10QSB/A 1 v024482_10qsba.txt U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ending June 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to_____ Commission file number 000-31959 NUCLEAR SOLUTIONS, INC. ---------------------------------------------- (Name of Small Business Issuer in its Charter) NEVADA 88-0433815 ---------------------- -------------------------------- (State of Incorporation) (IRS Employer identification No.) 1025 Connecticut Ave NW, Suite 1000 Washington, DC 20036 ---------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, (202) 787-1951 ------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X] No [ ] Applicable only to issuers involved in bankruptcy proceedings during the preceding five years Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] Applicable on to corporate issuers State the number of shares outstanding of each of the issuer's class of Common equity, as of June 30, 2005: 40,462,564 Transitional Small Business Disclosure Format (Check One)Yes [ ] No [X] Table of Contents Item 1. Financial Statements............................................. 3 Balance Sheet (unaudited)........................................ 3 Statements of Stockholders' Equity (unaudited)................... 4 Statements of Operations (unaudited)............................. 5 Statements of Cash Flows (unaudited)............................. 6 Notes to Financial Statements.................................... 7 Item 2. Management's Discussion and Analysis or Plan of Operation........................................................ 11 Item 3. Controls and Procedures.......................................... 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 21 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds............................................... 21 Item 3. Defaults upon Senior Securities.................................. 21 Item 4. Submission of Matters to a Vote of Security Holders.............................................. 21 Item 5. Other Information................................................ 21 Item 6. Exhibits......................................................... 22 Signatures................................................................. 22 1 PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NUCLEAR SOLUTIONS, INC CONDENSED BALANCE SHEET June 30, 2005 ----------- (Unaudited) ASSETS Current assets: Cash $ 36,398 Accounts receivable, net of allowance of $0 182,916 ----------- Total current assets 219,314 Property and equipment, net of accumulated depreciation of $13,174 15,041 Other assets 1,800 ----------- Total assets $ 236,155 =========== LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,412,043 Accrued executive compensation 983,549 Contingent liabilities 214,000 Convertible notes payable - related parties(Note 4&5) 39,000 Convertible notes payable - other(Note 4) 1,093,135 ----------- Total current liabilities 3,741,727 ----------- Commitments and contingencies Deficiency in stockholders' equity(Note 6) Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding -- Common stock, $0.0001 par value; 100,000,000 shares authorized, 40,462,564 shares issued and outstanding 4,046 Additional paid-in capital 6,190,650 Deferred equity based expense (585,032) Accumulated deficit (9,115,236) ----------- Total (deficiency) in stockholders' equity (3,505,572) ----------- Total liabilities and (deficiency) in stockholders' equity $ 236,155 =========== The accompanying notes are an integral part of unaudited condensed financial statements. 3
NUCLEAR SOLUTIONS, INC CONDENSED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 2005 TO JUNE 30,2005 (UNAUDITED) Common Stock Common Stock to be Issued ------------------------- ------------------------- Date Price Shares Amount Shares Amount -------------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2004 36,598,646 $ 3,660 -- -- Shares issued for services February, 2005 0.69 1,055,438 105 -- -- March, 2005 0.43 167,441 17 -- -- Beneficial conversion discount- convertible note and warrants -- -- -- -- Amortization of deferred compensation -- -- -- -- Shares issued for accrued expense April, 200 0.19 2,514,723 251 -- -- Shares issued for services April, 2005 0.20 126,316 13 -- -- Amortization of deferred compensation -- -- -- -- Net loss -- -- -- -- ----------- ----------- ----------- ----------- Balance, June 30, 2005 40,462,564 $ 4,046 $ -- $ -- =========== =========== =========== =========== Total Deficiency Additional Deferred Equity Accumulated in Stockholders' Paid-In Capital Based Expense Deficit Equity --------------- --------------- ----------- ---------------- Balance, December 31, 2004 $ 4,786,346 $ (385,287) $(7,652,724) $(3,248,005) Shares issued for services 732,645 (112,500) -- 620,250 71,983 (72,000) -- -- Beneficial conversion discount- convertible note and warrants 60,000 -- -- 60,000 Amortization of deferred compensation -- 107,324 -- 107,324 Shares issued for accrued expense 467,689 -- -- 467,940 Shares issued for services 71,987 (319,305) -- (247,305) Amortization of deferred compensation -- 196,736 -- 196,736 Net loss -- -- (1,462,512) (1,462,512) ----------- ----------- ----------- ----------- Balance, June 30, 2005 $ 6,190,650 $ (585,032) $(9,115,236) $(3,505,572) =========== =========== =========== =========== The accompanying notes are an integral part of unaudited condensed financial statements.
