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, 2017
	☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-54617 

 

U S 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 10, 2017 was 13,947,403.

 

 

 

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II		17
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
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

Item 1. Financial Statements.

 

 

US NUCLEAR CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

		September 30, 2017				December 31, 2017
CURRENT ASSETS
Cash		$	254,507			$	236,404
Accounts receivable, net			274,057				229,222
Inventories			1,441,451				1,201,564
TOTAL CURRENT ASSETS			1,970,015				1,667,190
PROPERTY AND EQUIPMENT, net			8,738				17,290
INTANGIBLE ASSET, net			86,147				183,064
GOODWILL			570,176				570,176
TOTAL ASSETS		$	2,635,076			$	2,437,720
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	195,867			$	51,919
Accounts payable, related party			28,000				—
Accrued liabilities			79,720				66,446
Accrued compensation - officer			225,000				150,000
Customer deposit			52,832				97,862
Acquisition contingency			91,483				103,143
Note payable			16,060				14,724
Line of credit			301,171				347,735
TOTAL CURRENT LIABILITIES			990,133				831,829
Note payable, net of current portion			45,763				58,140
Note payable to shareholder			352,106				278,180
TOTAL LIABILITIES			1,388,002				1,168,149
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,
13,947,403 and 13,947,403 shares issued and outstanding			1,395				1,395
Additional paid in capital			3,312,963				3,312,963
Accumulated deficit			(2,067,284	)			(2,044,787	)
TOTAL SHAREHOLDERS' EQUITY			1,247,074				1,269,571
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	2,635,076			$	2,437,720

  

 

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

 

US NUCLEAR CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

		Three Months Ended September 30,								Nine Months ended September 30,
		2017				2016				2017				2016
Sales		$	844,779			$	751,036			$	2,061,687			$	1,649,061
Cost of sales			462,590				387,015				1,130,652				836,963
Gross profit			382,189				364,021				931,035				812,098
Operating expenses
Selling, general and administrative expenses			362,187				256,179				935,745				722,215
Total operating expenses			362,187				256,179				935,745				722,215
Income (loss) from operations			20,002				107,842				(4,710	)			89,883
Other expense
Interest expense			(6,494	)			(5,599	)			(17,787	)			(15,415	)
Total other expense			(6,494	)			(5,599	)			(17,787	)			(15,415	)
Income (loss) before provision for income taxes			13,508				102,243				(22,497	)			74,468
Provision for income taxes			—				—				—				—
Net income (loss)		$	13,508			$	102,243			$	(22,497	)		$	74,468
Weighted average shares outstanding - basic and diluted			13,947,403				13,649,686				13,947,403				13,549,245
Earnings (loss) per shares - basic and diluted		$	0.00			$	0.01			$	(0.00	)		$	0.01

  

 

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

 

US NUCLEAR CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Nine Months ended September 30,
		2017				2016
Net income (loss)			(22,497	)			74,468
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization			107,458				51,050
Changes in operating assets and liabilities:
Accounts receivable			(44,835	)			(228,277	)
Inventories			(239,887	)			(172,030	)
Prepaid expenses and other current assets			—				(8,000	)
Accounts payable			132,288				17,627
Accounts payable, related party			28,000				—
Accrued liabilities			13,274				9,459
Accrued compensation - officer			75,000				—
Customer deposits			(45,030	)			18,795
Net cash provided by (used in) operating activities			3,771				(236,908	)
INVESTING ACTIVITIES
Purchase of property and equipment			(1,989	)			—
Cash paid for acquisition			—				(60,000	)
Net cash used in investing activities			(1,989	)			(60,000	)
FINANCING ACTIVITIES
Net borrowings (repayments) under lines of credit			(46,564	)			43,322
Proceeds from sale of common stock			—				99,000
Repayments for note payable			(11,041	)			(3,546	)
Proceeds from note payable to shareholder			116,585				57,600
Repayments for note payable to shareholder			(42,659	)			(13,299	)
Net cash provided by financing activities			16,321				183,077
NET INCREASE (DECREASE) IN CASH			18,103				(113,831	)
CASH
Beginning of the period			236,404				419,126
End of the period			254,507				305,295
Supplemental disclosures of cash flow information
Taxes paid			—				—
Interest paid			17,787				15,415
Non-cash investing and financing activities
Reclassification of acquisition contingency to accounts payable			12,991				—
Common stock issued for acquistion			—				35,601
Note payable issued for acquisition			—				80,000
Acquisition contingency			—				107,707

  

 

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

 

 

 

 

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.

 

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, 2016 and notes thereto included in the Company’s annual report on Form 10-K filed on April 17, 2017. 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 January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“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 Company is in the process of evaluating the impact of this accounting standard update.

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 Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

 

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 accounting standard update 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 Company is in the process of evaluating the impact of this accounting standard update on its statements of cash flows.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09, which amends several aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

 

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 accounting standard update on its financial statements.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.  ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter.  Early adoption is permitted.  The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company's financial statements and disclosures.

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

 

 

Note 3 – Inventories

 

Inventories at September 30, 2017 and December 31, 2016 consisted of the following:

 

		September 30,		December 31,
		2017		2016
Raw materials	$	781,989	$	584,687
Work in Progress		197,839		202,009
Finished goods		461,623		414,868
Total inventories	$	1,441,451	$	1,201,564

 

Note 4 – Property and Equipment

 

The following are the details of the property, equipment and improvements at September 30, 2017 and December 31, 2016:

 

		September 30,		December 31,
		2017		2016
Furniture and fixtures	$	148,033	$	146,684
Leasehold Improvements		50,091		50,091
Equipment		233,826		233,186
Computers and software		27,259		27,259
		459,209		457,220
Less accumulated depreciation		(450,471)		(439,930)
Property and equipment, net	$	8,738	$	17,290

 

Depreciation expense for the nine months ended September 30, 2017 and 2016 was $10,541 and $7,976, respectively. At September 30, 2017, the Company has $415,934 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, 2017 and December 31, 2016:

 

		September 30,		December 31,
		2017		2016
Customer list	$	130,000	$	130,000
Technology		128,443		128,443
		258,443		258,443
Less accumulated amortization		(172,296)		(75,379)
Intangible assets, net	$	86,147	$	183,064

 

Amortization expense for the nine months ended September 30, 2017 and 2016 was $96,917 and $43,074, respectively.

 

 

 

 

The following summarizes estimated future amortization expense related to intangible assets for the twelve months ended September 30:

 

2018

$

86,147

  

Note 6 – Note Payable 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, 2018. During the nine months ended September 30, 2017, the majority shareholder loaned the Company $116,585 and the Company repaid its majority shareholder $42,659 under this note payable agreement. The amounts due to Mr. Goldstein are $352,106 and $278,180 as of September 30, 2017 and December 31, 2016, respectively.

 

Note 7– Lines of Credit

 

As of September 30, 2017, the Company had four lines of credit with a maximum borrowing amount $400,000 with interest ranging from 3.25% to 9.49%. As of September 30, 2017 and December 31, 2016, the amounts outstanding under these lines of credit were $301,171 and $347,735, respectively.

 

Note 8 –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, 2017 and 2016:

 

			Three Months Ended September 30,				Nine Months Ended September 30,
			2017		2016		2017		2016
Sales
	Optron	$	253,290	$	224,464	$	447,449	$	486,034
	Overhoff		591,489		526,572		1,614,238		1,163,027
	Corporate		-		-		-		-
		$	844,779	$	751,036	$	2,061,687	$	1,649,061
Gross profit
	Optron	$	101,256	$	90,185	$	182,084	$	200,872
	Overhoff		280,933		273,836		748,951		611,226
	Corporate		-		-		-		-
		$	382,189	$	364,021	$	931,035	$	812,098
Income (loss) from operations
	Optron	$	(40,170)	$	40,886	$	(111,657)	$	57,036
	Overhoff		91,414		86,980		208,909		99,221
	Corporate		(31,242)		(20,024)		(101,962)		(66,374)
		$	20,002	$	107,842	$	(4,710)	$	89,883
Interest Expenses
	Optron	$	5,648	$	4,544	$	14,634	$	13,454
	Overhoff		846		1,055		3,153		1,961
	Corporate		-		-		-		-
		$	6,494	$	5,599	$	17,787	$	15,415
Net income (loss)
	Optron	$	(45,818)	$	36,342	$	(126,291)	$	43,582
	Overhoff		90,568		85,925		205,756		97,260
	Corporate		(31,242)		(20,024)		(101,962)		(66,374)
		$	13,508	$	102,243	$	(22,497)	$	74,468

 

						As of		As of
						September 30,		December 31,
						2017		2016
Total Assets
	Optron				$	981,062	$	987,873
	Overhoff					1,649,362		1,424,701
	Corporate					4,652		25,146
					$	2,635,076	$	2,437,720
Intangible Assets
	Optron				$	-	$	-
	Overhoff					86,147		183,064
	Corporate					-		-
					$	86,147	$	183,064
Goodwill
	Optron				$	-	$	-
	Overhoff					570,176		570,176
	Corporate					-		-
					$	570,176	$	570,176

  

 

 

Note 9 - Geographical Sales

 

The geographical distribution of the Company’s sales for the three and nine months ended September 30, 2017 and 2016 is as follows:

 

			Three Months Ended September 30,				Nine Months Ended September 30,
			2017		2016		2017		2016
Geographical sales
	North America	$	620,054	$	546,078	$	1,319,975	$	1,149,335
	Asia		185,729		115,778		608,083		359,619
	South America		651		-		18,035		11,022
	Other		38,345		89,180		115,594		129,085
		$	844,779	$	751,036	$	2,061,687	$	1,649,061

 

Note 10 – 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. Rent expense for the nine months ended September 30, 2017 and 2016 were $126,000 and $108,000, respectively. As of September 30, 2017 and December 31, 2016, payable to Gold Team Inc. in connection with the above leases amount to $28,000 and $0, respectively.

 

Also see Note 6.

Note 11 – Concentrations

 

One customers accounted for 36% of the Company’s sales for the nine months ended September 30, 2017 and one customer accounted for 44% of the Company’s sales for nine months ended September 30, 2016.

 

No vendors accounted for more than 10% of the Company’s purchases for the nine months ended September 30, 2017 and 2016.

 

Note – 12 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, 2017 and December 31, 2016. The contingent liability is for the earn-out related to the purchase of Electronic Control Concepts.

 

 

	September 30, 2017
	Level 1		Level 2		Level 3		TOTAL
LIABILITES
Contingent Liability	-		-	$	91,483	$	91,483
	December 31, 2016
	Level 1		Level 2		Level 3		TOTAL
LIABILITES
Contingent Liability	-		-		103,143		103,143

 

A summary of the activity of the contingent liability is as follows:

 

Contingent liability at December 31, 2016	$	103,143
Change in fair value		1,331
Reclassification to accounts payable		(12,991)
Contingent liability at September 30, 2017	$	91,483

 

 

 

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, 2016 filed with the Securities Exchange Commission on Form 10-K on April 17, 2017 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 38% of our total revenues in 2016 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 34% of our total revenue in 2016. We expect this to increase over time as we continue to field new orders inquires and engage new customers overseas. We believe that Korea and China will likely be a larger contributor to revenue within the next few years. While we maintain steady growth domestically, the international side of our business may be a larger component as nuclear technology and rapid development for clean energy grows abroad. Additionally, the Company relies on continued growth and orders from CANDU reactors (Canada Deuterium Uranium), and rapid development of the next generation of nuclear reactors called Molten Salt Reactors, (MSR) and Liquid-Fluoride Thorium Reactors (LFTR), all of which purchase tritium detection and monitor products. There can be no assurances as to our growth projections and our risk profile as we depend upon increased foreign customers for business.

 

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

 

Robert I. Goldstein, our President, Chief Executive Officer and Chairman of the Board of Directors also maintains a position as President of Gold Team Inc., a Delaware company that invests in industrial real estate properties for investment purposes.

 

 

 

He holds an 8% interest in Gold Team Inc. and spends approximately 5 hours per week with affairs related to Gold Team Inc. The Company leases its current facilities from Gold Team Inc. which owns both the Canoga Park, CA and Milford, Ohio properties at an expense of $7,000 for each facility per month. 

 

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

 

Results of Operations

For the three months ended September 30, 2017 compared to the three months ended September 30, 2016

 

		Three Months September 30,				Change
		2017		2016		$		%
Sales	$	844,779	$	751,036	$	93,743		12.5%
Cost of goods sold		462,590		387,015		75,575		19.5%
Gross profit		382,189		364,021		18,168		5.0%
Selling, general and administrative expenses		362,187		256,179		106,008		41.4%
Income (loss) from operations		20,002		107,842		(87,840)		-81.5%
Other income (expense)		(6,494)		(5,599)		(895)		16.0%
Income (loss) before provision for income taxes		13,508		102,243		(88,735)		-86.8%
Provision for income taxes		-		-		-
Net income (loss)	$	13,508	$	102,243	$	(88,735)		-86.8%

 

Sales for the three months ended September 30, 2017 were $844,779 compared to $751,036 for the same period in 2016. The increase of $93,743 or 12.5% is a result of an increase in sales from our Optron and Overhoff subsidiaries of $28,826 and $64,917, respectively. The increase in sales from both our Optron and Overhoff subsidiaries was due to the completion and delivery of new purchase orders obtained during the past year. 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, 2017 is as follows:

 

North America 47%

Asia (Including Japan) 38%

Our gross margins for the three months ended September 30, 2017 were 45.2% as compared to 48.5% for the same period in 2016. The decrease in gross margin percentage is due to higher labor, material and overhead costs.

 

Selling, general and administrative expense for the three months ended September 30, 2017 were $362,187 compared to $256,179 for the same period in 2016. The increase of $106,008 or 41.4% is due to higher rent costs, professional fees and the amortization of intangible assets.

 

Other expense for the three months ended September 30, 2017 was $6,494, an increase of $895 from $5,599 for the same period in 2016. The increase is not significant.

 

Net income for the three months ended September 30, 2017 was $13,508 compared to $102,243 for the same period in 2016. The decrease in net income was principally attributed to higher selling, general and administrative expenses, and a decrease in gross profits due to lower sales and higher cost of goods sold as a percentage of sales.

 

 

 

For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016

 

		Nine Months Ended September 30,				Change
		2017		2016		$		%
Sales	$	2,061,687	$	1,649,061	$	412,626		25.0%
Cost of goods sold		1,130,652		836,963		293,689		35.1%
Gross profit		931,035		812,098		118,937		14.6%
Selling, general and administrative expenses		935,745		722,215		213,530		29.6%
Income (loss) from operations		(4,710)		89,883		(94,593)		-105.2%
Other income (expense)		(17,787)		(15,415)		(2,372)		15.4%
Income (loss) before provision for income taxes		(22,497)		74,468		(96,965)		-130.2%
Provision for income taxes		-		-		-
Net Income (loss)	$	(22,497)	$	74,468	$	(96,965)		-130.2%

 

Sales for the nine months ended September 30, 2017 were $2,061,687 compared to $1,649,061 for the same period in 2016. The increase of $412,626 or 25.0% is a result of an increase in sales from our Overhoff subsidiary of $451,211 offset by a decrease in sales from our Optron subsidiary of $38,585. The increase in sales from our Overhoff subsidiary was due to the delivery of some large orders during the first quarter of 2017. The decrease in sales from our Optron subsidiary was due to the timing of the completion of larger orders. 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, 2017 is as follows:

 

North America 58%

Asia (Including Japan) 35%

 

Our gross margins for the nine months ended September 30, 2017 were 45.2% as compared to 49.2% for the same period in 2016. The decrease in gross margin percentage is due to higher material costs.

 

Selling, general and administrative expense for the nine months ended September 30, 2017 were $935,745 compared to $722,215 for the same period in 2016. The increase of $213,530 or 29.6% is due to higher rent costs, professional fees and the amortization of intangible assets.

 

Other expense for the nine months ended September 30, 2017 was $17,787, an increase of $2,372 from $15,415 for the same period in 2016. The increase is not significant.

 

Net loss for the nine months ended September 30, 2017 was $22,497 compared to net income of $74,468 for the same period in 2016. The change was principally attributed to higher selling, general and administrative expenses 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. As funds were needed for working capital purposes, our majority shareholder would loan us the needed funds. During the nine months ended September 30, 2017, our majority shareholder loan us an additional $116,585 and we were able to repay $42,659. We anticipate funding the growth of our business through the sales of shares of our common stock and loans from our majority stockholder if necessary.

 

At September 30, 2017, total assets increased by 8.1% to $2,635,076 from $2,437,720 at December 31, 2016 principally related to an increase in inventory offset by a decrease in intangible assets (due to amortization).

 

 

 

At September 30, 2017, total liabilities increased by 18.8% to $1,388,002 from $1,168,149 at December 31, 2016. The increase was principally due to an increase in accounts payable, accrued compensation and notes to stockholder, offset by a decrease in customer deposits.

 

Net cash provided by operating activities for the nine months ended September 30, 2017 was $3,771 compared to net cash used in operating activities of $236,908 for the same period in 2016. The change in cash from operations was principally due to the changes in accounts receivable, inventory and accounts payable.

 

Net cash used in investing activities for the nine months ended September 30, 2017 was $1,989 compared to $60,000 for the same period in 2016. The decrease in cash used in investing activities was principally due to cash paid for an acquisition in 2016.

 

Net cash provided by financing activities for the nine months ended September 30, 2017 was $16,321 compared to $183,077 for the same period in 2016. The change in cash from financing activities was principally due to the paid down of the line of credit balance in 2017 compared to additional borrowings in 2016, and the sale of common stock for $99,000 in 2016.

 

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.

 

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. 

 

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, 2017.

 

 

 

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, 2017.  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, 2017 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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.

Item 1A. Risk Factors

See our Form 10K filed on April 17, 2017 for Risk Factors.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

 

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits. 

 

		Incorporated by reference
Exhibit	Exhibit Description	Filed herewith	Form	Period ending	Exhibit	Filing date
3.1	Certificate of Incorporation		10		3.1	02/14/2012
3.2	By-Laws		10		3.2	02/14/2012
3.3	Amendment to Certificate of Incorporation		8-K		3.3	05/29/2012
4.1	Specimen Stock Certificate		10		4.1	02/14/2012
10.1	Robert I. Goldstein Employment Agreement		10-Q		10.1	11/11/2014
10.2	Forgiveness of Debt and Conversion Agreement		10-Q		10.2	11/11/2014
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Definition	X

 

 

 

SIGNATURES 

 

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, 2017