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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  US Nuclear Corp.    UCLE

US NUCLEAR CORP.

(UCLE)
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US NUCLEAR : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

07/02/2020 | 02:52pm EST

Overview




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 thereto contained
in "Item 8. Financial Statements and Supplementary Data" of this report on Form
10-K. 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.



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.



                                       20





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



Generally, our product concentration places a heavy reliance on our Overhoff
Technology division; however, during the year ended December 31, 2019 we derived
21.3% of our total revenues from sales made by Optron to one customer. We expect
to encounter a continuation of this trend unless we are successful in
diversifying our client base, executing our acquisition strategy and experience
increases in business from our Technical Associates division.



Our international revenues were 54% of our total revenue in 2019. We expect this
to increase over time as we continue to field new orders inquires and engage new
customers overseas. We believe that Korea and China will likely be a larger
contributor to revenue within the next few years. While we maintain steady
growth domestically, the international side of our business may be a larger
component as nuclear technology and rapid development for clean energy grows
abroad. Additionally, the Company relies on continued growth and orders from
CANDU reactors (Canada Deuterium Uranium), and rapid development of the next
generation of nuclear reactors called Molten Salt Reactors, (MSR) and
Liquid-Fluoride Thorium Reactors (LFTR), all of which purchase tritium detection
and monitor products. There can be no assurances as to our growth projections
and our risk profile as we depend upon increased foreign customers for business.



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


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



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



On August 3, 2018, we closed an agreement by and among, MIFTEC Laboratories,
Inc. ("MIFTEC"), a licensee of Magneto-Inertial Fusion Technologies, Inc.,
("MIFTI"), and us. MIFTEC is a licensee of MIFTI radionuclide technology. MIFTEC
will engage us to manufacture equipment pursuant to MIFTEC's specifications and
designs and have us as a sales representative for the manufactured equipment. We
will be the exclusive manufacturer and supplier to MIFTEC of equipment in North
America and Asia. In addition, we received a 10% ownership interest in MIFTEC.
The consideration for the exclusive manufacturing rights and a 10% ownership
interest in MIFTEC was $500,000 and 300,000 shares of our common stock.



On April 22, 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.



                                       21





Results of Operations



For the year ended December 31, 2019 compared to the year ended December 31,
2018



                                             Years Ended December 31,                  Change
                                               2019             2018              $                %
Sales                                      $  3,540,387$  3,634,560$    (94,173 )         -2.6 %
Cost of goods sold                            1,605,447        1,707,355         (101,908 )         -6.0 %
Gross profit                                  1,934,940        1,927,205            7,735            0.4 %
Consulting expense                            1,668,958        1,440,213          228,745           15.9 %
Professional fees                               380,951          330,536           50,415           15.3 %
Officer compensation                            896,000          110,000          786,000          714.5 %
Payroll and related expense                     858,152          689,874          168,278           24.4 %
General and administrative expense              590,783          664,162          (73,379 )        -11.0 %
Acquisition of manufacturing and supply
rights                                                -        1,084,000       (1,084,000 )       -100.0 %
Loss from operations                         (2,459,904 )     (2,391,580 )        (68,324 )          2.9 %
Other expense                                  (700,869 )        (15,490 )       (685,379 )       4424.7 %
Loss before provision for income taxes       (3,160,773 )     (2,407,070 )       (753,703 )         31.3 %
Provision for income taxes                            -                -   
            -
Net loss                                   $ (3,160,773 )$ (2,407,070 )$   (753,703 )         31.3 %




Sales for the year ended December 31, 2019 were $3,540,387 compared to
$3,634,560 for the same period in 2018. The decrease of $94,173 or 2.6% is a
result of a decrease in sales from our Overhoff subsidiary of $124,930; offset
by an increase in sales from our Optron subsidiary of $30,757. The decrease in
sales from our Overhoff subsidiary was due to the timing of shipment for larger
orders. The increase in sales from our Optron subsidiary was due to the
fulfillment of a large order of drone detector instruments in 2019. 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 year ended December 31,
2019 is as follows:



North America 46.0%

Middle East 21.2%

Asia (Including Japan) 29.3%

South America 0.4%

Other 3.1%



Our gross margins for the year ended December 31, 2019 were 54.7% as compared to
53.0% for the same period in 2018. The increase in gross margin is due to the
sale of more higher margin products.



Consulting expense for the year ended December 31, 2019 was $1,668,958 compared
to $1,440,213 for the same period in 2018. The increase of $228,745 or 15.9% was
due to common stock issued to consultants for services rendered.



Professional fees for the year ended December 31, 2019 were $380,951 compared to
$330,536 for the same period in 2018. The increase of $50,415 or 15.3% was due
to additional legal and accounting fees



Officer compensation for the year ended December 31, 2019 was $896,000 compared
to $110,000 for the same period in 2018. The increase of $786,000 or 714.5% was
due to the issuance of 700,000 shares of common stock to our CEO.



Payroll and related expense for the year ended December 31, 2019 was $858,152
compared to $689,874 for the same period in 2018. The increase of $168,278 or
24.4% was due to the increase in personnel.



General and administrative expense for the year ended December 31, 2019 was $590,783 compared to $664,162 for the same period in 2018. The decrease of $73,379 or 11% was due to lower amortization of intangible assets.




Other expense for the year ended December 31, 2019 was $700,869, an increase of
$685,379 from $15,490 for the same period in 2018. The increase was due to the
write-down of investments of $508,000 and loss on issuance of convertible
debenture of $183,978 in 2019 and higher interest expense associated with the
amortization of the debt discount associated with the convertible debenture.



Net loss for the year ended December 31, 2019 was $3,160,773 compared to $2,407,070 for the same period in 2018. The change was principally attributed to the factors described above.



                                       22




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 and the issuance
of a convertible debenture. As funds were needed for working capital purposes,
our majority shareholder would loan us the needed funds. During the year ended
December 31, 2019, our majority shareholder loaned the Company an additional
$16,255 and was repaid $30,159. 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 December 31, 2019, total assets increased by 6.1% to $3,541,036 from $3,335,931 at December 31, 2018 principally related to an increase in cash and right-of use assets offset by a decrease in inventory.

At December 31, 2019, total liabilities increased by 30.9% to $1,740,872 from $1,330,337 at December 31, 2018. The increase is principally related to the lease obligation associated with the right-of-use assets and derivative liability associated with the convertible debenture.

Net cash used in operating activities for the year ended December 31, 2019 was
$130,621 compared to $394,863 for the same period in 2018. The change in cash
from operations was principally due to a decrease in the net loss, the increase
in non-cash expenses in 2019 and the changes in working capital accounts,
principally inventory and accounts receivable.



Net cash used in investing activities for the year ended December 31, 2019 was
$503,592 compared to $15,777 for the same period in 2018. The increase in cash
used in investing activities was principally due to $500,000 paid for an
investment in 2019.



Net cash provided by financing activities for the year ended December 31, 2019
was $752,755 compared to $937,417 for the same period in 2018. The change in
cash from financing activities was principally due to the sale of 1,730,000
shares of our common stock for proceeds of $1,068,750 during the year ended
December 31, 2018 compared to the sale of 730,393 shares of our common stock for
proceeds of $325,000 during the same period in 2019 the issuance of a
convertible debenture in 2019 for $465,000.



Critical Accounting Policies

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



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



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. 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 and a warrant
with an exercise price that is adjustable based on future events.



                                       23





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 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.



                                       24





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.



Contractual Obligations


As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2019 3,54 M - -
Net income 2019 -3,16 M - -
Net cash 2019 0,10 M - -
P/E ratio 2019 -4,28x
Yield 2019 -
Capitalization 13,9 M 13,9 M -
EV / Sales 2018 2,02x
EV / Sales 2019 3,85x
Nbr of Employees 20
Free-Float 48,4%
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Income Statement Evolution
Managers and Directors
NameTitle
Robert I. Goldstein Chairman, President & Chief Executive Officer
Richard Landry COO & Director-Investor Relations
Rachel Boulds Chief Financial Officer & Secretary
Michael G. Hastings Director
Dell Williamson Director
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