UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q10-Q/A

Amendment No. 2

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended DecemberMarch 31, 20172022

OR

☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 333-192647000-55922

Nukkleus Inc.

(Exact name of registrant as specified in its charter)

525 Washington Boulevard, Jersey City, New Jersey 07310

 (Address(Address of principal executive offices, including zip code)

212-791-4663

(Issuer’s telephone number)

212 - 791-4663

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.0001

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ☐☒ No ☐

(Does not currently apply to the Registrant)

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.

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 ☒

Securities registered pursuant to Section 12(b) of the Act: Not applicable.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.date.

Explanatory Note

Nukkleus Inc. (the “Company”) is filing this Amendment No. 2 to its Quarterly Report on Form 10-Q (this “Amendment”) for the period ended March 31, 2022, which was originally filed with the Securities and Exchange Commission (“SEC”) on May 23, 2022 and amended on August 1, 2022 (the “10Q Filing”). In response to an SEC comment letter dated September 7, 2022, this Amendment makes certain revisions to the 10Q Filing to reflect the following revisions:

In addition, as required by Rule 12b-15 under the Securities Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits to this Amendment under Part II, “Item 6. Exhibits” hereof.

Except for the foregoing amended information or where otherwise noted, this Amendment does not reflect events that occurred after the 10Q Filing or modify or update those disclosures affected by subsequent events.

This Amendment should be read in conjunction with the 10Q Filing.

NUKKLEUS INC.

FORM 10-Q10-Q/A

DecemberMarch 31, 20172022

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.report.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.prospects.

Unless otherwise indicated, references in this report to the “Company”, “Nukkleus”, “we”, “us”, or “our” refer to Nukkleus Inc. and its consolidated subsidiary.subsidiaries.

PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements.

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) INCOME

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 and Six Months Ended March 31, 2022

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 and Six Months Ended March 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 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

(AS RESTATED)

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.

On May 27, 2016, the Company entered into a Stock Purchase Agreement (“SPA”) 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, the Company acquired 100% of the issued and outstanding shares of GVS Limited (“Iron BVI”), which is the parent corporation of GVS (AU) Pty Ltd. (“Iron Australia”) for 24,156,000 shares of common stock of the Company (“First Closing”).

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

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

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 November 17, 2017,August 27, 2020, the Company IBIH, Terra (FX) Offshore Limited, Ludico Investments Limited, Currency Mountain Holdings LLCrenamed 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 24, 2021, the Company and the IBIH Shareholdersshareholders of Match Financial Limited (the “Match Shareholders”), a private limited company formed in England and Wales (“Match”), entered into a SettlementPurchase and Sale Agreement and Mutual Release (the “Iron Settlement“Match 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) have the registered office of Iron Australia changed, (ii) have its director designees resign as directors of Iron Australia, (iii) appoint Markos Kashiouris, Petros Economides 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 2,200on May 28, 2021, acquired 1,152 ordinary shares of capital stockMatch representing 70% of IBIH to the IBIH Shareholdersissued and return 100%outstanding ordinary shares of its interestMatch in Iron BVI to IBIH. IBIH agreed to return the 24,156,000consideration of 70,000,000 shares of common stock of the Company to(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 cancellation andan additional 30,000,000 shares of common stock of the Company. Match is engaged in providing payment services from one fiat currency to pay the Company $1,000,000. Further, Markos Kashiouris, Petros Economides and Efstathios Christophi resigned as directors ofanother.

On October 20, 2021, the Company and waived any directorship fees payablethe shareholders (the “Original Shareholders”) of Jacobi Asset Management Holdings Limited (“Jacobi”) entered into a Purchase and Sale Agreement (the “Jacobi Agreement”) pursuant to them under their letter of appointment dated August 1, 2016. The $1,000,000 has been paid towhich the Company netagreed to acquire 5.0% of approximately $70,000the issued and outstanding ordinary shares of legal expenses,Jacobi in the first fiscal quarterconsideration of 2018 and IBIH has returned the certificate representing the 24,156,00020,000,000 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 were 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. The transactions contemplated by the Jacobi Agreement constituted a “related-party transaction” as defined in Item 404 of Regulation S-K because of Mr. Khurshid’s and Mr. Gregory’s position as beneficial owner of one or more Original Shareholders and New Jacobi Shareholders.

On December 30, 2021, the Company and the shareholder (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 Company (the “Digiclear Transaction”). The Digiclear Transaction closed on March 17, 2022. Digiclear is a company developing a custody and settlement utility operating system.

