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 JUNE 30, 2020

 

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

 

Commission file number: 000-54617

 

 

 

(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)

 

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 ☒

 

Securities registered pursuant to Section 12(b) of the Act:

  

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

The number of shares of the Registrant’s common stock outstanding as of September 17, 2020 was 22,477,536.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I    
     
Item 1. Financial Statements (Unaudited) 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
Item 4. Controls and Procedures 24
     
PART II    
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 26
     
  Signatures 27

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

US NUCLEAR CORP. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30,     December 31,  
    2020     2019  
    (unaudited)     (audited)  
ASSETS  
             
CURRENT ASSETS            
Cash   $ 841,259     $ 1,087,660  
Accounts receivable, net     161,807       560,303  
Inventories     1,226,486       1,098,250  
Prepaid expenses and other current assets     3,000       3,000  
TOTAL CURRENT ASSETS     2,232,552       2,749,213  
                 
Property and equipment, net     6,850       7,848  
Right-of-use assets     135,001       211,799  
Investments     835,178       2,000  
Goodwill     570,176       570,176  
TOTAL ASSETS   $ 3,779,757     $ 3,541,036  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                 
CURRENT LIABILITIES                
Accounts payable   $ 123,632     $ 55,493  
Accrued liabilities     68,597       109,450  
Accrued compensation - officer     320,000       250,000  
Customer deposit     30,600       6,113  
Acquisition contingency     -       10,594  
Note payable     17,797       17,087  
Operating lease liability     135,001       156,719  
Line of credit     211,543       215,266  
Convertible debenture, net of discount of $220,576     179,424       -  
Derivative liability     259,326       418,781  
TOTAL CURRENT LIABILITIES     1,345,920       1,239,503  
                 
Note payable, net of current portion     107,587       9,201  
Note payable to shareholder     505,643       500,051  
Convertible debenture, net of discount of $462,963     -       37,037  
Operating lease liabillity, net of current portion     -       55,080  
TOTAL LIABILITIES     1,959,150       1,840,872  
                 
COMMITMENTS & CONTINGENCIES     -       -  
                 
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, 21,647,837 and 20,067,371 shares issued and outstanding     2,165       2,007  
Additional paid in capital     10,613,428       9,300,657  
Accumulated deficit     (8,794,986 )     (7,602,500 )
TOTAL SHAREHOLDERS’ EQUITY     1,820,607       1,700,164  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 3,779,757     $ 3,541,036  

 

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   Six Months Ended
    June 30,   June 30,
    2020     2019     2020     2019  
                         
Sales   $ 302,201     $ 1,530,523     $ 624,440     $ 2,159,576  
Cost of sales     158,822       744,590       314,734       1,055,726  
Gross profit     143,379       785,933       309,706       1,103,850  
                                 
Operating expenses                                
Selling, general and administrative expenses     346,203       1,246,309       1,241,045       1,745,542  
Total operating expenses     346,203       1,246,309       1,241,045       1,745,542  
                                 
Loss from operations     (202,824 )     (460,376 )     (931,339 )     (641,692 )
                                 
Other income (expense)                                
Interest expense     (12,151 )     (5,643 )     (25,546 )     (11,746 )
Amortization of debt discount     (74,897 )     -       (242,387 )     -  
Change in value of derivative liability     146,997       -       9,835       -  
Equity loss in investment     (2,242 )     -       (3,049 )     -  
Total other income (expense)     57,707       (5,643 )     (261,147 )     (11,746 )
                                 
Loss before provision for income taxes     (145,117 )     (466,019 )     (1,192,486 )     (653,438 )
                                 
Provision for income taxes     -       -       -       -  
                                 
Net loss   $ (145,117 )   $ (466,019 )   $ (1,192,486 )   $ (653,438 )
                                 
Weighted average shares outstanding - basic and diluted     21,647,837       17,542,030       21,103,582       17,288,219  
                                 
Loss per shares - basic and diluted   $ (0.01 )   $ (0.03 )   $ (0.06 )   $ (0.04 )

 

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

 

2

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

 

                Additional           Total  
    Common Stock     Paid-in     Accumulated     Shareholders’  
    Shares     Amount     Capital     Deficit     Equity  
Balance, December 31, 2019     20,067,371     $ 2,007     $ 9,300,657     $ (7,602,500 )   $ 1,700,164  
                                         
Issuance of common stock for services     558,295       56       453,040       -       453,096  
Issuance of common stock for conversion of convertible debenture and accrued interest     163,275       16       108,970       -       108,986  
Issuance of common stock for investment     858,896       86       601,141       -       601,227  
Derivative liability resolution     -       -       149,620               149,620  
Net loss   -       -       -       (1,047,369 )     (1,047,369 )
                                         
Balance, March 31, 2020     21,647,837       2,165       10,613,428       (8,649,869 )     1,965,724  
                                         
Net loss     -       -       -       (145,117 )     (145,117 )
                                         
Balance, June 30, 2020     21,647,837     $ 2,165     $ 10,613,428     $ (8,794,986 )   $ 1,820,607  
                                         
Balance, December 31, 2018     16,959,784     $ 1,696     $ 6,445,625     $ (4,441,727 )   $ 2,005,594  
                                         
Issuance of common stock for services     257,050       26       118,541       -       118,567  
Net loss     -       -       -       (187,419 )     (187,419 )
                                         
Balance, March 31, 2019     17,216,834       1,722       6,564,166       (4,629,146 )     1,936,742  
                                         
Issuance of common stock for services     615,287       61       804,070       -       804,131  
Issuance of common stock for cash     583,333       58       249,942               250,000  
Net loss     -       -       -       (466,019 )     (466,019 )
                                         
Balance, June 30, 2019     18,415,454     $ 1,841     $ 7,618,178     $ (5,095,165 )   $ 2,524,854  

 

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

3

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

    Six Months Ended  
    June 30,  
    2020     2019  
             
OPERATING ACTIVITIES            
Net loss   $ (1,192,486 )   $ (653,438 )
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and amortization     998       682  
Adjustment to acquisition contingency     718       (3,271 )
Issuance of common stock for services     453,096       922,698  
Expenses paid directly by majority shareholder     40,000       -  
Operating lease expense     76,798       70,912  
Amortization of debt discounts     242,387       -  
Change in value of derivative liability     (9,835 )     -  
Equity loss in investment     3,049       -  
Changes in operating assets and liabilities:                
Accounts receivable     398,496       59,548  
Inventories     (128,236 )     45,969  
Accounts payable     56,827       (37,347 )
Accrued liabilities     (31,867 )     (10,260 )
Accrued compensation - officers     70,000       50,000  
Customer deposits     24,487       (71,573 )
Operating lease liability     (76,798 )     (70,912 )
Net cash provided by (used in) operating activities     (72,366 )     303,008  
                 
INVESTING ACTIVITIES                
Cash paid for investment     (235,000 )     -  
Cash paid for acquisition deposit     -       (100,000 )
Net cash used in investing activities     (235,000 )     (100,000 )
                 
FINANCING ACTIVITIES                
Net borrowings (repayments) under lines of credit     (3,723 )     (3,722 )
Proceeds from sale of common stock     -       250,000  
Proceeds from issuance of note payable     107,587       -  
Repayments for note payable     (8,491 )     (8,130 )
Proceeds from note payable to shareholder     520,600       13,800  
Repayments for note payable to shareholder     (555,008 )     (30,159 )
                 
Net cash provided by financing activities     60,965       221,789  
                 
NET DECREASE IN CASH     (246,401 )     424,797  
                 
CASH                
Beginning of period     1,087,660       969,118  
End of period   $ 841,259     $ 1,393,915  
                 
Supplemental disclosures of cash flow information                
Taxes paid   $ -     $ -  
Interest paid   $ 4,431     $ 11,746  
                 
Reclassification of acquisition contingency to accounts payable   $ 11,312     $ 9,515  
Right of use asset and operating lease liability recognized   $ -     $ 356,508  
Common stock issued for conversion of convertible debenture and accrued interest   $ 108,986     $ -  
Common stock issued for investment   $ 601,227     $ -  
Relief of derivative liability   $ 149,620     $ -  

 

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

 

4

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(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, 2019 and notes thereto included in the Company’s annual report on Form 10-K filed on July 2, 2020. 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.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Optron and its wholly-owned subsidiary, Overhoff Technology Corporation (“Overhoff”), and have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. There were no cash equivalents as of June 30, 2020 and December 31, 2019.

 

5

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Concentration of credit risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC insurance limit. The Company has not and does not anticipate incurring any losses related to this credit risk. 

 

Accounts Receivable

 

The Company maintains reserves for potential credit losses for accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  Reserves are recorded based on the Company’s historical collection history. Allowance for doubtful accounts as of June 30, 2020 and December 31, 2019 were $5,000 and $5,000, respectively.

 

Inventories

 

Inventories are valued at the lower of cost (determined primarily by the average cost method) or net realizable value. Management compares the cost of inventories with the net realizable value and allowance is made for writing down their inventories to net realizable value, if lower. As of June 30, 2020 and December 31, 2019, there was no allowance for slow moving or obsolete inventory. The Company periodically assessed its inventory for slow moving and/or obsolete items. If any are identified an appropriate allowance for those items is made and/or the items are deemed to be impaired.

