30, 2021, due to related parties consisted of the following:

The balances of due to related parties represent expenses paid by Forexware LLC, FXDIRECT, and FXDIRECTFXDD Trading on behalf of the Company.Company and advances from CMH. The balancesbalance due to FXDIRECT may also include unsettled funds due related to the General Service Agreement.

The related parties’ payables are short-term in nature, non-interest bearing, unsecured and repayable on demand.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – INCOME TAXES

The Company recorded no income tax expense for the three months ended December 31, 2021 and 2020 because the estimated annual effective tax rate was zero. As of December 31, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

NOTE 10 – CONCENTRATIONS

Customers

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three months ended December 31, 2021 and 2020.

One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at December 31, 2021, accounted for 97.8% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at December 31, 2021.

One customer, whose outstanding receivable accounted for 10% or more of the Company’s total outstanding accounts receivable, and accounts receivable – related party (which is included in due from affiliates on the accompanying consolidated balance sheets) at September 30, 2021, accounted for 97.8% of the Company’s total outstanding accounts receivable, and accounts receivable – related party at September 30, 2021.

Suppliers

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s costs of revenues for the three months ended December 31, 2021 and 2020.

One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at December 31, 2021, accounted for 97.3% of the Company’s total outstanding accounts payable, and accounts payable – related party at December 31, 2021.

One supplier, whose outstanding payable accounted for 10% or more of the Company’s total outstanding accounts payable, and accounts payable – related party (which is included in due to affiliates on the accompanying consolidated balance sheets) at September 30, 2021, accounted for 98.8% of the Company’s total outstanding accounts payable, and accounts payable – related party at September 30, 2021.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – SEGMENT INFORMATION

For the three months ended December 31, 2021, the Company operated in two reportable business segments - (1) the general support services segment, in which we provide software, technology, customer sales and marketing and risk management technology hardware and software solutions package under a GSA to a related party, and (2) the financial services segment, in which we provide financial services to enable conversion of fiat currencies to cryptocurrencies and vice versa. For the three months ended December 31, 2020, the Company operated in one reportable business segment – the general support services segment. The Company’s reportable segments are strategic business units that offer different services and products. They are managed separately based on the fundamental differences in their operations.

Information with respect to these reportable business segments for the three months ended December 31, 2021 and 2020 was as follows:

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – CONTINGENCY

In April 16, 2020, the Company was named as a defendant in the Adversary Proceeding filed in the United States Bankruptcy Court for the District of Massachusetts (Case No. 15-10745-FJB; Adversary Proceeding No. 16-01178) titled In re: BT Prime Ltd (“BT Prime”). The Adversary Proceeding is brought by BT Prime against Boston Technologies Powered by Forexware LLC f/k/a Forexware LLC (“Forexware”), Currency Mountain Holdings LLC, Currency Mountain Holdings Limited f/k/a Forexware Malta Holdings Ltd., FXDirectDealer, LLC, FXDD Malta Ltd., Nukkleus Inc., Nukkleus Bermuda Limited and Currency Mountain Holdings Bermuda, Ltd. In the Amended Complaint, BT Prime is seeking, amongst other relief, a determination that the Company and the other defendants are liable for all of the debts of BT Prime stemming from its bankruptcy proceedings, and is seeking to recover certain amounts transferred to Forexware and FXDD Malta prior to the initiation of the bankruptcy case. In the sole claim asserted against the Company, BT Prime alleges that the Company operated as a single business enterprise with no separate existence outside of its collective business relationship with certain of the other Defendants, is a continuation of the business of Forexware and is a successor-in-interest to Forexware. Based on this theory, BT Prime alleges that the Company should be jointly and severally liable for any liability attributable to Forexware or the other Defendants, should the Court eventually find any such liability. It is the Company’s position that there is no basis for BT Prime’s claim against it and intends to vigorously defend against the claim at trial, the date for which has not yet been set.

NOTE 713 – SUBSEQUENT EVENTS

Except as set forth below, there were noManagement has evaluated subsequent events that occurred subsequent to December 31, 2017 that require adjustment to or disclosure inthrough the consolidated financial statements.

On June 3, 2016, the Company agreed to sell to CMH 30,900,000 shares of common stock and 200,000 shares of Series A preferred stock for $2,000,000 in two equal installments with the first closing occurring on June 7, 2016 resulting in the issuance of 100,000 shares of Series A Preferred Stock to CMH (the “CMH Preferred Shares”). CMH is wholly-owned by an entity that is owned by Emil Assentato, the Company’s CEO, CFO and Chairman. The second close was to occur with the closingdate of the Company’s acquisition of IBIH. On November 17, 2017, the Company entered into a Settlement Agreement and Mutual Release terminating the Company’s acquisition of IBIH and, as a result, the second closing of the CMH financing was also terminated. As a result of the termination of the IBIH transaction, the Company and CMH have agreed to enter into that certain Stock Redemption Agreement dated February 13, 2018 providing that 75,000 CMH Preferred Shares shall be redeemed and cancelled in consideration of $750,000 which occurred on February 13, 2018.filing.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations for the three months ended December 31, 20172021 and 20162020 should be read in conjunction with our unaudited condensed consolidated financial statements and related notes to those unaudited condensed consolidated financial statements that are included elsewhere in this report.

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:

These forward-looking statements can generally be identified as such because the contextImpact of COVID-19 on Our Operations

The ramifications of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated asoutbreak of the datenovel strain of filing ofCOVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption.