The unaudited condensed consolidated financial statements have been cancelledprepared 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 and generated negative cash flow from operating activities for the six months ended March 31, 2022 of $3,871,453 and $304,371, respectively, and had a working capital deficit of $2,975,438 at March 31, 2022. 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.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 pandemic.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

NOTE 2 – RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS

The Company concluded it should restate its previously issued financial statements by amending its Quarterly Report on Form 10- Q for the quarterly period ended March 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on May 23, 2022 and amended on August 1, 2022 (the “10Q Filing”), to record the classification of amortization of intangible assets representing licenses and banking infrastructure acquired on Match acquisition. The Company had previously recorded the amortization of intangible assets as operating expenses. In July 2022, the Company realized its financial services segment is unable to generate revenue without the licenses and bank infrastructure. As a result, the Company reclassified the amortization of intangible assets from operating expenses to cost of revenue – financial services.

In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the correction and has determined that the related impact was material to the previously filed financial statements that contained the error, reported in the Company’s Form 10-Q for the quarterly period ended March 31, 2022 (the “Affected Quarterly Period”). Therefore, the Company concluded that the Affected Quarterly Period should be restated to present the reclassification. As such, the Company is reporting the restatement to the period in this quarterly report.

The following table represents the impacts of the adjustment described above:

The reclassifications did not have any impact on consolidated operating loss, net loss or earnings per share, cash flows or balance sheets.

NOTE 23 – 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

(AS RESTATED)

NOTE 34 – 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 and six months ended DecemberMarch 31, 20172022 and 20162021 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. 

Cash and cash equivalents

At March 31, 2022 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 March 31, 2022, the Company’s cash balances in United States bank accounts were not in excess of the date of this report.federally-insured limits.

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 expense

Prepaid expense represents cash paid in advanceAccounts receivable are presented net of an allowance for professional service charge.doubtful accounts. The amountCompany 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 recognizeddoubt as expense over the related service periods. At both December 31, 2017 and September 30, 2017, prepaid expense amounted $750.

Software development costs

At December 31, 2017, software development costs totaled $50,000, 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 untilcollectability of individual balances. In evaluating the development is completed. Thecollectability of individual receivable balances, the Company will amortizeconsiders many factors, including the software costs on a straight-line basis over the estimated lifeage of the software, commencing whenbalance, 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 software is put into productive use.

Revenue recognition

Because the Company provides its applications as services, it follows the provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104; Revenue Recognition. The Company recognizes revenue when all of the following conditionsaccounts receivable are met:

The Company records revenues and expenses related to the General Service Agreements at gross as the Companyfully collectable. Therefore, no allowance for doubtful accounts is deemed to be a principal in the transactions. Revenues are recognized when the services are completedrequired on its accounts receivable at March 31, 2022 and expenses are recognized as incurred. 

Income taxes

September 30, 2021. The Company recorded no income tax expense for the three months ended December 31, 2017 and 2016 because the estimated annual effective tax rate was zero. As of December 31, 2017, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely thanhistorically has not its deferred tax assets will not be realized.

In December 2017, the United States Government passed new 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 of deferred tax assets and liabilities recorded on the balance sheet. Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no net impact on the balance sheet. However, when the Company becomes profitable, the Company will receive a reduced benefit from such deferred tax assets.experienced significant uncollectible accounts receivable.

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

NOTE 34 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Other current assets

Other current assets primarily consist of prepaid professional service fees and prepaid OTC Markets listing fees. As of March 31, 2022 and September 30, 2021, other current assets amounted to $26,627 and $12,221, respectively.

Investments

Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are 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) income, and a new basis in the investment is established.

The Company uses the equity method of accounting for its investments in, and earning or loss of, a company that it does not control but over which it does exert significant influence. The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value.

Intangible assets

Intangible assets consist of trade names, regulatory licenses, technology and software, which are being amortized on a straight-line method over the estimated useful life of 3 - 5 years.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company 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 sum of expected undiscounted future cash flows is 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 March 31, 2022 and September 30, 2021. For the three and six months ended March 31, 2022 and 2021, no impairment of long-lived assets was recognized.

Revenue recognition

The Company accounts for revenue under the provisions of ASC Topic 606.

