US NUCLEAR CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand US
Nuclear Corp, our operations and our present business environment. MD&A is
provided as a supplement to-and should be read in conjunction with-our
consolidated financial statements and the accompanying notes included in this
Quarterly Report on Form 10-Q. The audited financial statements for our fiscal
year ended December 31, 2020 filed with the Securities Exchange Commission on
Form 10-K on July 29, 2021 should be read in conjunction with the discussion
below. This discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results may differ materially from
those anticipated in these forward-looking statements. In the opinion of
management, all material adjustments necessary to present fairly the results of
operations for such periods have been included in these unaudited financial
statements.

We were incorporated in Delaware on February 14, 2012, and on March 2, 2012, we
filed a registration statement on Form 10 to register with the U.S. Securities
and Exchange Commission as a public company. We were originally organized as a
vehicle to investigate and, if such investigation warrants, acquire a target
company or business seeking the perceived advantages of being a publicly held
corporation.

Since our acquisition of Overhoff Technology in 2006, we have had discussions
with other companies in our industry for an acquisition. While we targeted
Overhoff due to its unique position in the tritium market, we had not commenced
an acquisition since our Overhoff Technology acquisition; we believe in part the
reason was due to lack of additional capital, our status as a privately-held
entity at the time, and focus on developing our own products. We will seek out
companies whom our management believes will provide value to our customers and
will complement our business. We will focus on diversifying our product line
into a larger range so that our customers and vendors may have a more expansive
experience in type, choice, options, price and selection. We also believe that
with a more diverse product line we will become more competitive as our industry
is intensely competitive.

Generally, our product concentration places a heavy reliance on our Overhoff
Technology division; however, in 2020 we derived 46.9% of our total revenues
from sales made by Overhoff and Optron to one customer. We expect to encounter a
continuation of this trend unless we are successful in diversifying our client
base, executing our acquisition strategy and experience increases in business
from our Technical Associates division.

Our international revenues were 23% of our total revenue in 2020. We expect this
to increase over time as we continue to field new orders inquires and engage new
customers overseas. We believe that Korea and China will likely be a larger
contributor to revenue within the next few years. While we maintain steady
growth domestically, the international side of our business may be a larger
component as nuclear technology and rapid development for clean energy grows
abroad. Additionally, the Company relies on continued growth and orders from
CANDU reactors (Canada Deuterium Uranium), and rapid development of the next
generation of nuclear reactors called Molten Salt Reactors, (MSR) and
Liquid-Fluoride Thorium Reactors (LFTR), all of which purchase tritium detection
and monitor products. There can be no assurances as to our growth projections
and our risk profile as we depend upon increased foreign customers for business.

For the next twelve months, we anticipate we will need approximately $5,000,000
in additional capital to fund our business plans. If we do not raise the
required capital we may not meet our expenses and there can be no assurance that
we will be able to do so and if we do, we may find the cost of such financing to
be burdensome on the Company. Additionally, we may not be able to execute on our
business plans due to unforeseen market forces such as lower natural gas prices,
difficulty attracting qualified executive staff, general downturn in our sector
or by competition as we operate in an extremely competitive market for all

of
our product offerings.

Robert I. Goldstein, our President, Chief Executive Officer and Chairman of the
Board of Directors also maintains a position as President of Gold Team Inc., a
Delaware company that invests in industrial real estate properties for
investment purposes. He holds an 8% interest in Gold Team Inc. and spends
approximately 5 hours per week with affairs related to Gold Team Inc. The
Company leases its current facilities from Gold Team Inc. which owns both the
Canoga Park, CA and Milford, Ohio properties at an expense of $7,000 for each
facility per month.

On May 31, 2016, we entered into an Asset Purchase Agreement with Electronic
Control Concepts (“ECC”) whereby the Company purchased certain tangible and
intangible assets of ECC. ECC a small manufacturer of test and maintenance
meters for x-ray machines both medical and industrial. We acquired ECC to give a
boost to our current x-ray related product and hospital/medical product sales.

On February 5, 2020, the Company entered into a Stock Purchase Agreement (“SPA”)
with Grapheton, Inc., a California corporation (“Grapheton”). The transaction
was closed on March 12, 2020. Grapheton is a start-up company that focuses on
building energy storage devises, known as supercapacitors, from a new material
system. The technology utilized by Grapheton has been proven to provide a
compelling advantage in microelectrode arrays with superior electrical and

electrochemical properties.

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Pursuant to the terms of the SPA, the Corporation will acquire a total of 2,552
shares of Grapheton’s common stock over a two year period. At closing, the
Company was issued at total of 1,452 shares of Grapheton’s common stock for
$235,000 and 858,896 shares of the Company’s common stock valued at $601,227.