4
NUCLEAR SOLUTIONS, INC. CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) For the Three Months Ended For the Six Months Ended June 30, June 30, ---------------------------- ---------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Revenue $ 242,500 $ -- $ 282,916 $ -- ------------ ------------ ------------ ------------ Executive compensation 67,500 67,500 135,000 135,000 Consulting fees 567,192 231,825 1,250,165 442,800 Legal and professional fees 83,694 15,750 190,624 21,000 General and administrative expenses 23,696 10,425 51,281 21,197 Depreciation and amortization 1,376 1,263 2,751 2,522 ------------ ------------ ------------ ------------ 743,458 326,763 1,629,821 622,519 ------------ ------------ ------------ ------------ Loss from operations (500,958) (326,763) (1,346,905) (622,519) Other Income(expenses) Interest expense (28,404) (25,316) (55,607) (51,642) Finance costs -- (36,500) (60,000) (73,000) ------------ ------------ ------------ ------------ Loss before provision for income taxes (529,362) (388,579) (1,462,512) (747,161) Provision for income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net loss $ (529,362) $ (388,579) $ (1,462,512) $ (747,161) ------------ ------------ ------------ ------------ Basic and diluted loss per share $ (0.01) $ (0.01) $ (0.04) $ (0.02) ============ ============ ============ ============ Weighted average number of common shares outstanding, basic and diluted 40,093,558 31,043,364 38,542,985 30,042,249 ============ ============ ============ ============ The accompanying notes are an integral part of unaudited condensed financial statements.
5
NUCLEAR SOLUTIONS, INC CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, -------------------------- 2005 2004 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,462,512) $ (747,161) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization 2,751 2,522 Amortization of debt discount - beneficial conversion feature of convertible note and warrants 60,000 -- Stock and warrants issued for services 1,144,945 232,870 Changes in operating assets and liabilities: Accounts receivable (182,916) -- Other assets -- 535 Accounts payable and accrued expenses 224,536 369,645 Accrued executive compensation 126,000 135,000 ----------- ----------- Net cash (used in) operating activities (87,196) (6,589) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment -- (82) ----------- ----------- Net cash (used in) investing activities -- (82) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in checks issued in excess of cash -- 10 Payments on debt (12,426) -- Proceeds from issuance of debt 60,000 79,635 Loan costs -- (73,000) ----------- ----------- Net cash provided by financing activities 47,574 6,645 ----------- ----------- Net increase in cash (39,622) (26) Cash, beginning of period 76,020 26 ----------- ----------- Cash, end of period $ 36,398 $ -- =========== =========== Supplemental disclosures: Cash paid for: Interest $ -- $ -- Income taxes $ -- $ -- Non-cash investing and financial activities: Unamortized loan fees $ -- $ 146,000 Accrued interest converted to note payable $ -- $ 79,635 Debt restructing $ -- $ 973,135 Amortization of debt discount - beneficial conversion feature of convertible note and warrants $ 60,000 $ -- The accompanying notes are an integral part of unaudited condensed financial statements.
6 NUCLEAR SOLUTIONS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2005 (UNAUDITED) NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS Nuclear Solutions, Inc. (the "Company") was organized February 27, 1997 under the laws of the State of Nevada, as Stock Watch Man, Inc. Prior to April 1, 2005 the Company was considered to be a development stage enterprise. During the second quarter of 2005, planned operations commenced and the Company began generating significant revenue. On September 12, 2001, the Company amended its articles of incorporation to change its name to Nuclear Solutions, Inc. Business Nuclear Solutions, Inc. is engaged in the research, development, and commercialization of innovative product technologies, which are generally early-stage, theoretical or commercially unproven. We operate a highly technical business and our primary mission is to develop advanced product technologies to address emerging market opportunities in the fields of homeland security, nanotechnology, and nuclear remediation. Basis of Presentation The accompanying unaudited condensed financial statements as of June 30, 2005 and for the three and six month periods ended June 30, 2005 and 2004 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-QSB and Regulation S-B. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended December 31, 2004 as disclosed in the company's 10-KSB for that year as filed with the SEC, as it may be amended. The results of the three and six month periods ended June 30, 2005 are not necessarily indicative of the results to be expected for the full year ending December 31, 2005. NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Loss Per Share Basic and diluted loss per common share for all periods presented is computed based on the weighted average number of common shares outstanding during the year as defined by SFAS No. 128, "Earnings Per Share". The assumed exercise of common stock equivalents was not utilized since the effect would be anti-dilutive. At June 30, 2005 and 2004, the Company had 15,094,192 and 12,483,065 potentially dilutive securities. 7 NUCLEAR SOLUTIONS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2005 (UNAUDITED) Revenue Recognition Revenues are recognized in the period that services are provided. For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which superceded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB101"). SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Payments received in advance are deferred. SAB 104 incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"), MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing EITF 00-21 on the Company's consolidated financial position and results of operations was not significant. Licensing fee income will be recognized ratably over the term of the license. Reclassifications: Certain items in the 2004 financial statements have been reclassified to conform to the current period presentation. NOTE 3 - GOING CONCERN The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the Company has a net loss of $1,462,512, a working capital deficiency of $3,522,413 and a stockholders' deficiency of $3,505,572 for the quarter ended June 30, 2005. These factors raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds and implement its business plan. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 8 NUCLEAR SOLUTIONS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2005 (UNAUDITED) NOTE 4 - CONVERTIBLE DEBT Notes payable at June 30, 2005 and December 31, 2004 are as follows:
June 30, December 31, 2005 2004 ----------- ----------- Denise Barbato, bearing interest at 10% per year, convertible into common stock at $0.084 per share. The note is payable on October 31, 2005 $ 973,135 $ 973,135 Global Atomic Inc. demand note payable to related party at 10% per year, convertible into common stock at $1.00 per share 4,000 4,000 International Fission demand note payable to related party at 10% per year, convertible into common stock at $1.00 per share 15,000 15,000 Jackie Brown, demand note payable to related party, non -interest bearing, convertible into common stock at $1.00 per share 20,000 20,000 Patrick Herda demand note payable to related party at 10% per year, convertible into common stock at $1.00 per share -- 12,425 Long Lane Capital demand note at 12 % per year, convertible into common stock at a 50% discount to market 120,000 60,000 ----------- ----------- Total notes payable 1,132,135 1,084,560 Less: current portion (1,132,135) (1,084,560) ----------- ----------- Balance notes payable (long term portion) $ -- $ -- =========== ===========
On February 25, 2005, the company executed a second promissory note payable with Long Lane Capital for $60,000 dollars. The note is payable within 30 days of demand and carries a 12% per year interest rate. Upon default the holder will have the right to convert the unpaid principal balance, accrued interest and any related default costs to common stock as follows: At the option of the holder the conversion price will be (a) Fifty (50%) discount of the 6-month moving average stock price for the period June 1 through December 31, 2004 which was $0.44 discounted 50% equals $ 0.22 Cents per share, or (b) Fifty (50%) discount of the lowest closing bid price per share between February 25, 2005 and the date notice of warrant exercise is given to the Corporation. As additional consideration, Nuclear Solutions, Inc. issued Long Lane Capital a warrant to purchase 500,000 shares of common stock at the same price as the conversion price for a period of 24 months. During the three months ended June 30, 2005, the Company has recorded beneficial conversion discount relating to conversion feature and warrants of $60,000. NOTE 5 - CONVERTIBLE DEBT - RELATED PARTY During the six months ended June 30, 2005 the Company repaid the remaining $12,425 principal balance due to Patrick Herda. NOTE 6 - STOCKHOLDER'S EQUITY During the six months ended June 30, 2005 the Company issued an aggregate of 1,349,195 shares of common stock, valued at $876,750, for consulting services. During April 2005 the Company issued 2,514,723 shares as payment of expenses accrued at December 31, 2004 in the amount of $467,940. In February, 2005, the Company issued a warrant to purchase 500,000 shares of common stock, as described in Note 4. During the six months ended June 30, 2004 the Company issued an aggregate of 3,741,566 shares of common stock, valued at $331,950, for consulting services. 9 NUCLEAR SOLUTIONS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2005 (UNAUDITED) On June 16, 2004, the Company issued a warrant to purchase a total of 200,000 shares of the Company's $0.0001 par value common stock at $0.30 per share exercisable over six months to Vintage Filings, LLC. The fair value of the options has been estimated using the Black-Scholes option pricing model. The weighted average fair value of these options was $0.002 and the warrant was valued at $400. NOTE 7 - LICENSE AGREEMENT On March 15, 2005 the Company entered into a license agreement pursuant to which it licensed its technology to a third party for a 10 year period. Total license fees over the 10 year period are $9,700,000, payable in quarterly installments of $242,500, in arrears. NOTE 8 -WARRANTS Warrants The following table summarizes the changes in warrants outstanding and the related exercise prices for the shares of the Company's common stock issued by the Company as of June 30, 2005: Warrants Outstanding & Exercisable Weighted Average Exercise Number Remaining Contractual Weighed Prices Outstanding Life (Years) Average Exercise Price --------- ----------- ------------ ----------- -------------- $0.14 500,000 1.25 $ 0.14 $0.22 500,000 1.67 $ 0.22 ----------- 1,000,000 $ 0.29 =========== Number Weighted of Shares Price Average Exercise --------- -------- ------- -------- Outstanding at December 31, 2004 750,000 $ 0.34 Granted 500,000 0.22 Exercised -- -- Canceled or expired (250,000) 0.75 --------- Outstanding at June 30, 2005 1,000,000 $ 0.18 ========= NOTE 9- MAJOR SUPPLIERS AND CUSTOMERS The Company licensed its technology to one customer during the three and six months ended June 30, 2005. That customer accounted for all of its accounts receivable at June 30, 2005, and $142,500 was collected in August, 2005. 10 Item 2. Management's Discussion and Analysis or Plan of Operation. FORWARD-LOOKING STATEMENT NOTICE: This quarterly report on Form 10-QSB contains many forward-looking statements, which involve risks and uncertainties, such as our plans, objective, expectations and intentions. You can identify these statements by our use of words such as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," "continue," "plans," or other similar words or phrases. Some of these statements include discussions regarding our future business strategy and our ability to generate revenue, income, and cash flow. We wish to caution the reader that all forward-looking statements contained in this Form 10-QSB are only estimates and predictions. Our actual results could differ materially from those anticipated as a result of risk facing us or actual events differing from the assumptions underlying such forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Quarterly Report on Form 10-QSB. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to update any of these factors or to publicly announce any change to our forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. OUR BUSINESS Our business activity is to develop and license product technologies in the homeland security, defense, nanotechnology and nuclear remediation sectors. Our primary business strategy consists of developing our intellectual property by refining conceptual designs, filing patent applications, and building operating proof-of-principle prototypes. Our business objective is to generate revenue by licensing or selling our product technologies, consisting of intellectual property in the form of patents and/or patent applications to potential industrial partners that have the resources and expertise to commercialize our product technologies in their respective marketplaces. In addition to our primary business strategy, we are actively researching and attempting to obtain marketing and/or sublicensing rights to fully developed products that fit within our target markets. For example, we have identified and are in the process of obtaining the rights to products for remote detection and disruption of concealed conventional explosive devices. We intend use our expertise to facilitate sales of these products through potential marketing partners and/or integrate them, into new or existing products. The company operates its business by utilizing technical expertise to develop innovative and emerging technologies that we believe has significant market potential. We strive to develop technologies identified as viable to the point that they may be licensed, joint-ventured or sold to an industrial or governmental entity, or otherwise commercialized. We do not maintain technical facilities or a laboratory of our own. Our business model is to utilize the technical facilities and capabilities of appropriate outside laboratories under contract to us when appropriate. By taking advantage of existing technology infrastructures, this preferred method of technology development reduces capital investment costs and the length of time required to develop technologies. This is especially important in light of the extensive requirements for the government approval and safe handling and of nuclear materials. Any development efforts contemplated or planned that involve nuclear materials are intended to be carried out by an existing and already licensed scientific or technical facility through the establishment of a contractual relationship. This approach also mitigates the potential liability involved with the handling and use of nuclear materials. We have identified several facilities in the United States and abroad that have the capabilities we may require in the future. As an example, we may contract with or establish a teaming relationship with a U.S. national laboratory such as Los Alamos National Labs, Lawrence Livermore National Labs, or others that have a history and willingness to perform work under well-established contracting channels such as Cooperative Research and Development Agreements (CRADA) and Work for Others (WFO) agreements. Although we believe this is adequate for our development purposes and preferable in the case of nuclear material handling, we may choose to operate our own laboratory facility in the future, subject to available capital. 11 When a technology is deemed market ready, the company will offer it to potential customers for commercial licensing. As an example, after the successful prototype construction and operation of our shielded nuclear material detector, we will offer the sensor system to companies that have the appropriate experience to integrate the sensor into a working environment to meet the performance criteria as required by the end user. We do not intend to establish manufacturing operations of our own. Nor do we intend to establish extensive marketing and distribution operations of our own. Our business model is centered on the sale and/or licensing of our technologies through strategic partnerships with companies that have established manufacturing, sales and marketing infrastructures such as well known defense and electronics contractors. By way of example, companies that could be potential partners for our shielded nuclear material detection technology may be: Lockheed-Martin, General Atomics, Raytheon and other such companies. Currently we do not have any partnership agreements or material contracts with the aforementioned companies. Our primary role is to add value by initially developing, and providing the enabling core intellectual property to our customers and partners. Typically, after licensing, we will remain involved as a consultant for the customer to ensure appropriate technology transfer to the customer and to assist with any improvements or modification that may be needed during the course of commercialization. This is a highly leveraged business model that is believed by management to offer the greatest advantages in terms of corporate flexibility, and reduced capital requirements compared to a traditional research and development operation. However, management is opportunistic and may consider adopting a production model if the right conditions are met. We will pursue all avenues that will lead the commercialization of our technologies. Since our business model is to establish partnerships during development and ultimately as production and marketing partners for our technologies, we are constantly looking for and evaluating potential strategic partners. We especially require partnerships to take advantage of the business opportunities available through government agencies such as the Homeland Security Advanced Projects Agency (HSARPA), The Defense Advanced Research Projects Agency (DARPA) and others. A partnering relationship with experienced companies that have a positive track record of providing products or services to the government agencies that are our potential customers in the related field will probably increase the likelihood that we could secure money from the government to develop one of our technologies for a specific government need. The following is a general example of a technology development plan: 1.) A market opportunity is identified in an area of interest to us. 2.) A technical assessment of the opportunity and existing related technologies is performed with an appropriate combination of in-house and outside analysis. 3.) If the technical assessment indicates a viable market, research is performed to identify and define an appropriate technology. 4.) The technology identified in the previous step is reevaluated in light of the expected development costs and market opportunity. A decision is made to proceed with identified technology, suspend development, or research supplementary approaches. 5.) Intellectual property is secured through initiation of the patent process and/or identified technology is licensed. Selected technologies may be kept proprietary or trade secret. 6.) Selected technology is validated by an appropriate laboratory under contract. 7.) Once successfully validated, the technology is then marketed to appropriate entities for licensing or sale. Depending on the technology being developed, a strategic partnership arrangement may be consummated at many different points along the development track. 12 The company intends to commercialize our technologies through: strategic partners, joint-venture partners, licensees, and other customers who will carry out project implementation, manufacturing, end-user marketing activities, and deployment of our technologies. We intend to generate revenue from the licensure, sale, and other usage agreements associated with our technologies. In November 2004 we changed our principal executive offices to : 1025 Connecticut Ave NW, Suite 1000 Washington, DC 20036. Our primary mailing address remains 5505 Connecticut Ave NW, #191 Washington, DC 20015. RESULTS OF OPERATIONS Three months ended June 30, 2005 compared to the three months ended June 30, 2004 REVENUES During the period ending June 30, 2005, we recognized revenues of $242,500 resulting from our license sale to I.P. Technology Holding, Inc. This compares to $0 in revenues for the same period ended June 30, 2004. On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc.(IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology. Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a quarterly basis in the amount of $242,500 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight (8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. While the total revenue under the License Agreement is $9.7 Million over a ten-year period, management has elected to recognize only the license revenue for the current quarterly portion of the license agreement. We have made this election because IPTH is a start-up enterprise and this raises the level of risk and uncertainty regarding the ultimate collectibility of the $9.7 million Dollars over a ten-year period. At this time, we believe this conservative approach is prudent. Management will re-evaluate this financial treatment on a quarterly basis. OPERATING EXPENSES Operating expenses for the quarter ended June 30, 2005 were $743,458 and Compares to $326,763 for the same period ended June 30, 2004. Included in the Quarter ended June 30 2005 are $567,192 and 83,694 in expenses for consulting fees and legal fees respectively. This compares to 231,825 in consulting fees and $15,750 in legal fees for the second quarter of 2004. The increase in expenses is attributed to the increased market valuation of equity securities issued for pre-existing obligations. Legal fees were higher due to increased activity in the development of intellectual property and filing of patent applications. 13 From our inception through June 30 2005, we have incurred losses of 9,115,236. These expenses were associated principally with equity-based compensation to employees and consultants, product development costs and professional services. As a result of limited capital resources from its inception, the Company has relied on the issuance of equity securities to non-employees in exchange for services. The Company's management enters into equity compensation agreements with non-employees if it is in the best interest of the Company under terms and conditions consistent with the requirements of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation. In order conserve its limited operating capital resources, the Company anticipates continuing to compensate non-employees for services during the next twelve months. This policy may have a material effect on the Company's results of operations during the next twelve months. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2005, we had a working capital deficit of $3,522,413. This compares to a working capital deficit of $ 2,808,141 as of June 30, 2004. As a result of our operating losses for the three months ended June 30, 2005, we generated a cash flow deficit of $87,196 from operating activities. Cash flows used in investing activities was $0 during the quarter. Cash flows used in financing activities were $47,575 on payment of short-term notes payable for the first three months ended June 30, 2005. While we have raised capital and generated revenue to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development. By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits through the next twelve months. However, if thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition. AUDITOR'S OPINION EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A "GOING CONCERN" The independent auditors report on our December 31, 2004 financial statements included in the Company's Annual Report states that the Company's historical losses and the lack of revenues raise substantial doubts about the Company's ability to continue as a going concern. If we are unable to develop our business, we have to discontinue operations or cease to exist, which would be detrimental to the value of the Company's common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations. 14 PRODUCT RESEARCH AND DEVELOPMENT We anticipate continuing to incur research and development expenditures in connection with the development of nuclear micro-battery technology, shielded nuclear material detector technology, tritiated water remediation technology during the next twelve months. This includes, but is not limited to: $500,000 to $1,000,000 for nuclear micro-battery technology, approximately $500,000 for tritiated water remediation technology, and approximately $1,500,000 for the shielded nuclear material detector technology. These projected expenditures are dependent upon our generating revenues and obtaining sources of financing in excess of our existing capital resources. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected costs of research and development during the next twelve months. NUMBER OF EMPLOYEES From our inception through the period ended June 30, 2005, we have relied on the services of outside consultants for services and currently have one full time employee. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. We do anticipate our employment base will increase to approximately 5 full time employees as some contractors convert to employee status during the next 12 months. As we continue to expand, we will incur additional cost for personnel. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees. OUR TECHNOLOGIES: GRAVIMETRIC SHIELDED NUCLEAR MATERIAL/PORTABLE NUCLEAR WEAPON DETECTOR (Patents Pending) We are developing a new and unique technology to be integrated into a passive primary portal system that would screen trucks and shipping containers in real time for the presence of shielded nuclear weapons useable materials such as Uranium(U-235) and Plutonium (Pu-239). 15 Radiation emitted from weapons grade Uranium and Plutonium is relatively weak and easy to shield. Identification of these materials with conventional radiation detectors is unreliable. When the radiation emitted from these materials is effectively shielded, detection by conventional means is not possible. The company is working on funding the prototype construction of a highly sensitive, portable, low cost, and ruggedized detection device that responds to minute gravitational gradient anomalies. These disturbances are produced by high-density nuclear materials such as Uranium and Plutonium. Unlike radiation, the force of gravity cannot be shielded and is a unique new concept for the detection of shielded nuclear weapons. The company is unaware of any other device with similar targeted performance and size. This technology is protected by three pending patent applications. We filed our first patent application in October 2004. Subsequently we filed two additional patent applications in January 2005. We expect further development work on the intellectual property relating to this technology and expect to file additional patents over the next twelve months. The technical details about the operation of this technology cannot be released to the public at this time. Doing so would be considered a public disclosure and preclude our ability to obtain patent protection on our technology. Furthermore, it is possible that we may choose not to file a patent application on the technology if it is determined to be contrary to the security interests of the United States. Over the next 12 months our development plan for our gravimetric nuclear material detector is as follows: -Continue development of the related intellectual property and file additional patent applications. -Secure funding of approximately $500,000 to $1.5M through debt or equity instruments to fund this project. -Secure a strategic commercial development partner. -Build and demonstrate a proof-of principle prototype. NUCLEAR MICRO-BATTERIES This program is aimed at developing embeddable nuclear micro-batteries that can supply long-lasting power for computer chips, micromotors, remote sensors, implantable medical devices, and other defense and aerospace applications. This technology is also known as nuclear micro power generation or RIMS (radioisotope micro power sources). The science of nanotechnology is the design of Electrical and mechanical systems smaller than the width of a human hair. The field of nanotechnology includes making functional microscopic mechanical devices like motors, gear systems, and pumps. This field also includes making electronic circuits on an atomic scale. An opportunity exists to address the problem of providing reliable power to these devices for a long period of time. As electronic circuits and nanomachines grow ever smaller, a problem is created by the fact that conventional batteries cannot shrink to the same size and still hold enough power for the device to function for a reasonable period of time. Our nuclear micro battery technology may solve this problem by drawing energy from an embedded radioactive isotope due to the fact that nuclear batteries are known to have power densities up to 1,000 times greater than achievable with conventional chemical battery technology. 16 In November 2003, the Company entered into a licensing option agreement for three issued U.S. patents for nuclear micro-battery technology (Pat. Nos. 5,087,533; 6,118,204; 6,238,812) with Jackie Brown. The company purchased a one-year option to exclusively license the technology, with an additional six month first right of refusal, in exchange for 100,000 shares of our common stock. In January 2005, The company extended the license option rights under the terms of the agreement until January 2006 in exchange for the payment of all outstanding maintenance fees. When the company does choose to exercise its rights under the licensing option agreement, we will execute a license royalty agreement for 7% of the after tax profits on the sale or licensure of the technology to be paid to Ms. Brown. Two of the three nuclear micro-battery patents the we hold a license option for(Pat. Nos. 5,087,533; and 6,118,204) have expired as a result of non-payment of patent maintenance fees by the prior assignee; however, the company has engaged the law firm of Greenberg and Lieberman, P.C. to make application for the revival of those patents and has paid all outstanding maintenance fees. We are currently developing the next generation of nuclear micro-battery technology that could render the previous patents obsolete. However, the reinstatement of the expired patents could offer an additional opportunity to block our competition from this market. Subsequent to entering the licensing option agreement in November of 2003, we began efforts to form development partnerships to assist in the development of and to secure government funding for this technology. We have initiated the process of forming a teaming arrangement with Lawrence Livermore National Laboratories to further develop this technology. Previously, we anticipated finalizing a teaming relationship with Lawrence Livermore National Laboratories by the third quarter of 2004. This was not accomplished, due to lack of working capital to fund this development program in 2004. Management anticipates funding and launching this teaming relationship in 2005. Our nuclear micro battery technology relies on the application of tritiated amorphous silicon as a betavoltaic, thin-film, intrinsic energy conversion device. A betavoltaic battery is a nuclear battery that converts energy from beta particles released by a beta emitting radioactive source, such as tritium, into electrical power. Common semiconductor designs of betavoltaic batteries use a semiconductor p-n junction device that is either directly exposed to beta decay (Lucent Technologies, Betabatt) or is illuminated by photons created when betas strike a phosphor(Trace Photonics, Inc.). These common betavoltaic batteries suffer from technical problems in that the directly irradiated cells suffer material degradation of the p-n junction limiting the operating life to days while the photo conversion systems are indirect and limited by efficiency to less than 1%. Furthermore, P-N junction devices Another limitation of conventional betavoltaic batteries is the self-absorption of beta energy in the radioactive source itself. In order to reduce the self-absorption of beta energy we incorporate the radioactive isotope into the lattice of a semiconductor. Tritiated amorphous silicon is a novel thin film material where a suitable radioisotope is bonded with silicon in the amorphous network or adjacent to it. Thin-film contact potential tritiated amorphous silicon cells have been built and operation verified by an independent laboratory. We are aware of several types of nuclear batteries in development. By organizations such as Lucent, The University of Wisconsin, and Trace Photonics, Inc. and Betabatt, Inc. While we believe that our technology is superior due to higher resistance to radiation degradation, our competitors have greater access to capital and resources. The operation of our nuclear micro battery was proven by an independent lab. However it is still considered a development stage technology. We cannot guarantee that this technology will receive any additional patents or that the technology can be successfully commercialized. Over the next 12 months we plan on raising capital in the amount of $500,000 to $1,000,000 to fund the development of our nuclear micro-battery technology. We also plan on funding a development program with Lawrence Livermore National Laboratory to build new battery prototypes intended for Micro-Electro-Mechanical Systems(MEMS) applications. We anticipate raising the money to fund this project through a combination of debt and equity financing. 17 TRITIATED WATER REMEDIATION TECHNOLOGY (TWR) (Patents Pending) We have identified a need in the nuclear industry for an inexpensive method for tritiated water remediation by way of isotope separation. This is a method to reduce the volume of stored water contaminated with tritium, the radioactive isotope of hydrogen. We are currently developing a tritiated water remediation method using a combination of in-house and external expertise. Our TWR development program is aimed at developing a tritiated water separation technology that can be transportable and modular or integrated directly into a nuclear power plant. The specific target market for this technology is tritium contaminated water (tritiated water) produced as a by-product of nuclear complex activities. Data indicates the Unites States houses approximately Six billion gallons of tritiated water with an additional 11 million gallons created annually. Countries such as Japan, the United Kingdom, France, and Germany also have this problem. As of the date of this report, we anticipate the overall development cost not to exceed $500,000. However, since this is a development stage technology the final development cost may differ substantially from what we currently anticipate. We will need to raise additional money to fund this project. We intend to use debt, equity or a combination thereof to fund this project. There is no guarantee that we will be able to successfully raise the required funds for operations, or that such funds will be available on terms satisfactory to us. Any inability to raise additional funds would require that we significantly scale back our planned operations and would lengthen the period of time required to bring the technology to the marketplace. Our process is currently a proprietary trade secret owned by Nuclear Solutions, and being developed for us under contract by Boris Muchnik. During 2004 we filed 2 patent applications to secure the rights to the tritium remediation technology and the technology is now patent pending. It is company policy not to disclose the technical details of any of our patent pending technologies until the patent issues. Doing so would be considered a public disclosure and preclude our ability to obtain patent protection on our technology. Furthermore, it is possible that we may choose not to file a patent application on the technology if it is determined to be contrary to the security interests of the United States. TWR technology is a development stage technology. We cannot guarantee that we will either receive any patents on the technology or that the technology can be successfully commercialized. Over the next 12 months we plan on raising capital in the amount of approximately $500,000 to fund the further development and proof-of-principal demonstration of our tritiated water remediation technology. We anticipate raising the money to fund this project through a combination of debt and equity financing. Progress in the development of our technologies have been slower than expected due to the lack of personnel and lack of working capital. We anticipate increasing staffing levels over the next 12 months. We estimate that with working capital of $2,000,000 dollars at least one of our technologies will be fully demonstrable and ready for commercial licensing within 18 months. NEW BUSINESS DEVELOPMENT During the past quarter to date, we have initiated efforts to evaluate and acquire technology relevant to the production of renewable fuels such as ethanol. We anticipate entering in to licensing agreements and or business relationships in the renewable energy sector if we are successful in identifying suitable technologies and business opportunities. 18 COMPETITION Competition in the fields in which the company is developing technology is complex. We will be competing with national laboratories, universities, and established corporations that may have much greater access to capital and marketing resources. There are well-established organizations within our business segments that have both name recognition and histories of implemented technologies. In nuclear-related businesses, the competitive field is relatively small but intense and can raise significant barriers to entry. Competition usually stems from name recognition, price, marketing resources, and expertise. Although we have retained marketing and consulting expertise, established competitors could enter the market with new, competing technologies at any time. Our ability to complete will depend on the capabilities of the market-ready technologies and how well we will be able to market these technologies. Additional methods of competition include prior track record of competing for government contracts and experience, greater access to scientific and technical personnel, greater access to capital, greater access to technical facilities, and name or brand establishment. The kind of organizations we compete with are national laboratories of the United States and other governments, and the defense industrial complex with competitors such as Lockheed-Martin, General Atomics, and Raytheon among other similar companies. During 2005, we generated limited revenues from our technologies and we are competing against companies that have significantly greater financial, technical, political and human resources. ITEM 3. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. As of the end of the reporting period, June 30, 2005, and subsequent to the date of this report, we carried out evaluations, under the supervision and with the participation of our management, including the Company's Chairman and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), which disclosure controls and procedures are designed to insure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified by the SEC's rules and forms. Based upon that evaluation, the Chairman and the Chief Financial Officer concluded that our disclosure controls and procedures need improvement and were not adequately effective as of January 1, 2005 to ensure timely reporting with the Securities and Exchange Commission. Our management is in the process of identifying deficiencies with respect to our disclosure controls and procedures and implementing corrective measures, which includes the establishment of new internal policies related to financial reporting. 19 (b) Changes in Internal Control. As required by Rule 13a-15(d), the Company's Chairman and Chief Financial Officer, also conducted evaluations of our internal controls over financial reporting to determine whether any changes occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. During the preparation of the Company's financial statements, as of and for the year ended June 30, 2005, the Company has concluded that the current system of disclosure controls and procedures was not effective because of the internal control weaknesses identified below. As a result of this conclusion, the Company has initiated the changes in internal control also described below. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. (c) Limitations. Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 20 PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is not a party to any pending legal proceedings. ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS. On April 12, 2005, we issued 1,000,000 restricted common shares to Denise Barbato and 1,000,000 restricted common shares to Barbato Capital valued at $73,000 each in consideration of a debt restructuring agreement. This total of $146,000 was charged as financing expense. On April 15, 2005, we issued 150,000 shares to Adrian Joseph in connection with a settlement agreement executed May 17, 2004. We valued the transaction at $157,000. We believe the securities issued above were issued in a private transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the "Securities Act"). These shares are considered restricted securities and may not be publicly resold unless registered for resale with appropriate governmental agencies or unless exempt from any applicable registration requirements. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of the security holders, through the solicitation of proxies or otherwise, during the second quarter of the fiscal year covered by this report. ITEM 5. OTHER INFORMATION. NEW BUSINESS DEVELOPMENT During the past quarter to date, we have initiated efforts to evaluate and acquire technology relevant to the production of renewable fuels such as ethanol. We anticipate entering in to licensing agreements and or business relationships in the renewable energy sector if we are successful in identifying suitable technologies and business opportunities. 21 ITEM 6. EXHIBITS (a) Exhibits: 31.1 Chief Executive Officer-Section 302 Certification pursuant to Sarbanes-Oxley Act. 31.2 Chief Financial Officer-Section 302 Certification pursuant to Sarbanes-Oxley Act. 32.1 Chief Executive Officer-Section 906 Certification pursuant to Sarbanes-Oxley Act. 32.2 Chief Financial Officer-Section 906 Certification pursuant to Sarbanes-Oxley Act. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 19, 2005. NUCLEAR SOLUTIONS, INC. By: /s/Patrick Herda By: /s/John Dempsey ----------------- ------------------- Patrick Herda John Dempsey Title: President, CEO Title: V.P., CFO 22