The Company’s revenues are derived from providing:

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Disaggregation of revenues

The Company’s revenues stream detail are as follows:

In the following table, revenues are disaggregated by segment for the three and six months ended March 31, 2022 and 2021:

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 and six months ended March 31, 2022 and 2021, 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 three months ended December 31, 2017 and 2016, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A preferred stock (using the if-converted method).

The following table presentsis a reconciliation of the basic and diluted net loss(loss) income per share:share computations for the three and six months ended March 31, 2022 and 2021:

Basic net (loss) income per share

During

Diluted net (loss) income per share

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Per share data (continued)

The following table summarizes the three months ended December 31, 2017 and 2016, all potentially dilutive securities arethat were excluded from the computationdiluted per share calculation because the effect of diluted weighted average number ofincluding these potential shares of common stock outstanding as they would have had an anti-dilutive impact.was antidilutive:

Reclassifications

Foreign currency translation

The reporting currency of the Company is U.S. Dollars. The functional currency of the parent company, Nukkleus Inc., Nukkleus Limited, Nukkleus Malta Holding Ltd. and its subsidiaries, is the U.S. dollar and the functional currency of Match Financial Limited and its subsidiaries is the British Pound (“GBP”). Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange prevailing at the balance sheet date. Revenue and expenses are translated using average rates during each reporting period, and shareholders’ equity is translated at historical exchange rates. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income/loss.

Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. 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.

Asset and liability accounts at March 31, 2022 and September 30, 2021 were translated at 0.7611 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 six months ended March 31, 2022 was 0.7439 GBP to $1.00. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

Comprehensive (loss) income

Comprehensive (loss) income is comprised of net (loss) income 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) income for the three and six months ended March 31, 2022 and 2021 consisted of net (loss) income and unrealized gain from foreign currency translation adjustment.

Segment 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.

NUKKLEUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

NOTE 4 – ACCRUED LIABILITIESReclassifications

At December 31, 2017 and September 30, 2017, accrued liabilities consisted ofReclassifications occurred to certain prior year amounts in order to confirm to the following:current year presentation. The reclassifications had no effect on the previously reported net loss.

NOTE 5 – SHARE CAPITALCOST METHOD INVESTMENT

Authorized sharesAt March 31, 2022, 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.

TheOn December 15, 2021, the Company is authorized to issue 900,000,000issued 20,000,000 shares of its common stock at par valueto Jacobi’s shareholders for acquisition of $0.0001 and 15,000,000 shares5.0% equity interest of Series A preferred stock at par value of $0.0001.

Common stock issued for Stock Purchase Agreement

As described in Note 1, on May 27, 2016, the Company acquired 100% of the issued and outstanding 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 for the purchase of IBIH was recorded as “contingent common stock” due to the uncertainty of thereported closing of the transaction.

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 stockshare 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 March 31, 2022.   

NOTE 6 – EQUITY METHOD INVESTMENT

As of March 31, 2022, the equity method investment amounted to $4,929,381. The investment represents the Company’s interest in Digiclear Inc. (“Digiclear”). Digiclear was incorporated on July 13, 2021 in United Kingdom. The company and the shares have been cancelled byother unrelated party accounted for 50% and 50% of the Company.total ownership, respectively. Digiclear is a company developing a custody and settlement utility operating system.

Common stock and Series A preferred stock sold for cash

The Company agreed to sell to CMH 30,900,000 sharesaccounts for the investment in Digiclear under the equity method of common stock and 200,000 shares of Series A preferred stockaccounting. Under the equity method, the investment is initially recorded at cost, adjusted 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 closingany excess of the Company’s acquisitionshare of IBIH. Since the acquisitionincorporated-date fair values of IBIH transaction was terminated, the second closing with CMH will not proceed.

The Series A preferred stock hasinvestee’s identifiable net assets over the following key terms:

During the first close, 15,450,000 sharesinvestment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of common stockthe investee’s net assets 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 allocatedany impairment loss relating 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 discount amounted to $2,290 and $2,289, respectively.investment.

For the period from March 17, 2022 (date of investment) through March 31, 2022, the Company’s share of Digiclear’s net loss of $30,320 and the adjustment for allocated amortization of intangible asset of $40,299 were included in loss from equity method investment in the accompanying condensed consolidated statements of operations and comprehensive (loss) income.

NUKKLEUS INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

NOTE 56 – SHARE CAPITALEQUITY METHOD INVESTMENT (continued)

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

The termstables below present the summarized unaudited financial information, as provided to the Company by the investee, for the unconsolidated company: