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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-Q)

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09/18/2020 | 06:29pm EDT
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.



                                       19




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 %




                                       20





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.



                                       22





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.

© 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 6,59 M 6,59 M -
EV / Sales 2018 2,02x
EV / Sales 2019 3,85x
Nbr of Employees 20
Free-Float 46,4%
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Income Statement Evolution
Managers
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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