 

Property and Equipment

 

Property and Equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

 

Furniture and fixtures 5 years
Leasehold improvement Lesser of lease life or economic life
Equipment 5 years
Computers and software 5 years

 

Long-Lived Assets

 

The Company applies the provisions of Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at June 30, 2020 and December 31, 2019, the Company believes there was no impairment of its long-lived assets.

 

Goodwill

 

Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. The entire goodwill balance in the accompanying financial statements resulted from the Company’s acquisition of Overhoff Technology Corporation in 2006. The Company complies with ASC 350, Goodwill and Other Indefinite Lived Intangible Assets, requiring that a test for impairment be performed at least annually. As of June 30, 2020 and December 31, 2019 the Company performed the required impairment analysis which resulted in no impairment adjustments. 

 

6

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Derivative Financial Instruments

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of June 30, 2020 and December 31, 2019, the Company’s only derivative financial instruments were an embedded conversion feature associated with convertible notes payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company’s stock price at the date of conversion.

 

Investments

 

The Company accounts for investments in equity securities without a readily determinable fair value at cost, minus impairment. If the Company identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, the Company measures the equity security at fair value as of the date that the observable transaction occurred (“the measurement alternative”) in accordance with ASC 321. The Company accounts for investments for which its owns 20% or more, but less than 50% on the equity method in accordance with ASC 323.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued liabilities, customer deposits, and line of credit, the carrying amounts approximate their fair values due to their short maturities. In addition, the Company has a note payable to shareholder that the carrying amount also approximates fair value.

  

Revenue Recognition

 

Accounting Standards Update (“ASU”) No. 2014-09,  Revenue from Contracts with Customers  (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of  Topic 606. As   sales are and have been primarily from the sale of products to customers, and the Company has no significant post-delivery obligations, this new standard did not   result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under  Topic 605, Revenue Recognition.

 

Revenue from the product sales are recognized under  Topic 606  in a manner that reasonably reflects the delivery of its products to customers in return for expected consideration and includes the following elements:

 

● executed contracts with the Company’s customers that it believes are legally enforceable;

 

● identification of performance obligations in the respective contract;

 

● determination of the transaction price for each performance obligation in the respective contract;

 

● allocation the transaction price to each performance obligation; and

 

● recognition of revenue only when the Company satisfies each performance obligation.

 

7

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

These five elements, as applied to each of the Company’s revenue category, is summarized below:

 

● Product sales - revenue is recognized when the Company performs its obligations under the contracts it has with its customers to deliver products at an agreed upon price and it is generally when the control of the product has been transferred to the customer.

   

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits.

 

Sales returns and allowances was $0 for the six months ended June 30, 2020 and 2019. The Company provides a one-year warranty on all sales. Warranty expense for the six months ended June 30, 2020 and 2019 was insignificant. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.

 

See Notes 13 and 14 for disclosures of revenue disaggregated by geographical area and product line.

 

Customer Deposits

 

Customer deposits represent cash paid to the Company by customers before the product has been completed and shipped.

 

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.

 

Stock-Based Compensation

 

The Company records stock-based compensation in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation.” FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. As of June 30, 2020 and December 31, 2019 there were 333,333 and 333,333 warrants outstanding, respectively, to purchase shares of common stock and the Company had an outstanding convertible debenture that is convertible into 666,667 and 892,857 shares of common stock, respectively. Basic and diluted earnings per share are the same during the six months ended June 30, 2020 and 2019 due to the net loss incurred.

 

8

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Segment Reporting

 

FASB 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 determined it has two reportable segments. See Note 13.

 

Related Parties

 

The Company accounts for related party transactions in accordance with ASC 850, Related Party Disclosures. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

Reclassifications

 

Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the net loss or stockholders’ equity.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 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.

  

In June 2018, the FASB issued 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 adopted this ASU on January 1, 2019 with no material impact on the Company’s 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. ASU 2016-02 and additional ASUs are now codified as Accounting Standards Codification Standard (“ASC”) 842 - Leases (“ASC 842”). ASC 842 supersedes the lease accounting guidance in ASC 840 Leases, and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The Company adopted ASC 842 on January 1, 2019 and used the modified retrospective transition approach and did not restate its comparative periods. As of the date of implementation on January 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right of use asset and lease payable obligation on the Company’s consolidated balance sheets of $356,508. As the right of use asset and the lease payable obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on the Company’s accumulated deficit. 

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021.  The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted.  The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.

 

9

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Note 3 – Inventories

 

Inventories at June 30, 2020 and December 31, 2019 consisted of the following:

 

    June 30,     December 31,  
    2020     2019  
Raw materials   $ 818,344     $ 860,901  
Work in Progress     122,443       39,511  
Finished goods     285,699       197,838  
Total inventories   $ 1,226,486     $ 1,098,250  

 

At June 30, 2020 and December 31, 2019 the inventory reserve was $0.

 

Note 4 – Property and Equipment

 

The following are the details of the property and equipment at June 30, 2020 and December 31, 2019:

 

    June 30,     December 31,  
    2020     2019  
Furniture and fixtures   $ 148,033     $ 148,033  
Leasehold Improvements     50,091       50,091  
Equipment     237,418       237,418  
Computers and software     33,036       33,036  
      468,578       468,578  
Less accumulated depreciation     (461,728 )     (460,730 )
Property and equipment, net   $ 6,850     $ 7,848  

 

Depreciation expense for the six months ended June 30, 2020 and 2019 was $998 and $682, respectively. At June 30, 2020, the Company has $440,628 of fully depreciated property and equipment that is still in use.

 

10

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Note 5 – 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 during the year ended December 31, 2018. The Company evaluated this investment for impairment and determined that an impairment of $9,000 was necessary during the year ended December 31, 2019. The carrying value of this investment at June 30, 2020 and December 31, 2019 was $1,000 and $1,000, respectively.

 

In April 2019, the Company also entered into a Cooperative Agreement with MIFTI whereby the Company acquired certain exclusive manufacturing and supply rights, including thermonuclear fusion-powered reactor for production of electricity per MIFTI designs in return for $500,000, of which $100,000 is payable upon signing, $200,000 within four months of the agreement and $200,000 within nine months of the agreement. The $500,000 is an option to buy a 10% interest in MIFTI for $2,700,000, if completed with 24 months of the agreement date. If the options expires, MIFTI shall issue the Company 500,000 shares of common stock and rescind all other exclusive rights contained in the agreement. The option was rescinded and the Company received 500,000 shares of MIFTI common stock which represents an ownership of approximately 0.56% for its $500,000 investment. The Company evaluated this investment for impairment and determined that an impairment of $499,000 was necessary during the year ended December 31, 2019. The carrying value of this investment at June 30, 2020 and December 31, 2019 was $1,000 and $1,000, respectively.

 

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

 

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

 

On the one-year anniversary of the closing of the SPA, the Company shall receive an additional 1,100 shares of Grapheton’s common stock in exchange for shares of the Compnay’s common stock in an amount equal to $707,777, as valued by an independent third-party valuator.

 

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

 

The Company currently owns 24% of Grapheton and accounts for its investment in Grapheton using the equity method of accounting is accordance with ASC 323.

 

Information regarding Grapheton as of and for the six months ended June 30, 2020 is below:

 

Current assets   $ 121,955  
Total assets     121,955  
Current liabilities     10,543  
Total liabilities     10,543  
Total stockholders' equity     111,412  
         
Revenue   $ -  
Operating expenses     29,399  
Other expenses     -  
Net loss     (29,399 )

 

11

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Note 6 – 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 June 30, 2020 and December 31, 2019, the amount outstanding under this note payable was $17,797 and $26,288, respectively. The Company repaid $8,491 during the six months ended June 30, 2020.

 

In June, 2020 the Company received a loan under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act for $107,587.  The loan has terms of 24 months and accrues interest at 1% per annum.  The Company expects some or all of this loan to be forgiven as provided by in the CARES Act.

 

Future maturities of notes payable as of June 30, 2020 are as follows:

 

Twelve Months Ending June 30,      
2021   $ 17,797  
2022     107,587  
    $ 125,384  

 

Note 7 – Convertible Debenture

 

Convertible debentures consisted of the following at June 30, 2020 and December 31, 2019:

 

    June 30,     December 31,  
    2020     2019  
Issued on November 25, 2019; accrues interest at 8% per annum; due March 25, 2021; convertible at the lower of $1.50 or 80% of the lowest volume weighted average price 5days prior to conversion   $ 400,000     $ 500,000  
Total convertible debenture     400,000       500,000  
Unamortized debt discount     (220,576 )     (462,963 )
Convertible debenture, net   $ 179,424     $ 37,037  

 

The following is a roll-forward of the Company’s convertible debentures and related discounts:

 

    Principal     Debt        
    Balance     Discount     Total  
Balance, December 31, 2019   $ 500,000     $ (462,963 )   $ 37,037  
Conversion to common stock     (100,000 )     -       (100,000 )
Amortization     -       242,387       242,387  
Balance, June 30, 2020   $ 400,000     $ (220,576 )   $ 179,424  

 

In connection with the above mention convertible debenture, the Company also issued 333,333 warrants to the investor. The warrants have an exercise price of $1.50 per share and expire three year after issuance. The Company allocated the principal balance of the investment of $500,000 between the relative fair value of the convertible debenture and the warrants of $323,616 and $176,384, respectively. As a result of the allocation of a portion of the principal amount of the convertible debenture and the derivative liability associated with the variable conversion feature, the Company recognized a loss on the issuance of the convertible debenture of $183,978.

 

12

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Note 8 – Derivative Liability

 

The Company determined that the conversion features of the convertible debentures represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt and the embedded conversion feature is bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments is recorded as liabilities on the balance sheet with the corresponding amount recorded as a discount to each note, with any excess of the fair value of the derivative component over the face amount of the note recorded as an expense on the issue date. Such discounts are amortized from the date of issuance to the maturity dates of the notes. The change in the fair value of the derivative liabilities are recorded in other income or expenses in the statements of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet.

 

The Company uses a weighted average Black-Scholes option pricing model with the following assumptions to measure the fair value of derivative liability at June 30, 2020 and December 31, 2019:

 

    June 30,     December 31,  
    2020     2019  
             
Risk free rate     0.16 %     1.59 %
Volatility     118 %     166 %
Terms (years)     0.73       1.23  
Dividend rate     0 %     0 %

 

The following table represents the Company’s derivative liability activity for the six months ended June 30, 2020:

 

Derivative liability balance, December 31, 2019   $ 418,781  
Relief of derivative liability     (149,620 )
Change in derivative liability during the period     (9,835 )
Derivative liability balance, June 30, 2020   $ 259,326  

 

Note 9 – 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, 2020. During the six months ended June 30, 2020, the Company’s majority shareholder paid expenses on behalf of the Company of $40,000, loaned an additional $520,600 to the Company and was repaid $555,008. During the six months ended June 30, 2019, the Company’s majority shareholder loaned an additional $13,800 to the Company and was repaid $30,159. The amounts due to Mr. Goldstein are $505,643 and $500,051 as of June 30, 2020 and December 31, 2019, respectively.

 

Note 10 – Line of Credit

 

As of June 30, 2020, the Company had four lines of credit with a maximum borrowing amount of $400,000 with interest ranging from 5.5% to 11.5% and are unsecured. As of June 30, 2020 and December 31, 2019, the amounts outstanding under these lines of credit were $211,543 and $215,266, respectively.

 

Note 11 – Leases

 

The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate which is based on the interest rate of similar debt outstanding.

 

13

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

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. The leases expired on April 30, 2020 and the Company exercised its renewal option for an additional 12 months. Effective January 1, 2019, the Company adopted the provision of ASC 842 Leases.

 

The table below presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheets as of June 30, 2020 and December 31, 2019:

 

        June 30,     December 31,  
    Classification on Balance Sheet   2020     2019  
Assets                    
  Operating lease assets   Operating lease right of use assets   $ 135,001     $ 211,799  
Total lease assets       $ 135,001     $ 211,799  
                     
Liabilities                    
Current liabilities                    
  Operating lease liability   Current operating lease liability   $ 135,001     $ 156,719  
Noncurrent liabilities                    
  Operating lease liability   Long-term operating lease liability     0       55,080  
Total lease liability       $ 135,001     $ 211,799  

 

Lease obligations at June 30, 2020 consisted of the following:

 

Twelve Months Ending June 30,      
2021   $ 140,000  
Total payments     140,000  
Amount representing interest     (4,999 )
Lease obligation, net     135,001  
Less lease obligation, current portion     (135,001 )
Lease obligation, long-term portion   $ -  

 

The lease expense for the six months ended June 30, 2020 and 2019 was $84,000 and $84,000, respectively. The cash paid under operating leases during the six months ended June 30, 2020 and 2019 was $84,000 and $84,000, respectively. At June 30, 2020, the weighted average remaining lease terms were 0.8 years and the weighted average discount rate was 8%

 

Note 12 – Shareholders’ Equity

 

Common Stock

 

During the six months ended June 30, 2020, the Company issued:

 

● 558,295 shares of common stock to consultants for services rendered valued at $453,096. The fair value was determined based on the Company’s stock price on the grant date;

 

● 163,275 shares of common stock for convertible notes and accrued interest of $100,000 and $8,986; and

 

● 858,896 shares of common stock for an investment in Grapheton valued at $601,227. The fair value was determined based on the Company’s stock price on the grant date.

 

14

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

During the six months ended June 30, 2019, the Company issued:

 

● 867,287 shares of common stock to consultants for services rendered valued at $920,173. The fair value was determined based on the Company’s stock price on the grant date

 

● 5,050 shares of common stock to employees for compensation valued at $2,525. The fair value was determined based on the Company’s stock price on the grant date; and

 

● 583,333 shares of common stock for cash of $250,000.

 

Warrants

 

The following table summarizes the activity related to warrants:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Warrants     Exercise     Contractual     Intrinsic  
      Outstanding       Price       Life       Value  
Outstanding, December 31, 2019     333,333     $ 1.50       2.90     $ -  
Granted     -                          
Forfeited     -                          
Exercised     -                          
Outstanding, June 30, 2020     333,333     $ 1.50       2.40     $ -  
Exercisable, June 30, 2020     333,333     $ 1.50       2.40     $ -  

 

The following table summarizes information about warrants outstanding and exercisable as of June 30, 2020:

 

Outstanding and Exercisable
Number of   Exercise  
Warrants   Price  
333,333   $ 1.50  
333,333        

 

15

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Note 13 – 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 six months ended June 30, 2020 and 2019:

 

    Three Months Ended
June 30, 		    Six Months Ended
June 30, 		 
    2020     2019     2020     2019  
Sales                        
Optron   $ 83,096     $ 942,681     $ 173,776     $ 1,059,745  
Overhoff     219,105       587,842       450,664       1,099,831  
Corporate     -       -       -       -  
    $ 302,201     $ 1,530,523     $ 624,440     $ 2,159,576  
                                 
Gross profit                                
Optron   $ 41,055     $ 533,703     $ 89,917     $ 586,495  
Overhoff     102,324       252,230       219,789       517,355  
Corporate     -       -       -       -  
    $ 143,379     $ 785,933     $ 309,706     $ 1,103,850  
                                 
Income (loss) from operations                                
Optron   $ (146,615 )   $ 353,474     $ (287,610 )   $ 242,251  
Overhoff     4,827       55,485       (60,198 )     134,735  
Corporate     (61,036 )     (869,335 )     (583,531 )     (1,018,678 )
    $ (202,824 )   $ (460,376 )   $ (931,339 )   $ (641,692 )
                                 
Interest Expenses                                
Optron   $ 3,897     $ 5,213     $ 8,337     $ 10,736  
Overhoff     -       -       -       49  
Corporate     8,254       430       17,209       961  
    $ 12,151     $ 5,643     $ 25,546     $ 11,746  
                                 
Net income (loss)                                
Optron   $ (150,512 )   $ 354,261     $ (289,947 )   $ 243,515  
Overhoff     4,827       46,485       (69,198 )     116,686  
Corporate     568       (866,765 )     (833,341 )     (1,013,639 )
    $ (145,117 )   $ (466,019 )   $ (1,192,486 )   $ (653,438 )

 

    June 30,     December 31,  
    2020     2019  
Total Assets                
Optron   $ 1,154,046     $ 1,272,480  
Overhoff     1,692,858       2,113,626  
Corporate     932,853       154,930  
    $ 3,779,757     $ 3,541,036  
                 
Goodwill                
Optron   $ -     $ -  
 Overhoff     570,176       570,176  
 Corporate     -       -  
    $ 570,176     $ 570,176  

16

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

Note 14 – Geographical Sales

 

The geographical distribution of the Company’s sales for the three and six months ended June 30, 2020 and 2019 is as follows:

 

    Three Months Ended
June 30, 		    Six Months Ended
June 30, 		 
    2020     2019     2020     2019  
Geographical sales                        
North America   $ 294,593     $ 518,219     $ 480,261     $ 808,042  
Middle East     -       751,100       -       751,100  
Asia     7,608       210,815       105,235       542,618  
South America     -       10,990       -       11,576  
Other     -       39,399       38,944       46,240  
    $ 302,201     $ 1,530,523     $ 624,440     $ 2,159,576  

 

Note 15 – 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 six months ended June 30, 2020 and 2019 were $84,000 and $84,000, respectively. As of June 30, 2020 and December 31, 2019, payable to Gold Team Inc. in connection with the above leases amount to $28,000 and $0, respectively. (See Note 11)

 

In addition, as of June 30, 2020 and December 31, 2019, the Company had accrued compensation payable to its majority shareholder of $300,000 and $250,000, respectively.

 

Also see Note 9.

 

Note 16 – Concentrations

 

One customer accounted for 63% of the Company’s sales for the six months ended June 30, 2020 and one customer accounted for 37% of the Company’s sales for the six months ended June 30, 2019.

 

No vendors accounted for more than 10% of the Company’s purchases for the six months ended June 30, 2020 and 2019.

 

Note 17 – 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.

 

17

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(unaudited)

 

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 June 30, 2020 and December 31, 2019. The contingent liability is for the earn-out related to the purchase of Electronic Control Concepts.

 

    Fair Value     Fair Value Measurements at  
Description   As of
June 30, 2020 		    June 30, 2020
Using Fair Value Hierarchy 		 
          Level 1     Level 2     Level 3  
Derivative liability - conversion feature on convertible debenture   $ 259,326     $ -     $ -     $ 259,326  
                                 
Contingent liability     -       -       -       -  
                                 
      Fair Value       Fair Value Measurements at  
Description     As of
December 31, 2019 		      December 31, 2019
Using Fair Value Hierarchy 		 
              Level 1       Level 2       Level 3  
Derivative liability - conversion feature on convertible debenture   $ 418,781     $ -     $ -     $ 418,781  
                                 
Contingent liability     10,594       -       -       10,594  
                                 
A summary of the activity of the contingent liability is as follows:                          
                                 
Contingent liability at December 31, 2019   $ 10,594                          
Change in fair value     718                          
Reclassification to accounts payable     (11,312 )                         
Contingent liability at June 30, 2020   $ -                          

 

Note 18 – Commitments

 

Future payment under all of the Company obligations as of June 30, 2020:

 

    Twelve Months Ending June 30,        
    2021     2022     2023     2024     Total  
Note payable   $ 17,797     $ 107,587     $ -     $ -     $ 125,384  
Note payable - shareholder     -       530,351       -       -       530,351  
Convertible debenture     400,000       -       -       -       400,000  
Operating lease obligations     140,000       -       -       -       140,000  
Line of credit     213,295       -       -       -       213,295  
    $ 771,092     $ 637,938     $ -     $ -     $ 1,409,030  

 

Note 19 – Subsequent Events

 

Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the financial statements were available to be issued and has determined that no material subsequent events exist other than the following.  

 

Subsequent to June 30, 2020, the Company issued a total of 829,699 shares for professional services rendered and conversion of convertible debt.

 

18

 

 

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, 2019 filed with the Securities Exchange Commission on Form 10-K on July 2, 2020 should be read in conjunction with the discussion below. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these unaudited financial statements. 

 

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

 

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

 

Our international revenues were 23.1% of our total revenue in 2020. We expect this to increase over time as we continue to field new orders inquires and engage new customers overseas. We believe that Korea and China will likely be a larger contributor to revenue within the next few years. While we maintain steady growth domestically, the international side of our business may be a larger component as nuclear technology and rapid development for clean energy grows abroad. Additionally, the Company relies on continued growth and orders from CANDU reactors (Canada Deuterium Uranium), and rapid development of the next generation of nuclear reactors called Molten Salt Reactors, (MSR) and Liquid-Fluoride Thorium Reactors (LFTR), all of which purchase tritium detection and monitor products. There can be no assurances as to our growth projections and our risk profile as we depend upon increased foreign customers for business.

 

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

 

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

 

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

 

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

 

On the one-year anniversary of the closing of the SPA, the Company shall receive an additional 1,100 shares of Grapheton’s common stock in exchange for shares of the Compnay’s common stock in an amount equal to $707,777, as valued by an independent third-party valuator.

 

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

 

Novel Coronavirus (COVID-19)

 

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

 

Results of Operations

 

For the three months ended June 30, 2020 compared to the three months ended June 30, 2019:

 

    Three Months Ended
June 30, 		    Change  
    2020     2019     $     %  
                         
Sales   $ 302,201     $ 1,530,523     $ (1,228,322 )     -80.3 %
Cost of goods sold     158,822       744,590       (585,768 )     -78.7 %
Gross profit     143,379       785,933       (642,554 )     -81.8 %
Selling, general and administrative expenses     346,203       1,246,309       (900,106 )     -72.2 %
Loss from operations     (202,824 )     (460,376 )     257,552       -55.9 %
Other income (expense)     57,707       (5,643 )     63,350       -1122.6 %
Loss before provision for income taxes     (145,117 )     (466,019 )     320,902       -68.9 %
Provision for income taxes     -       -       -          
Net loss   $ (145,117 )   $ (466,019 )   $ 320,902       -68.9 %

 

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Sales for the three months ended June 30, 2020 were $302,201 compared to $1,530,523 for the same period in 2019. The decrease of $1,228,322 or 80.3% is a result of a decrease in sales from both our Overhoff and Optron subsidiaries of $368,737 and $859,585, respectively. The decrease in sales is principally due to the impact of COVID-19 had on our company and on our customers. The sales breakdown for the three months ended June 30, 2020 is as follows:

 

North America 97.5%

Middle East 0%

Asia (Including Japan) 2.5%

South America 0%

Other 0%

 

Our gross margins for the three months ended June 30, 2020 were 47.4% as compared to 51.4% for the same period in 2019. The decrease in gross margin is due to overhead allocations.

 

Selling, general and administrative expense for the three months ended June 30, 2020 were $346,203 compared to $1,246,309 for the same period in 2019. The decrease of $900,106 or 72.2% was due to lower stock-based compensation in 2020. During the three months ended June 30, 2020, stock-based compensation was $0 compared to $804,131 during the same period in 2019.

 

Other income (expense) for the three months ended June 30, 2020 was $57,707, a change of $63,350 from ($5,643) for the same period in 2019. The change was due to the amortization of the debt discount associated with the convertible debenture, offset due to change in value of the derivative liability.

 

Net loss for the three months ended June 30, 2020 was $146,117 compared to $466,019 for the same period in 2019. The change was principally attributed to the factors described above.

 

For the six months ended June 30, 2020 compared to the six months ended June 30, 2019:

 

    Six Months Ended June 30,     Change  
    2020     2019     $     %  
                         
Sales   $ 624,440     $ 2,159,576     $ (1,535,136 )     -71.1 %
Cost of goods sold     314,734       1,055,726       (740,992 )     -70.2 %
Gross profit     309,706       1,103,850       (794,144 )     -71.9 %
Selling, general and administrative expenses     1,241,045       1,745,542       (504,497 )     -28.9 %
Loss from operations     (931,339 )     (641,692 )     (289,647 )     45.1 %
Other (expense)     (261,147 )     (11,746 )     (249,401 )     2123.3 %
Loss before provision for income taxes     (1,192,486 )     (653,438 )     (539,048 )     82.5 %
Provision for income taxes     -       -       -          
Net loss   $ (1,192,486 )   $ (653,438 )   $ (539,048 )     82.5 %

 

Sales for the six months ended June 30, 2020 were $624,440 compared to $2,159,576 for the same period in 2019. The decrease of $1,535,136 or 71.1% is a result of a decrease in sales from both our Overhoff and Optron subsidiaries of $649,167 and $885,969, respectively. The decrease in sales is principally due to the impact of COVID-19 had on our company and on our customers. The sales breakdown for the six months ended June 30, 2020 is as follows:

 

North America 76.9%

Middle East 0%

Asia (Including Japan) 16.9%

South America 0%

Other 6.2%

 

21

 

 

Our gross margins for the six months ended June 30, 2020 were 49.6% as compared to 51.1% for the same period in 2019. The decrease in gross margin is due to overhead allocations.

 

Selling, general and administrative expense for the six months ended June 30, 2020 were $1,241,045 compared to $1,745,542 for the same period in 2019. The decrease of $504,497 or 28.9% was due to lower stock-based compensation in 2020. During the six months ended June 30, 2020, stock-based compensation was $453,096 compared to $922,698 during the same period in 2019.

 

Other expense for the six months ended June 30, 2020 was $261,147, an increase of $249,401 from $11,746 for the same period in 2019. The increase was due to the amortization of the debt discount associated with the convertible debenture.

 

Net loss for the six months ended June 30, 2020 was $1,192,486 compared to $653,438 for the same period in 2019. The change was principally attributed to the factors described above.

 

Liquidity and Capital Resources

 

Our operations have historically been financed by our majority shareholder and more recently from proceeds from the sale of our common stock. As funds were needed for working capital purposes, our majority shareholder would loan us the needed funds. During the six months ended June 30, 2020, our majority shareholder loaned the Company an additional $600 and paid expenses on the Company’s behalf of $40,000. We also repaid our majority shareholder $35,008 of amount previously advanced to the Company. 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 June 30, 2020, total assets increased by 6.7% to $3,779,757 from $3,541,036 at December 31, 2019 principally related to an increase in investments and inventory offset by a decrease in cash and accounts receivable.

 

At June 30, 2020, total liabilities increased by 6.4% to $1,959,150 from $1,840,872 at December 31, 2019. The increase is principally related to an increase in convertible notes and notes payable, offset by a decrease in the derivative liability.

 

Net cash used in operating activities for the six months ended June 30, 2020 was $72,36 compared to cash provided by operating activities of $303,008 for the same period in 2019. The change in cash from operations was principally due to changes in working capital accounts, principally inventory and accounts receivable.

 

Net cash used in investing activities for the six months ended June 30, 2020 was $235,000 compared to $100,000 for the same period in 2019. The increase in cash used in investing activities was principally due to the investment in Grapheton in 2020 compared to an acquisition deposit of $100,000 in 2019.

 

Net cash provided by financing activities for the six months ended June 30, 2020 was $60,965 compared to $221,789 for the same period in 2019. The change in cash from financing activities was principally the issuance of a $107,587 note payable in 2020 compared to the issuance of common stock for $250,000 in 2019.

 

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. 

 

23

 

 

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 June 30, 2020.

 

Changes in internal controls

 

Our management, with the participation of 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 June 30, 2020.  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 six months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

 

24

 

 

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 July 2, 2020 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.

 

25

 

 

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                

 

26

 

 

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:  September 18, 2020

 

 

27

 

 

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