In connection with the SPA, during the second quarter of 2021 the Company
received an additional 1,100 shares of Grapheton’s common stock in exchange for
the Company’s issuing an additional 1,121,071 shares of common stock valued at
$633,405. In addition, Grapheton fulfilled its requirements under the earn out
provision and the Company is obligated to make the first earn out payment of
$192,500. This amount is recorded as accrued expense in the accompanying
consolidated balance sheet.

An additional “true up” issuance of the Company’s common stock to Grapheton may
be made on the second anniversary of the closing of the SPA, based on the
valuation of the Company’s common stock on that date by a third-party valuator

Novel Coronavirus (COVID-19)

While we are still operating, our business has been and will continue to be
adversely impacted by the effects of the Novel Coronavirus (COVID-19). In
addition to global macroeconomic effects, the COVID-19 outbreak and any other
related adverse public health developments will cause disruption to our
operations and sales activities. Our third-party manufacturers, suppliers,
third-party distributors, sub-contractors and customers have been and will be
disrupted by worker absenteeism, quarantines and restrictions on our employees’
ability to work, office and factory closures, disruptions to ports and other
shipping infrastructure, border closures, or other travel or health-related
restrictions. Depending on the magnitude of such effects on our manufacturing,
assembling, and testing activities or the operations of our suppliers,
third-party distributors, or sub-contractors, our supply chain, manufacturing
and product shipments will be delayed, which could adversely affect our
business, operations and customer relationships. In addition, COVID-19 or other
disease outbreak will in the short-run and may over the longer term adversely
affect the economies and financial markets of many countries, resulting in an
economic downturn that will affect demand for our products and impact our
operating results. There can be no assurance that any decrease in sales
resulting from COVID-19 will be offset by increased sales in subsequent periods.
Although the magnitude of the impact of the COVID-19 outbreak on our business
and operations remains uncertain, the continued spread of COVID-19 or the
occurrence of other epidemics and the imposition of related public health
measures and travel and business restrictions will adversely impact our
business, financial condition, operating results and cash flows. In addition, we
have experienced and will experience disruptions to our business operations
resulting from quarantines, self-isolations, or other movement and restrictions
on the ability of our employees to perform their jobs that may impact our
ability to develop and design our products in a timely manner or meet required
milestones or customer commitments.

Results of Operations

For the three months ended September 30, 2021 compared to the three months ended
September 30, 2020:

Three Months Ended
September 30, Change
2021 2020 $ %

Sales $ 683,771$ 484,318$ 199,453 41.2 %
Cost of goods sold 357,426 281,808 75,618 26.8 %
Gross profit 326,345 202,510 123,835 61.2 %

Selling, general and administrative expenses 747,290 1,021,507

(274,217 ) -26.8 %
Loss from operations (420,945 ) (818,997 ) 398,052 -48.6 %
Other income (expense) (23,438 ) (31,389 ) 7,951 -25.3 %

Loss before provision for income taxes (444,383 ) (850,386 )

406,003 -47.7 %
Provision for income taxes – – –
Net loss $ (444,383 )$ (850,386 )$ 406,003 -47.7 %

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Sales for the three months ended September 30, 2021 were $683,771 compared to
$484,318 for the same period in 2020. The increase of $199,453 or 41.2% is a
result of an increase in sales from our Optron and Overhoff subsidiaries of
$163,544 and $35,909, respectively. The increase in sales is principally due to
us starting to recover from the impact of COVID-19. The sales breakdown for the
three months ended September 30, 2021 is as follows:

North America 75.6%

Asia (Including Japan) 5.7%

Other 18.7%

Our gross margins for the three months ended September 30, 2021 were 47.7% as
compared to 41.8% for the same period in 2020. The increase in gross margin is
due to allocation of overhead cost to a higher sales volume.

Selling, general and administrative expense for the three months ended September
30, 2021 were $747,290 compared to $1,021,507 for the same period in 2020. The
decrease of $274,217 or 26.8% was principally due to a decrease in stock-based
compensation in 2021. During the three months ended September 30, 2021,
stock-based compensation was $72,250 compared to $542,560 during the same period
in 2020.

Other expense for the three months ended September 30, 2021 was $23,438 a
decrease of $7,951 compared to $31,389 for the same period in 2020. The decrease
was due to a decrease in amortization of the debt discount associated with the
convertible debenture and by the change in value of the derivative liability;
offset by an increase in loss on equity investment.

Net loss for the three months ended September 30, 2021 was $444,383 compared to
$850,386 for the same period in 2020. The change was principally attributed

to
the factors described above.

For the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020:

Nine Months Ended
September 30, Change
2021 2020 $ %

Sales $ 1,454,153$ 1,108,758$ 345,395 31.2 %
Cost of goods sold 770,780 596,542 174,238 29.2 %
Gross profit 683,373 512,216 171,157 33.4 %
Selling, general and administrative expenses 2,228,295 2,262,552 (34,257 ) -1.5 %
Loss from operations (1,544,922 ) (1,750,336 ) 205,414 -11.7 %
Other expense (845,334 ) (292,536 ) (552,798 ) 189.0 %
Loss before provision for income taxes (2,390,256 ) (2,042,872 ) (347,384 ) 17.0 %
Provision for income taxes – – –
Net loss $ (2,390,256 )$ (2,042,872 )$ (347,384 ) 17.0 %

Sales for the nine months ended September 30, 2021 were $1,454,153 compared to
$1,108,758 for the same period in 2020. The increase of $345,395 or 31.2% is a
result of an increase in sales from our Overhoff and Optron subsidiaries of
$243,802 and $101,593, respectively. The increase in sales is principally due to
us starting to recover from the impact of COVID-19. The sales breakdown for the
nine months ended September 30, 2021 is as follows:

North America 74.3%

Asia (Including Japan) 14.2%

Other 11.5%

Our gross margins for the nine months ended September 30, 2021 were 47.0% as
compared to 46.2% for the same period in 2020. The increase in gross margin is
due to allocation of overhead cost to a higher sales volume.

Selling, general and administrative expense for the nine months ended September
30, 2021 were $2,228,295 compared to $2,262,552 for the same period in 2020. The
decrease of 34,257 or 1.5% was principally due to a decrease in stock-based
compensation in 2021; offset by an increase in professional fees. During the
nine months ended September 30, 2021, stock-based compensation was $617,738
compared to $995,656 during the same period in 2020.

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Other expense for the nine months ended September 30, 2021 was $845,334, an
increase of $552,798 from $292,536 for the same period in 2020. The increase was
due to an equity loss on investments in 2021 offset by a decrease in the
amortization of the debt discount.

Net loss for the nine months ended September 30, 2021 was $2,390,256 compared to
$2,042,872 for the same period in 2020. The change was principally attributed to
the factors described above.

Liquidity and Capital Resources

Our operations have historically been financed by our majority shareholder and
more recently from proceeds from the sale of our common stock. As funds were
needed for working capital purposes, our majority shareholder would loan us the
needed funds. We anticipate funding the growth of our business through the sales
of additional shares of our common stock and loans from our majority stockholder
if necessary.

At September 30, 2021, total assets decreased by 0.1% to $2,451,961 from
$2,454,908 at December 31, 2020. The decrease was not significant.

At September 30, 2021, total liabilities increased by 64.4% to $2,643,914 from
$1,607,748 at December 31, 2020. The increase is principally related to an
increase in accounts payable, accrued liabilities, notes payable, line of credit
and accrued compensation – officers, offset by a decrease in operating lease
liability.

Net cash used in operating activities for the nine months ended September 30,
2021 was $583,411 compared to $366,405 for the same period in 2020. The change
in cash from operations was principally due to changes in non-cash expense items
and in working capital accounts, principally, accounts receivable, customer
deposits, inventories and accrued liabilities.

Net cash used in investing activities for the nine months ended September 30,
2021 was $21,446 compared to $235,000 for the same period in 2020. The decrease
in cash used in investing activities was principally due to the investment in
Grapheton of $235,000 in 2020 compared to purchase of property and equipment of
$21,446 in 2021.

Net cash provided by financing activities for the nine months ended September
30, 2021 was $477,477 compared to cash used in financing activities of $2,243
for the same period in 2020. The change in cash from financing activities was
principally the issuance of a $221,431 note payable, sale of common stock for
$100,000 and increase in line of credit of $105,746 in 2021.

Critical Accounting Policies

Our financial statements and related public financial information are based on
the application of accounting principles generally accepted in the United States
(“US GAAP”). US GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenues and expenses amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.

We believe the following is among the most critical accounting policies that
impact our consolidated financial statements. We suggest that our significant
accounting policies, as described in our financial statements in the Summary of
Significant Accounting Policies, be read in conjunction with this Management’s
Discussion and Analysis of Financial Condition and Results of Operations.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income
Taxes. ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of, the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.

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Under ASC 740, a tax position is recognized as a benefit only if it is “more
likely than not” that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the
largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test,
no tax benefit is recorded. The adoption had no effect on the Company’s
consolidated financial statements.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.

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