U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SEPTEMBER 30, 2018
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-54617
US NUCLEAR CORP.
(Exact name of registrant as specified in its charter)
| Delaware | 45-4535739 | |
| State or other jurisdiction of | (I.R.S. Employer | |
| Incorporation or organization | Identification No.) |
7051 Eton Avenue
Canoga Park, CA 91303
(Address of principal executive offices)
(818) 883-7043
(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, $0.0001 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
| Emerging Growth Company | ☐ |
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 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the Registrant’s common stock outstanding as of November 14, 2018 was 16,915,813.
TABLE OF CONTENTS
| PART I | 1 | |
| Item 1. | Financial Statements (Unaudited) | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 16 |
| Item 4. | Controls and Procedures | 16 |
| PART II | ||
| Item 1. | Legal Proceedings | 16 |
| Item 1A. | Risk Factors | 16 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Mine Safety Disclosures | 17 |
| Item 5. | Other Information | 17 |
| Item 6. | Exhibits | 17 |
| Signatures | 18 |
PART I - FINANCIAL INFORMATION
| US NUCLEAR CORP. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (unaudited) | ||||||||
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 891,371 | $ | 442,341 | ||||
| Accounts receivable, net | 612,731 | 278,091 | ||||||
| Inventories | 1,225,827 | 1,315,498 | ||||||
| TOTAL CURRENT ASSETS | 2,729,929 | 2,035,930 | ||||||
| PROPERTY AND EQUIPMENT, net | 6,171 | 5,670 | ||||||
| INTANGIBLE ASSET, net | 53,841 | |||||||
| INVESTMENT | 10,000 | |||||||
| GOODWILL | 570,176 | 570,176 | ||||||
| TOTAL ASSETS | $ | 3,316,276 | $ | 2,665,617 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 98,761 | $ | 121,499 | ||||
| Accrued liabilities | 62,308 | 79,815 | ||||||
| Accrued compensation - officer | 325,000 | 250,000 | ||||||
| Customer deposit | 28,361 | 65,216 | ||||||
| Acquisition contingency | 61,938 | 71,103 | ||||||
| Note payable | 16,060 | 15,474 | ||||||
| Line of credit | 272,476 | 299,654 | ||||||
| TOTAL CURRENT LIABILITIES | 864,904 | 902,761 | ||||||
| Note payable, net of current portion | 30,710 | 42,576 | ||||||
| Note payable to shareholder | 412,305 | 410,579 | ||||||
| TOTAL LIABILITIES | 1,307,919 | 1,355,916 | ||||||
| SHAREHOLDERS' EQUITY: | ||||||||
| Preferred stock, $0.0001 par value, 5,000,000 shares authorized; none issued and outstanding | — | — | ||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized, 16,915,813 and 14,047,403 shares issued and outstanding | 1,692 | 1,405 | ||||||
| Additional paid in capital | 6,415,432 | 3,342,953 | ||||||
| Accumulated deficit | (4,408,767 | ) | (2,034,657 | ) | ||||
| TOTAL SHAREHOLDERS' EQUITY | 2,008,357 | 1,309,701 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 3,316,276 | $ | 2,665,617 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
| US NUCLEAR CORP. AND SUBSIDIARIES | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Sales | $ | 1,145,480 | $ | 844,779 | $ | 2,706,785 | $ | 2,061,687 | ||||||||
| Cost of sales | 633,384 | 462,590 | 1,429,606 | 1,130,652 | ||||||||||||
| Gross profit | 512,096 | 382,189 | 1,277,179 | 931,035 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | 385,945 | 362,187 | 1,135,363 | 935,745 | ||||||||||||
| Stock-based compensation | 448,740 | — | 1,410,016 | — | ||||||||||||
| Acquisition of manufacturing and supply rights | 1,084,000 | — | 1,084,000 | |||||||||||||
| Total operating expenses | 1,918,685 | 362,187 | 3,629,379 | 935,745 | ||||||||||||
| Income (loss) from operations | (1,406,589 | ) | 20,002 | (2,352,200 | ) | (4,710 | ) | |||||||||
| Other expense | ||||||||||||||||
| Interest expense | (8,126 | ) | (6,494 | ) | (21,910 | ) | (17,787 | ) | ||||||||
| Total other expense | (8,126 | ) | (6,494 | ) | (21,910 | ) | (17,787 | ) | ||||||||
| Income (loss) before provision for income taxes | (1,414,715 | ) | 13,508 | (2,374,110 | ) | (22,497 | ) | |||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| Net income (loss) | $ | (1,414,715 | ) | $ | 13,508 | $ | (2,374,110 | ) | $ | (22,497 | ) | |||||
| Weighted average shares outstanding - basic and diluted | 16,584,617 | 13,947,403 | 15,643,639 | 13,947,403 | ||||||||||||
| Earnings (loss) per shares - basic and diluted | $ | (0.09 | ) | $ | 0 | $ | (0.15 | ) | $ | 0 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
| US NUCLEAR CORP. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (unaudited) | ||||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (2,374,110 | ) | $ | (22,497 | ) | ||
| Adjustment to reconcile net income (loss) to net | ||||||||
| cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 59,117 | 107,458 | ||||||
| Adjustment to acquisition contingency | 6,631 | — | ||||||
| Issuance of common stock for services | 1,410,016 | — | ||||||
| Issuance of common stock for manufacturing and supply rights | 594,000 | — | ||||||
| Expenses paid directly by majority shareholder | 41,900 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (334,640 | ) | (44,835 | ) | ||||
| Inventories | 89,671 | (239,887 | ) | |||||
| Accounts payable | (38,534 | ) | 132,288 | |||||
| Accounts payable, related party | — | 28,000 | ||||||
| Accrued liabilities | (17,507 | ) | 13,274 | |||||
| Accrued compensation - officer | 75,000 | 75,000 | ||||||
| Customer deposits | (36,855 | ) | (45,030 | ) | ||||
| Net cash provided by (used in) operating activities | (525,311 | ) | 3,771 | |||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (5,777 | ) | (1,989 | ) | ||||
| Payment for investment | (10,000 | ) | — | |||||
| Net cash used in investing activities | (15,777 | ) | (1,989 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Net borrowings (repayments) under lines of credit | (27,178 | ) | (46,564 | ) | ||||
| Proceeds from sale of common stock | 1,068,750 | — | ||||||
| Repayments for note payable | (11,280 | ) | (11,041 | ) | ||||
| Proceeds from note payable to shareholder | — | 116,585 | ||||||
| Repayments for note payable to shareholder | (40,174 | ) | (42,659 | ) | ||||
| Net cash provided by (used in) financing activities | 990,118 | 16,321 | ||||||
| NET INCREASE (DECREASE) IN CASH | 449,030 | 18,103 | ||||||
| CASH | ||||||||
| Beginning of period | 442,341 | 236,404 | ||||||
| End of period' | $ | 891,371 | $ | 254,507 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Taxes paid | $ | — | $ | — | ||||
| Interest paid | $ | 21,910 | $ | 17,787 | ||||
| Non-cash investing and financing activities | ||||||||
| Reclassification of acquisition contingency to accounts payable | $ | 15,796 | $ | 12,991 | ||||
| Payment by stockholder for intangible asset and investment | $ | 26,000 | $ | — | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
US Nuclear Corp. and Subsidiaries
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 2018 and 2017
(Unaudited)
Note 1 - Organization
Organization and Line of Business
US Nuclear Corp., formerly known as APEX 3, Inc., (the “Company” or “US Nuclear”) was incorporated under the laws of the State of Delaware on February 14, 2012.
On May 31, 2016, the Company entered into an Asset Purchase Agreement with Electronic Control Concepts (“ECC”) whereby the Company purchased certain tangible and intangible assets of ECC.
The Company is engaged in developing, manufacturing and selling radiation detection and measuring equipment. The Company markets and sells its products to consumers throughout the world.
Note 2 – Basis Presentation
Interim financial statements
The unaudited interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosure are adequate to make the information presented not misleading.
These statements reflect all adjustment, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2017 and notes thereto included in the Company’s annual report on Form 10-K filed on April 17, 2018. The Company follows the same accounting policies in the preparation of interim report. Results of operations for the interim period are not indicative of annual results.
Reclassifications
Certain reclassifications of prior year reported amounts have been made for comparative purposes. The Company does not consider such reclassifications to be material and they had no effect on net income (loss).
Recent Accounting Pronouncements
In June 2018, the FASB issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The Company is in the process of evaluating the impact of this ASU on its financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The adoption of this ASU did not have a material impact on the Company’s financial statements and disclosures.
4
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements and disclosures.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on its financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on its financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing 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 require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company adopted this ASU beginning on January 1, 2018 and used the modified retrospective method of adoption. The adoption of this ASC did not have a material impact on the Company’s financial statements and disclosures.
5
Note 3 – Inventories
Inventories at September 30, 2018 and December 31, 2017 consisted of the following:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Raw materials | $ | 833,208 | $ | 736,848 | ||||
| Work in Progress | 117,785 | 359,717 | ||||||
| Finished goods | 274,834 | 218,933 | ||||||
| Total inventories | $ | 1,225,827 | $ | 1,315,498 | ||||
Note 4 – Property and Equipment
The following are the details of the property, equipment and improvements at September 30, 2018 and December 31, 2017:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Furniture and fixtures | $ | 148,033 | $ | 148,033 | ||||
| Leasehold Improvements | 50,091 | 50,091 | ||||||
| Equipment | 233,826 | 233,826 | ||||||
| Computers and software | 33,036 | 27,259 | ||||||
| 464,986 | 459,209 | |||||||
| Less accumulated depreciation | (458,815 | ) | (453,539 | ) | ||||
| Property and equipment, net | $ | 6,171 | $ | 5,670 | ||||
Depreciation expense for the nine months ended September 30, 2018 and 2017 was $5,276 and $10,541, respectively. At September 30, 2018, the Company has $437,044 of fully depreciated property and equipment that is still in use.
Note 5 – Intangible Assets
The following are the details of intangible assets at September 30, 2018 and December 31, 2017:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Customer list | $ | 130,000 | $ | 130,000 | ||||
| Technology | 128,443 | 128,443 | ||||||
| 258,443 | 258,443 | |||||||
| Less accumulated amortization | (258,443 | ) | (204,602 | ) | ||||
| Intangible assets, net | $ | — | $ | 53,841 | ||||
Amortization expense for the nine months ended September 30, 2018 and 2017 was $53,841 and $96,917, respectively.
6
Note 6 – Investment
On August 3, 2018, the Company closed an agreement by and among, MIFTEC Laboratories, Inc. (“MIFTEC”), a licensee of Magneto-Inertial Fusion Technologies, Inc., (“MIFTI”), and the Company. MIFTEC is a licensee of MIFTI radionuclide technology. MIFTEC will engage the Company to manufacture equipment pursuant to MIFTEC’s specifications and designs and have the Company as a sales representative for the manufactured equipment. The Company will be the exclusive manufacturer and supplier to MIFTEC of equipment in North America and Asia. In addition, the Company received a 10% ownership interest in MIFTEC. The consideration for the exclusive manufacturing rights and a 10% ownership interest in MIFTEC was $500,000 and 300,000 shares of the Company’s common stock valued at $594,000. The fair value was determined based on the Company’s stock price on August 3, 2018. The Company recorded the value of the 10% interest in MIFTEC at $10,000 and recorded $1,084,000 as the acquisition of manufacturing and supply rights in the accompanying consolidated statement of operations.
Note 7 – Notes Payable
In connection with the acquisition of assets from ECC, the Company issued a note payable to the owner of ECC. The note accrued interest at 5% per annum, requires quarterly principal and interest payments of $4,518 and is due on April 15, 2021. At September 30, 2018 and December 31, 2017, the amount outstanding under this note payable was $46,770 and $58,050, respectively.
Future maturities of notes payable as of September 30, 2018 are as follows:
| Twelve Months Ending September 30, | ||||||
| 2019 | $ | 16,060 | ||||
| 2020 | 16,875 | |||||
| 2021 | 13,835 | |||||
| $ | 46,770 | |||||
Note 8 – Note Payable to Shareholder
Robert Goldstein, the CEO and majority shareholder, has loaned funds to the Company from time to time to cover general operating expenses. These loans are evidenced by unsecured, non-interest bearing notes due on December 31, 2019. During the nine months ended September 30, 2018, the Company’s majority shareholder paid expenses on behalf of the Company of $41,900 and the majority shareholder was repaid $40,174. During the nine months ended September 30, 2017, majority shareholder loaned an additional $116,585 to the Company and was repaid $42,659. The amounts due to Mr. Goldstein are $412,305 and $410,579 as of September 30, 2018 and December 31, 2017, respectively.
Note 9 – Line of Credit
As of September 30, 2018, the Company had four lines of credit with a maximum borrowing amount of $400,000 with interest ranging from 4.5% to 10.25%. As of September 30, 2018 and December 31, 2017, the amounts outstanding under these lines of credit were $272,476 and $299,654, respectively.
Note 10 – Shareholders’ Equity
During the nine months ended September 30, 2018, the Company issued:
| • | 823,260 shares of common stock to consultants for services rendered valued at $1,393,654. The fair value was determined based on the Company’s stock price on the date of issuance; |
| • | 15,150 shares of common stock to employees for compensation valued at $16,362. The fair value was determined based on the Company’s stock price on the date of issuance; |
| • | 1,730,000 shares of common stock to investors for cash proceeds of $1,068,750; and |
| • | 300,000 shares of common stock for the acquisition of manufacturing and supply rights valued at $594,000. The fair value was determined based on the Company’s stock price on the date of issuance. |
7
Note 11 – Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has two reportable segments: Optron and Overhoff. Optron is located in Canoga Park, California and Overhoff is located in Milford, Ohio. The assets and operations of the Company’s recent acquisition of the assets of Electronic Control Concepts are included with Overhoff in the table below.
The following tables summarize the Company’s segment information for the three and nine months ended September 30, 2018 and 2017:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||
| Sales | |||||||||
| Optron | $ | 377,775 | $ | 253,290 | $ | 850,360 | $ | 447,449 | |
| Overhoff | 767,705 | 591,489 | 1,856,425 | 1,614,238 | |||||
| Corporate | - | - | - | - | |||||
| $ | 1,145,480 | $ | 844,779 | $ | 2,706,785 | $ | 2,061,687 | ||
| Gross profit | |||||||||
| Optron | $ | 171,694 | $ | 101,256 | $ | 394,668 | $ | 182,084 | |
| Overhoff | 340,402 | 280,933 | 882,511 | 748,951 | |||||
| Corporate | - | - | - | - | |||||
| $ | 512,096 | $ | 382,189 | $ | 1,277,179 | $ | 931,035 | ||
| Income (loss) from operations | |||||||||
| Optron | $ | 38,444 | $ | (40,170) | $ | 17,118 | $ | (111,657) | |
| Overhoff | 161,032 | 91,414 | 346,128 | 208,909 | |||||
| Corporate | (1,606,065) | (31,242) | (2,715,446) | (101,962) | |||||
| $ | (1,406,589) | $ | 20,002 | $ | (2,352,200) | $ | (4,710) | ||
| Interest Expenses | |||||||||
| Optron | $ | 5,285 | $ | 5,648 | $ | 17,605 | $ | 14,634 | |
| Overhoff | 485 | 846 | 1,949 | 3,153 | |||||
| Corporate | 2,356 | - | 2,356 | - | |||||
| $ | 8,126 | $ | 6,494 | $ | 21,910 | $ | 17,787 | ||
| Net income (loss) | |||||||||
| Optron | $ | 33,159 | $ | (45,818) | $ | (487) | $ | (126,291) | |
| Overhoff | 160,547 | 90,568 | 344,179 | 205,756 | |||||
| Corporate | (1,608,421) | (31,242) | (2,717,802) | (101,962) | |||||
| $ | (1,414,715) | $ | 13,508 | $ | (2,374,110) | $ | (22,497) | ||
| As of | As of | ||||||||
| September 30, | December 31, | ||||||||
| 2018 | 2017 | ||||||||
| Total Assets | |||||||||
| Optron | $ | 1,320,031 | $ | 1,050,209 | |||||
| Overhoff | 1,712,935 | 1,610,442 | |||||||
| Corporate | 283,310 | 4,966 | |||||||
| $ | 3,316,276 | $ | 2,665,617 | ||||||
| Intangible Assets | |||||||||
| Optron | $ | - | $ | - | |||||
| Overhoff | - | 53,841 | |||||||
| Corporate | - | - | |||||||
| $ | - | $ | 53,841 | ||||||
| Goodwill | |||||||||
| Optron | $ | - | $ | - | |||||
| Overhoff | 570,176 | 570,176 | |||||||
| Corporate | - | - | |||||||
| $ | 570,176 | $ | 570,176 | ||||||
8
Note 12 - Geographical Sales
The geographical distribution of the Company’s sales for the three and nine months ended September 30, 2018 and 2017 is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||
| Geographical sales | |||||||||
| North America | $ | 463,678 | $ | 620,054 | $ | 1,431,443 | $ | 1,319,975 | |
| Asia | 607,408 | 185,729 | 1,055,726 | 608,083 | |||||
| South America | 59,929 | 651 | 139,237 | 18,035 | |||||
| Other | 14,465 | 38,345 | 80,379 | 115,594 | |||||
| $ | 1,145,480 | $ | 844,779 | $ | 2,706,785 | $ | 2,061,687 | ||
Note 13 – Related Party Transactions
The Company leases its current facilities from Gold Team Inc., a company owned by the Company’s CEO, which owns both the Canoga Park, CA and Milford, Ohio locations. Rent expense for the nine months ended September 30, 2018 and 2017 were $126,000 and $126,000, respectively. As of September 30, 2018 and December 31, 2017, payable to Gold Team Inc. in connection with the above leases amount to $0 and $0, respectively.
Future payments due under this operating lease agreement as of September 30, 2018 are as follows:
| Twelve months ending September 30, | ||
| 2019 | $ | 168,000 |
| 2020 | 112,000 | |
| $ | 280,000 |
In addition, as of September 30, 2018 and December 31, 2017, the Company had accrued compensation payable to its majority shareholder of $325,000 and $250,000, respectively.
Also see Note 8.
Note 14 – Concentrations
Two customers accounted for 30% and 20% of the Company’s sales for the nine months ended September 30, 2018 and one customer accounted for 36% of the Company’s sales for the nine months ended September 30, 2017.
No vendors accounted for more than 10% of the Company’s purchases for the nine months ended September 30, 2018 and 2017.
9
Note – 15 Fair Value Measurements
The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to measurements involving unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:
Level 1 inputs - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs - other inputs that are directly or indirectly observable in the marketplace.
Level 3 inputs - unobservable inputs which are supported by little or no market activity.
The Company categorizes its fair value measurements within the hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety. The following table presents the amount and level in the fair value hierarchy of each of its assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017. The contingent liability is for the earn-out related to the purchase of Electronic Control Concepts.
| September 30, 2018 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | TOTAL | |||||||||||||
| LIABILITES | ||||||||||||||||
| Contingent Liability | — | — | $ | 61,938 | $ | 61,938 | ||||||||||
| December 31, 2017 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | TOTAL | |||||||||||||
| LIABILITES | ||||||||||||||||
| Contingent Liability | — | — | 71,103 | 71,103 | ||||||||||||
A summary of the activity of the contingent liability is as follows:
| Contingent liability at December 31, 2017 | $ | 71,103 | ||
| Change in fair value | 6,631 | |||
| Reclassification to accounts payable | (15,796 | ) | ||
| Contingent liability at September 30, 2018 | $ | 61,938 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2017 filed with the Securities Exchange Commission on Form 10-K on April 17, 2018 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.
On April 18, 2012, Richard Chiang, then our sole director and shareholder, entered into a Stock Purchase Agreement whereby Mr. Goldstein of US Nuclear Corp purchased 10,000,000 shares of our common stock from Mr. Chiang, which constituted 100% of our issued and outstanding shares of common stock. Mr. Chiang then resigned from all positions. Subsequently, on May 18, 2012, the Registrant appointed Mr. Chiang to serve as a member of the Board of Directors. He resigned from this position on March 31, 2013.
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.
Our current product concentration places a heavy reliance on our Overhoff Technology division; where we derived 39% of our total revenues in 2017 from 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 35% of our total revenue in 2017. 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.
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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 August 3, 2018, we closed an agreement by and among, MIFTEC Laboratories, Inc. (“MIFTEC”), a licensee of Magneto-Inertial Fusion Technologies, Inc., (“MIFTI”), and us. MIFTEC is a licensee of MIFTI radionuclide technology. MIFTEC will engage us to manufacture equipment pursuant to MIFTEC’s specifications and designs and have us as a sales representative for the manufactured equipment. We will be the exclusive manufacturer and supplier to MIFTEC of equipment in North America and Asia. In addition, we received a 10% ownership interest in MIFTEC. The consideration for the exclusive manufacturing rights and a 10% ownership interest in MIFTEC was $500,000 and 300,000 shares of our common stock.
Results of Operations
For the three months ended September 30, 2018 compared to the three months ended September 30, 2017
| Three Months September 30, | Change | |||||||
| 2018 | 2017 | $ | % | |||||
| Sales | $ | 1,145,480 | $ | 844,779 | $ | 300,701 | 35.6% | |
| Cost of goods sold | 633,384 | 462,590 | 170,794 | 36.9% | ||||
| Gross profit | 512,096 | 382,189 | 129,907 | 34.0% | ||||
| Selling, general and administrative expenses | 385,945 | 362,187 | 23,758 | 6.6% | ||||
| Stock-based compensation | 448,740 | - | 448,740 | |||||
| Acquisition of manufacturing and supply rights | 1,084,000 | - | 1,084,000 | |||||
| Loss from operations | (1,406,589) | 20,002 | (1,426,591) | -7132.2% | ||||
| Other income (expense) | (8,126) | (6,494) | (1,632) | 25.1% | ||||
| Income (loss) before provision for income taxes | (1,414,715) | 13,508 | (1,428,223) | 10573.2% | ||||
| Provision for income taxes | - | - | - | |||||
| Net income (loss) | $ | (1,414,715) | $ | 13,508 | $ | (1,428,223) | 10573.2% | |
Sales for the three months ended September 30, 2018 were $1,145,480 compared to $844,779 for the same period in 2017. The increase of $300,701 or 35.6% is a result of an increase in sales from our Overhoff and Optron subsidiaries of $176,216 and $124,485, respectively. The increase in sales from our Overhoff and Optron subsidiaries was due to the delivery of large international orders during the third quarter of 2018. We recognize revenue from the sale of our products when the orders are completed and we ship the product to our customer. The sales breakdown for the three months ended September 30, 2018 is as follows:
| North America | 40 | % | ||
| Asia (Including Japan) | 53 | % | ||
| South America | 5 | % | ||
| Other | 1 | % |
Our gross margins for the three months ended September 30, 2018 were 44.7% as compared to 45.2% for the same period in 2017. The decrease in gross margin percentage is not significant.
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Selling, general and administrative expense for the three months ended September 30, 2018 were $385,945 compared to $362,187 for the same period in 2017. The increase of $23,758 or 6.6% is due to higher professional and consulting fees.
Stock-based compensation for the three months ended September 30, 2018 was $448,740 compared to $0 for the same period in 2017. During the three months ended September 30, 2018, the Company issued 326,000 shares of common stock to consultants for services rendered valued at $448,740. There were no such issuances in 2017.
Acquisition of manufacturing and supply rights for the three months ended September 30, 2018 was $1,084,000 compared to $0 for the same period in 2017. During the three months ended September 30, 2018, the Company entered into an agreement with MIFTEC and paid $1,084,000 for certain manufacturing and supply rights. There were no such agreements in 2017.
Other expense for the three months ended September 30, 2018 was $8,126, an increase of $1,632 from $6,494 for the same period in 2017. The increase was not significant.
Net loss for the three months ended September 30, 2018 was $1,414,715 compared to net income of $13,508 for the same period in 2017. The change was principally attributed to higher selling, general and administrative expenses and stock-based compensation, and the acquisition of manufacturing and supply rights offset by an increase in gross profits due to higher sales.
For the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Sales | $ | 2,706,785 | $ | 2,061,687 | $ | 645,098 | 31.3 | % | ||||||||
| Cost of goods sold | 1,429,606 | 1,130,652 | 298,954 | 26.4 | % | |||||||||||
| Gross profit | 1,277,179 | 931,035 | 346,144 | 37.2 | % | |||||||||||
| Selling, general and administrative expenses | 1,135,363 | 935,745 | 199,618 | 21.3 | % | |||||||||||
| Stock-based compensation | 1,410,016 | — | 1,410,016 | |||||||||||||
| Acquisition of manufacturing and supply rights | 1,084,000 | — | 1,084,000 | |||||||||||||
| Loss from operations | (2,352,200 | ) | (4,710 | ) | (2,347,490 | ) | 49840.6 | % | ||||||||
| Other income (expense) | (21,910 | ) | (17,787 | ) | (4,123 | ) | 23.2 | % | ||||||||
| Loss before provision for income taxes | (2,374,110 | ) | (22,497 | ) | (2,351,613 | ) | 10453.0 | % | ||||||||
| Provision for income taxes | — | — | — | |||||||||||||
| Net loss | $ | (2,374,110 | ) | $ | (22,497 | ) | $ | (2,351,613 | ) | 10453.0 | % | |||||
Sales for the nine months ended September 30, 2018 were $2,706,785 compared to $2,061,687 for the same period in 2017. The increase of $645,098 or 31.3% is a result of an increase in sales from our Overhoff subsidiary of $242,187 and our Optron subsidiary of $402,911. The increase in sales was due to the delivery of large orders during the first nine months of 2018. We recognize revenue from the sale of our products when the orders are completed and we ship the product to our customer. The sales breakdown for the nine months ended September 30, 2018 is as follows:
| North America | 53 | % | ||
| Asia (Including Japan) | 39 | % | ||
| South America | 5 | % | ||
| Other | 3 | % |
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Our gross margins for the nine months ended September 30, 2018 were 47.2% as compared to 45.2% for the same period in 2017. The increase in gross margin percentage is due to lower overhead allocation costs due to the higher volume of sales.
Selling, general and administrative expense for the nine months ended September 30, 2018 were $1,135,363 compared to $935,745 for the same period in 2017. The increase of $199,618 or 21.3% is due to higher professional and consulting fees.
Stock-based compensation for the nine months ended September 30, 2018 was $1,410,016 compared to $0 for the same period in 2017. During the nine months ended September 30, 2018, the Company issued 838,410 shares of common stock to employees and consultants for services rendered valued at $1,410,016. There were no such issuances in 2017.
Acquisition of manufacturing and supply rights for the nine months ended September 30, 2018 was $1,084,000 compared to $0 for the same period in 2017. During the nine months ended September 30, 2018, the Company entered into an agreement with MIFTEC and paid $1,084,000 for certain manufacturing and supply rights. There were no such agreements in 2017.
Other expense for the nine months ended September 30, 2018 was $21,910, an increase of $4,123 from $17,787 for the same period in 2017. The increase was not significant.
Net loss for the nine months ended September 30, 2018 was $2,374,110 compared to $22,497 for the same period in 2017. The change was principally attributed to higher selling, general and administrative expenses and stock-based compensation, and the acquisition of manufacturing and supply rights offset by an increase in gross profits due to higher sales.
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. During the nine months ended September 30, 2018, our majority shareholder loaned us an additional $41,900 and the majority shareholder was repaid $40,174. 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, 2018, total assets increased by 24.4% to $3,316,276 from $2,665,617 at December 31, 2017 principally related to an increase in cash and accounts receivable.
At September 30, 2018, total liabilities decreased by 3.5% to $1,307,919 from $1,355,916 at December 31, 2017. The decrease was not significant.
Net cash used in operating activities for the nine months ended September 30, 2018 was $525,311 compared to cash provided by operating activities of $3,771 for the same period in 2017. The change in cash from operations was principally due to the changes in working capital accounts.
Net cash used in investing activities for the nine months ended September 30, 2018 was $15,777 compared to $1,989 for the same period in 2017. The increase in cash used in investing activities was principally due to the investment in MIFTEC in August 2018.
Net cash provided by financing activities for the nine months ended September 30, 2018 was $990,118 compared to $16,321 for the same period in 2017. The change in cash from financing activities was principally due to the sale of 1,730,000 shares of our common stock for proceeds of $1,068,750.
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.
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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.
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.
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.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| • | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| • | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
| • | submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
| • | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. |
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
As an emerging growth company, the company is exempt from Section 14A and B of the Securities Exchange Act of 1934 which require the shareholder approval of executive compensation and golden parachutes.
The Company is an Emerging Growth Company under the JOBS Act of 2012, but the Company has irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(B) of the JOBS Act.
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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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal quarter covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of September 30, 2018.
Changes in internal controls
Our management, with the participation our Chief Executive Officer and Chief Financial Officer, performed an evaluation to determine whether any change in our internal controls over financial reporting occurred during the three-month period ended September 30, 2018. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in the Company's internal controls over financial reporting during the nine months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
There are not presently any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
See our Form 10K filed on April 17, 2018 for Risk Factors.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended September 30, 2018, the Company issued 326,000 shares of common stock to consultants for services rendered and issued 300,000 shares of its common stock in connection with an investment and manufacturing and supply rights.
The above shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| US Nuclear Corp | ||
| By: | /s/ Robert Goldstein | |
| President, Chief Executive Officer, Chairman of the Board of Directors | ||
| By: | /s/ Rachel Boulds | |
| Chief Financial Officer and Secretary | ||
Date: November 14, 2018
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