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this Form 10-Q. Shareholders, potential investorspoint forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made asscope of the date of filing of this Form 10-Q,pandemic, and we undertake no obligationgovernmental, business and individuals’ actions that have been and continue to publicly update such forward-looking statements to reflect subsequent events or circumstances.

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipatedbe taken in these forward-looking statements.

Unless otherwise indicated, referencesresponse to the “Company”, “us”, or “we” refer to Nukkleus Inc. and its consolidated subsidiary.pandemic.

Overview

We are a financial technology company which is focused on providing software and technology solutions for the worldwide retail foreign exchange (“FX”) trading industry. We primarily provide our software, technology, customer sales and marketing and risk management technology hardware and software solutions package to FXDD Malta Limited (“FXDD Malta”).TCM. The FXDD brand (e.g., see FXDD.com) is the brand utilized in the retail forex trading industry by FXDD Malta.TCM.

As part of the Assets acquired, we acquiredWe have ownership of FOREXWARE, the primary software suite and technology solution which powers the FXDD brand globally today. We also have ownership of the FOREXWARE brand name. We have also acquired ownership of the customer interface and other software trading solutions being used by FXDD.com. By virtue of our relationship with FXDD MaltaTCM and FXDirectDealer LLC (“FXDIRECT”),FXDIRECT, we provide turnkey software and technology solutions for FXDD.com. We offer the customers of FXDD 24 hour,hours, five days a week direct access to the global over the counter (“OTC”) FX market, which is a decentralized market in which participants trade directly with one another, rather than through a central exchange.

In an FX trade, participants effectively buy one currency and simultaneously sell another currency, with the two currencies that make up the trade being referred to as a “currency pair”. Our software and technology solutions enable FXDD to present its customers with price quotations on over the counter tradeable instruments, including over the counter currency pairs, and also provide our customers the ability to trade FX derivative contracts on currency pairs through a product referred to as Contracts for Difference (“CFD”). Our software solutions also offer other CFD products, including CFDs on metals, such as gold, and on futures linked to other products.

In July 2018, the Company incorporated Nukkleus Malta Holding Ltd., which is a wholly-owned subsidiary. In July 2018, Nukkleus Malta Holding Ltd. incorporated MDTG, formerly known as Nukkleus Exchange Malta Ltd. MDTG was exploring potentially obtaining a license to operate an electronic exchange whereby it would facilitate the buying and selling of various digital assets as well as traditional currency pairs used in FX Trading. During the fourth quarter of fiscal 2020, management made the decision to exit the exchange business and to no longer pursue the regulatory licensing necessary to operate an exchange in Malta.

We are

On August 27, 2020, the Company renamed Nukkleus Exchange Malta Ltd. to Markets Direct Technology Group Ltd (“MDTG”). MDTG manages the technology and IP behind the Markets Direct brand (which is operated by TCM). MDTG holds all the IP addresses and all the software licenses in its name, and it holds all the process of finalizing an agreement with a third-party forIP rights to the customizationbrands such as Markets Direct and development of a trading platformTCM. MDTG then leases out the rights to be used by us. Management expectsuse these names/brands licenses to the project to be completedappropriate entities.

On May 24, 2021, the Company and the platformshareholders of Match Financial Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”), entered into a Purchase and Sale Agreement (the “Match Agreement”), pursuant to be placedwhich the Company, on May 28, 2021, acquired 1,152 ordinary shares of Match representing 70% of the issued and outstanding ordinary shares of Match in serviceconsideration of 70,000,000 shares of common stock of the Company (the “Initial Transaction”). On August 30, 2021, the Company exercised its option pursuant to which it acquired from the Match Shareholders the balance of 493 ordinary shares of Match representing 30% of the issued and outstanding ordinary shares of Match for an additional 30,000,000 shares of common stock of the Company. Match is engaged in June 2018. Projected capitalized costsproviding financial services to enable conversion of this software development is approximately $200,000.fiat currencies to cryptocurrencies and vice versa.

We currently planOn October 20, 2021, the Company and the shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to seek for acquisitionswhich the Company agreed to acquire 5.0% of the issued and outstanding ordinary shares of Jacobi in consideration of 20,000,000 shares of common stock of the Company (the “Jacobi Transaction”). On December 15, 2021, the Company, the Original Shareholders and the shareholders of Jacobi that bringwere assigned their interest in Jacobi by the Original Shareholders (the “New Jacobi Shareholders”) entered into an Amendment to Stock Purchase Agreement agreeing that the Jacobi Transaction will be entered between the Company and the New Jacobi Shareholders. The Jacobi Transaction closed on December 15, 2021. Jacobi is a company focused on digital asset management that has received regulatory approval to launch the world’s first tier one Bitcoin ETF.

On December 30, 2021, the Company and the shareholder value both(the “Digiclear Shareholder”) of Digiclear Ltd. (“Digiclear”) entered into a Purchase and Sale Agreement (the “Digiclear Agreement) pursuant to which the Company agreed to acquire 5,400,000 of the issued and outstanding ordinary shares of Digiclear in consideration of 15,151,515 shares of common stock of the short term and long term. Our goalCompany (the “Digiclear Transaction”). The Digiclear Transaction is expected to create an industry leading sector consolidated platform, combining strong global retail and institutional trading flows covering FX, commodities, futures, CFD and equities, with a cutting edge technological product suite, turnkey software and technological development capabilities.close in March 2022.