10-Q 1 f10q0923_usnuclearcorp.htm QUARTERLY REPORT

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended SEPTEMBER 30, 2023

 

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
Common Stock $0.0001 par value   UCLE   OTC

 

The number of shares of the Registrant’s common stock outstanding as of November 15, 2023, was 38,805,778.

 

 

 

 

 

 

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   18
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   22
Item 4.   Controls and Procedures   22
         
PART II        
Item 1.   Legal Proceedings   23
Item 1A.   Risk Factors   23
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   23
Item 3.   Defaults Upon Senior Securities   24
Item 4.   Mine Safety Disclosures   24
Item 5.   Other Information   24
Item 6.   Exhibits   25
    Signatures   26

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

US NUCLEAR CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,   December 31, 
   2023   2022 
  (unaudited)   (audited) 
ASSETS        
CURRENT ASSETS        
Cash  $184,703   $126,109 
Accounts receivable, net   242,354    329,858 
Note receivable   18,250    
-
 
Inventories   2,064,116    2,024,664 
Prepaid expenses and other current assets   
-
    26,370 
TOTAL CURRENT ASSETS   2,509,423    2,507,001 
           
Property and equipment, net   4,158    6,501 
Investments   4,539    10,059 
Acquisition deposit   15,000    15,000 
Goodwill   570,176    570,176 
TOTAL ASSETS  $3,103,296   $3,108,737 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Accounts payable  $179,753   $100,398 
Accounts payable - related party   406,000    280,000 
Accrued liabilities   794,765    688,422 
Accrued compensation - officers   895,000    695,000 
Customer deposit   12,897    88,694 
Notes payable   5,272    9,574 
Convertible debt, net of debt discount   711,253    412,953 
Note payable to shareholder   1,056,695    874,679 
Line of credit   311,273    307,321 
TOTAL CURRENT LIABILITIES   4,372,908    3,457,041 
TOTAL LIABILITIES   4,372,908    3,457,041 
           
COMMITMENTS AND CONTINGENICES   
-
    
-
 
            
SHAREHOLDERS’ EQUITY:          
Common stock, $0.0001 par value; 100,000,000 shares authorized, 38,095,778 and 31,621,242 shares issued and outstanding   3,810    3,162 
Common shares to be issued   
-
    39,000 
Additional paid in capital   16,155,572    14,740,401 
Accumulated deficit   (17,428,994)   (15,130,867)
TOTAL SHAREHOLDERS’ EQUITY   (1,269,612)   (348,304)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $3,103,296   $3,108,737 

 

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 
   September 30, 
   2023   2022 
         
Sales  $593,502   $617,434 
Cost of sales   127,727    405,471 
Gross profit   465,775    211,963 
           
Operating expenses          
Selling, general and administrative expenses   539,337    695,381 
Total operating expenses   539,337    695,381 
           
Loss from operations   (73,562)   (483,419)
           
Other income (expense)          
Interest expense   (27,795)   (31,710)
Equity loss in investment   
-
    
-
 
Loss on deconsolidation   
-
    
-
 
Amortization of debt discount   (658,705)   (140,693)
Total other income (expense)   (686,500)   (172,403)
           
Loss before provision for income taxes   (760,062)   (655,822)
           
Provision for income taxes   
-
    
-
 
           
Net loss  $(760,062)  $(655,822)
           
Deemed dividend for down-round provision in warrants   
-
    
-
 
           
Net loss attributed to common stockholders  $(760,062)  $(655,822)
           
Weighted average shares outstanding - basic and diluted
   36,237,707    29,504,433 
           
Loss per shares - basic and diluted
  $(0.02)  $(0.02)

 

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

 

2

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Nine Months Ended 
   September 30, 
   2023   2022 
         
Sales  $1,588,009   $1,539,517 
Cost of sales   651,992    837,523 
Gross profit   936,017    701,994 
           
Operating expenses          
Selling, general and administrative expenses   1,875,583    2,103,637 
Total operating expenses   1,875,583    2,103,637 
           
Loss from operations   (939,565)   (1,401,644)
           
Other income (expense)          
Interest expense   (70,635)   (37,650)
Equity loss in investment   (8,059)   
-
 
Loss on deconsolidation   (2,539)   
-
 
Amortization of debt discount   (1,275,316)   (232,449)
Total other income (expense)   (1,356,549)   (270,099)
           
Loss before provision for income taxes   (2,296,114)   (1,671,743)
           
Provision for income taxes   
-
    
-
 
           
Net loss  $(2,296,114)  $(1,671,743)
           
Deemed dividend for down-round provision in warrants   (2,013)   (9,652)
           
Net loss attributed to common stockholders  $(2,298,127)  $(1,681,395)
           
Weighted average shares outstanding - basic and diluted
   35,049,921    28,923,132 
           
Loss per shares - basic and diluted
  $(0.07)  $(0.06)

 

3

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

 

           Common   Additional       Total 
   Common Stock   Stock   Paid In   Accumulated   Shareholders’ 
   Shares   Amount   Payable   Capital   Deficit   Equity 
                         
Balance, December 31, 2022  31,621,242   $3,162   $39,000   $14,740,401   $(15,130,867)  $(348,304)
                               
Issuance of common stock for services   1,875,000    188         224,163    
-
    224,350 
Issuance of common stock for debt and interest   800,000    80         119,920    
 
    120,000 
Deemed dividend for down round provision in warrants        
 
         2,013    (2,013)   
 
 
Common shares to be issued for services   260,000    26    (39,000)   38,974    
 
    
-
 
Additional BCF discount for down round provision on notes        
 
         122,531    
 
    122,531 
Investment in Averox        
 
         2,539    
 
    2,539 
Net loss        
 
         
 
    (664,534)   (664,534)
                               
Balance, March 31, 2023   34,556,242   $3,456   $
-
   $15,250,540   $(15,797,414)  $(543,418)
                               
Issuance of common stock for services   545,000    55         51,986    
 
    52,040 
Cashless exercise of warrants   1,289,236    129         (129)   
 
    
 
 
Additional BCF discount for down round provision on notes        
 
         204,204    
 
    204,204 
Net loss                       (871,518)   (871,518)
                               
Balance, June 30, 2023   36,390,478   $3,639   $
-
   $15,506,601   $(16,668,932)  $(1,158,692)
                               
Issuance of common stock for services   1,705,300    171         110,536         110,707 
Additional BCF discount for down round provision on notes                  538,435         538,435 
Net loss                       (760,062)   (760,062)
                               
Balance, September 30, 2023   38,095,778   $3,810   $
-
   $16,155,572   $(17,428,994)  $(1,269,612)
                               
Balance, December 31, 2021   28,353,215   $2,835   $
-
   $13,508,582   $(13,070,148)  $441,269 
                               
Issuance of common stock for services   75,000    8    -    22,492    
 
    22,500 
Net loss   -    
-
    -    
-
    (649,643)   (649,643)
                               
Balance, March 31, 2022   28,428,215   $2,843   $
-
   $13,531,074   $(13,719,791)  $(185,874)
                               
Issuance of common stock for loan incentive   625,000    62         99,957    
 
    100,019 
Issuance of common stock for services   360,805    36    -    57,709    
 
    57,745 
Convertible debt, net of debt discounts        
 
         311,519    
 
    311,519 
Deemed dividend for down round provision in warrants        
 
         9,652    (9,652)   
 
 
Net loss   -    
-
    -    
-
    (366,278)   (366,278)
                               
Balance, June 30, 2022   29,414,020   $2,941   $
-
   $14,009,911   $(14,095,721)  $(82,869)
                               
Issuance of common stock for services   350,000    35         78,390         78,425 
Common stock issued for debt and interest   400,000    40         79,960         80,000 
                               
Net loss   -    
-
    -    
-
    (655,822)   (655,822)
                               
Balance, September 30, 2022   30,164,020   $3,016   $
-
   $14,168,261   $(14,751,543)  $(580,266)

 

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

 

4

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   Nine Months Ended 
   March 
   2023   2022 
         
OPERATING ACTIVITIES        
Net loss  $(2,296,114)  $(1,671,743)
Adjustment to reconcile net loss to net cash used in operating activities:          
           
Depreciation and amortization   2,344    15,920 
Issuance of common stock for services   387,097    198,696 
Debt discount amortization   1,275,316    232,449 
Financing costs   3,500    3,500 
Loss on deconsolidation   2,539    
-
 
Equity loss in investment   8,059    
-
 
Changes in operating assets and liabilities:          
Accounts receivable   87,504    (9,940)
Note receivable   
-
    
-
 
Inventories   (39,453)   (1,787)
Prepaid   26,370    (12,620)
Accounts payable   79,355    145,836 
Accounts payable - related parties   126,000    
-
 
Accrued liabilities   110,997    74,905 
Accrued compensation - officers   200,000    155,000 
Customer deposits   (75,797)   (14,438)
Operating lease liability   
-
    
-
 
Net cash used in operating activities   (102,283)   (884,222)
           
INVESTING ACTIVITIES          
Purchase of property and equipment   
-
    (12,986)
Cash paid for investment   (2,539)   
-
 
Note receivable   (18,250)   
 
 
Net cash used in investing activities   (20,789)   (12,986)
           
FINANCING ACTIVITIES          
Net borrowings (repayments) under lines of credit   3,952    35,272 
Net proceeds from issuance of note payable shareholder   182,016    267,786 
Proceeds from convertible note payable   
-
    611,000 
Repayments of notes payable   (4,302)   (29,666)
Net cash provided by financing activities   181,666    884,392 
           
NET INCREASE (DECREASE) IN CASH   58,594    (12,816)
           
CASH          
Beginning of period  $126,109   $246,317 
End of period  $184,703   $233,501 
           
Supplemental disclosures of cash flow information          
Taxes paid  $
-
   $
-
 
Interest paid  $27   $5,940 
           
Non-cash disclosures:          
Common stock issued for conversion of debt and interest  $120,000   $80,000 
Original issue debt discount  $
-
   $550,538 
Deemed dividend on down round provision  $2,013   $
-
 
Additional beneficial conversion feature on down round provision  $865,170   $
-
 

 

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

5

 

 

US NUCLEAR CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

(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 is adequate to make the information presented not misleading.

 

These statements reflect all adjustments, 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, 2022, and notes thereto included in the Company’s annual report on Form 10-K filed on May 12, 2023. The Company follows the same accounting policies in the preparation of interim reports. Results of operations for the interim period are not indicative of annual results.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company recorded a net loss of $2,296,114 for the nine months ended September 30, 2023, and had an accumulated deficit of $17,428,994 as of September 30, 2023, which raises substantial doubt about its ability to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has plans to seek additional capital through some private placement offerings of debt and equity securities. These plans, if successful, will mitigate the factors which raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries which include Optron, Overhoff Technology Corporation (“Overhoff”), and its wholly owned subsidiary, Electronic Control Concepts (“ECC”), 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.

 

6

 

 

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 September 30, 2023, and December 31, 2022.

 

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 September 30, 2023, and December 31, 2022, 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 September 30, 2023, and December 31, 2022, 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 September 30, 2023 and December 31, 2022, the Company believes there was no impairment of its long-lived assets.

 

7

 

 

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 December 31, 2022, the Company performed the required impairment analysis which resulted in no impairment adjustments. Although the Company experienced a significant decline in revenue due to the effects of COVID-19, management expects that it is more likely than not that its revenue and cost of goods sold will be more in-line with pre-COVID-19 levels in upcoming periods. Significant estimates used in the goodwill impairment analysis may change in the upcoming year if revenues do not rebound and the cost of materials continues to increase.

 

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 September 30, 2023, and December 31, 2022, there are no derivative liabilities associated with our convertible notes payable.

 

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 it 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 a 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.

 

Revenues from 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.

 

8

 

 

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 nine months ended September 30, 2023, and 2022. The Company provides a one-year warranty on all sales. Warranty expense for the nine months ended September 30, 2023, and 2022 was insignificant. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.

 

See Notes 12 and 13 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 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 assumes 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 September 30, 2023, and December 31, 2022, there were -0- and 2,500,000 warrants outstanding, respectively, to purchase shares of common stock. The equivalent number of shares to satisfy our convertible debt as of September 30, 2023, is 5,591,929. Basic and diluted earnings per share are the same during the nine months ended September 30, 2023, and 2022 due to the net loss incurred.

 

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 12.

 

9

 

 

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 June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issued to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new standard represents significant changes to accounting for credit losses. Full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope. The current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold. The expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. This ASU as amended by ASU 2019-10, is effective for fiscal years beginning after December 15, 2022. The Company has determined that this ASU does not have a material effect on the Company’s consolidated financial statements and related disclosures.

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contracts in the entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

 

10

 

 

Note 3 – Inventories

 

Inventories at September 30, 2023 and December 31, 2022 consisted of the following:

 

   September 30,   December 31, 
   2023   2022 
Raw materials  $968,162   $1,244,880 
Work in Progress   91,069    409,637 
Finished goods   1,004,885    370,127 
Total inventories  $2,064,116   $2,024,664 

 

At September 30, 2023 and December 31, 2022, the inventory reserve was $0.

 

Note 4 – Property and Equipment

 

The following are the details of the property and equipment at September 30, 2023 and December 31, 2022:

 

   September 30,   December 31, 
   2023   2022 
Furniture and fixtures  $148,033   $148,033 
Leasehold Improvements   50,091    50,091 
Equipment   237,418    237,418 
Computers and software   39,482    39,482 
    475,024    475,024 
Less accumulated depreciation   (470,866)   (468,523)
Property and equipment, net  $4,158   $6,501 

 

Depreciation expense for the nine months ended September 30, 2023, and 2022 was $2,343 and $2,135 respectively.

 

Note 5 – Investments

 

MIFTEC

 

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 September 30, 2023, and December 31, 2022 was $1,000 and $1,000, respectively.

 

11

 

 

MIFTI

 

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 within 24 months of the agreement date. If the options expire, 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 September 30, 2023 and December 31, 2022 was $1,000 and $1,000, respectively.

 

Grapheton

 

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 devices, 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-year period. At closing, the Company was issued a 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.

 

In connection with the SPA, during the second quarter of 2021 the Company received an additional 1,100 shares of Grapheton’s common stock in exchange for the Company’s issuing an additional 1,121,071 shares of common stock valued at $633,405. In addition, Grapheton fulfilled its requirements under the earn out provision and the Company is obligated to make the first earn out payment of $192,500. This amount is recorded as accrued expense in the accompanying consolidated balance sheet.

 

An additional “true up” issuance of the Company’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 35.8% of Grapheton and accounts for its investment in Grapheton using the equity method of accounting in accordance with ASC 323. The Company evaluated this investment and recorded a loss attributed to equity investment of $8,059 during the nine months ended September 30, 2023, and $0 during the nine months ended September 30, 2022.

 

Averox

 

On March 3, 2023, the Company divested itself of its wholly owned subsidiary, Cali From Above, through a Membership Interest Purchase Agreement with the Company’s President and Chief Executive Officer, Robert Goldstein. Consideration received by the Company was 65,000,000 shares of Averox, Inc. (OTC:AVRI), resulting in the Company owning 26% of the issued and outstanding shares of common stock of AVRI. The Company and Cali From Above also signed a Cooperation Agreement whereby the Company holds exclusive sourcing and manufacturing rights for Cali From Above products, thus making Cali From Above a new customer of the Company. The Company accounts for its investment in Averox using the equity method of accounting in accordance with ASC 323. See Note 15.

 

12

 

 

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 September 30, 2023 and December 31, 2022, the amount outstanding under this note payable was $5,272 and $5,272, respectively. The Company repaid $0 during the nine months ended September 30, 2023.

 

On December 26, 2020, a line of credit held by the company had matured, and based on the terms of the line of credit agreement was converted to a note payable upon demand. The obligation accrues interest at the rate of $10.89 per day until the bank receives full payment. As of September 30, 2023, the balance owed by the Company was $0.

 

On May 5, 2022, the Company received a loan in connection with the issuance of stock warrants in the amount of $750,000. The loan has terms of 12 months and accrues interest at 5% per annum. As part of the issuance of the loan, the company identified debt discounts related to the warrants issued, the incentive shares issued as discussed at Note 10, the beneficial conversion feature of the debt, and the expenses paid as part of the issuance. Total debt discounts recorded as of the date of the note was $550,538. As of September 30, 2023, and pursuant to the down-round provision of the note and associated warrants, the Company reevaluated the beneficial conversion feature which resulted in additional debt discount recorded of $578,712. The total remaining unamortized debt discount on this note as of September 30, 2023, is $0. Since the note matured during the period on May 5, 2023, and the note has not been satisfied, the Company will begin accruing interest at the default rate of 16%.

 

On October 10, 2022, the Company received a loan in connection with the issuance of stock warrants in the amount of $375,000. The loan has terms of 12 months and accrues interest at 5% per annum. As part of the issuance of the loan, the company identified debt discounts related to the warrants issued, the beneficial conversion feature of the debt, and the expenses paid as part of the issuance. Total debt discounts recorded as of the date of the note was $200,488. As of September 30, 2023, and pursuant to the down-round provision of the note and associated warrants, the Company reevaluated the beneficial conversion feature recorded which resulted in additional debt discount recorded of $589,545. The total remaining unamortized debt discount on this note as of September 30, 2023, is $71,754. Since the note matured during the period on October 10, 2023, and the note has not been satisfied, the Company will begin accruing interest at the default rate of 16%.

 

The total debt discount amortization recorded on the Company’s notes for the nine months ended September 30, 2023, was $1,275,316.

 

Future maturities of all notes payable, net of any debt discounts as of September 30, 2023, are as follows:

 

Years ended December 31,    
2023  $716,525 
2024   
-
 
2025   
-
 
2026   
-
 
2027   
-
 
Thereafter   
-
 
   $716,525 

 

Note 7 – 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, payable upon demand. During the nine months ended September 30, 2023, the Company’s majority shareholder loaned an additional $44,700 to the Company. The amounts due to Mr. Goldstein are $1,056,695 and $874,679 as of September 30, 2023, and December 31, 2022, respectively.

 

Note 8 – Line of Credit

 

As of September 30, 2023, 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 September 30, 2023, and December 31, 2022, the amounts outstanding under these lines of credit were $311,273 and $307,321, respectively.

 

Note 9 – 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

 

 

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, 2023, and the Company exercised its renewal option for an additional 12 months. The new lease is not more than 12 months; therefore, the disclosures under ASC 842 are not required. Future minimum lease payments under this agreement for the twelve months ending December 31, 2022, is $168,000. Effective January 1, 2019, the Company adopted the provision of ASC 842 Leases.

 

The lease expense for the nine months ended September 30, 2023, and 2022 was $126,000 and $126,000, respectively. The cash paid under operating leases during the nine months ended September 30, 2023, and 2022 was $0 and $0, respectively. As of September 30, 2023, the weighted average remaining lease terms were 0.1 years, and the weighted average discount rate was 8%.

 

Note 10 - Commitments and Contingencies

 

From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no known or potential matters that would have a material effect on the Company’s financial position or results of operations.

 

Note 11 – Shareholders’ Equity

 

Common Stock

 

During the nine months ended September 30, 2023, the Company issued:

 

2,600,000 shares of common stock to its Directors and President, valued at $239,080; and

 

800,000 shares of common stock valued at $120,000 in satisfaction of convertible debt and interest; and

 

  1,785,300 shares of common stock to consultants for services rendered valued at $176,813. The fair value was determined based on the Company’s stock price on the grant date; and

 

  771,845 and 517,391 shares of common stock in a cashless exercise of 1,500,000 and 1,000,000 warrants, respectively.

 

During the nine months ended September 30, 2022, the Company issued:

 

  625,000 shares of common stock valued at $100,019 in relation to the debt that was obtained;

 

  400,000 shares of common stock valued at $80,000 in satisfaction of convertible debt and interest;

 

  785,805 shares of common stock to consultants for services rendered valued at $158,670. The fair value was determined based on the Company’s stock price on the grant date

 

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, 2022   2,500,000   $0.11    2.32   $
-
 
Granted   
-
    
-
    
-
      
Forfeited   
-
                
Exercised   2,500,000   $0.11           
Outstanding, September 30, 2023   
-
   $
-
    
-
   $
-
 
Exercisable, September 30, 2023   
-
   $
-
    
-
   $
-
 

 

The above warrants contain a down-round provision that requires the exercise price to be adjusted if the Company sells shares of common stock below the current exercise price. During the nine months ended September 30, 2023, the Company issued shares of common stock for $0.11 therefore, the exercise price of the warrants outstanding were adjusted from $0.14 to $0.11.  The change in fair value between the value of the warrants using the new exercise price versus the old exercise price was calculated to be $2,013 and this amount was recorded as a deemed dividend in the accompanying consolidated financial statements during the nine months ended September 30, 2023. During the nine months ended September 30, 2023, 1,500,000 and 1,000,000 warrants were exercised in a cashless exercise resulting in 771,845 and 517,391 common shares issued, respectively. The number of warrant shares were determined in the following manner:

 

X = Y(A-B)        
A where: X= the number of warrant shares to be issued (771,845 and 517,391)
    Y= the number of warrant shares the holder elects to purchase (1,500,000 and 1,000,000)
    A= the Market Price ($0.309 and $0.23)
    B= Exercise Price ($0.15 and $0.111)

 

14

 

 

Note 12 – 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 assets and operations of the Company’s subsidiary, Cali From Above, are through March 3, 2023, which is the date the Company divested its interest in Cali and are included with Optron in the table below.

 

The following tables summarize the Company’s segment information for the three and nine months ended September 30, 2023, and 2022:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
                 
Sales                
Optron  $183,048   $96,883   $278,812   $176,096 
Overhoff   410,454    505,918    1,309,197    1,348,788 
Corporate   
-
    14,633    
-
    14,633 
   $593.502   $617,434   $1,588,009   $1,539,517 
                     
Gross profit                    
Optron  $96,004   $99,609   $56,324   $143,818 
Overhoff   369,770    104,169    879,693    549,991 
Corporate   
-
    8,185    
-
    8,185 
   $465,775   $211,963   $936,017   $701,994 
                     
Income (loss) from operations                    
Optron  $(176,388)  $(181,632)  $(655,738)  $(753,482)
Overhoff   317,383    (147,632)   350,726    (269,926)
Corporate   (102,647)   (154,155)   (634,553)   (378,236)
   $(73,563)  $(483,419)  $(969,565)  $(1,401,644)
                     
Interest Expenses                    
Optron  $918   $10,626   $10,808   $14,482 
Overhoff   5,697    2,533    14,288    4,617 
Corporate   21,180    18,551    45,539    18,551 
   $27,795   $31,710   $70,635   $37,650 
                     
Net income (loss)                    
Optron  $(184,846)  $(304,277)  $(674,086)  $(767,964)
Overhoff   316,487    (138,165)   341,438    (274,543)
Corporate   (891,703)   (213,380)   (1,963,466)   (629,236)
   $(760,002)  $(655,822)  $(2,296,114)  $(1,671,743)

  

15

 

 

  

As of
September 30,

2023

   As of
December 31,
2022
 
Total Assets        
Optron  $756,186   $1,021,817 
Overhoff   2,323,528    2,037,988 
Corporate   23,581    48,932 
   $3,103,296   $3,108,737 
           
Goodwill          
Optron  $
-
   $
-
 
Overhoff   570,176    570,176 
Corporate   
-
    
-
 
   $570,176   $570,176 

 

Note 13 - Geographical Sales

 

The geographical distribution of the Company’s sales for the three and nine months ended September 30, 2023, and 2022 is as follows:

 

  

Three Months Ended

September 30,

 
   2023   2022 
Geographical sales        
North America  $570,420   $446,810 
Asia   11,034    115,340 
Other   12,048    55,284 
  $593,502   $617,434 

  

  

Nine Months Ended

September 30,

 
   2023   2022 
Geographical sales        
North America  $1,389,587   $1,032,051 
Asia   136,254    311,125 
Other   62,168    196,341 
   $1,588,009   $1,539,517 

  

Note 14 – Related Party Transactions

 

The Company leases its current facilities from Gold Team Inc., a company owned by the Company’s CEO, which owns both the Canoga Park, CA and Milford, Ohio locations. Rent expense for the nine months ended September 30, 2023, and 2022 was $126,000 and $126,000, respectively. As of September 30, 2023, and December 31, 2022, amounts payable to Gold Team Inc. in connection with the above leases amount to $406,000 and $280,000, respectively (See Note 9). The lease is currently on a month-to-month basis.

 

In addition, as of September 30, 2023, and December 31, 2022, the Company had accrued compensation payable to its majority shareholder of $650,000 and $500,000, respectively. 

 

Also see Note 7.

 

16

 

 

Note 15 – Deconsolidation of Subsidiary

 

On March 3, 2023, the Company divested itself of its wholly owned subsidiary, Cali From Above, through a Membership Interest Purchase Agreement with the Company’s President and Chief Executive Officer, Robert Goldstein. Consideration received by the Company was 65,000,000 shares of Averox, Inc. (OTC:AVRI), resulting in the Company owning 26% of the issued and outstanding shares of common stock of AVRI. The Company considered the guidance under ASC 810-10-40 in determining the accounting treatment for the transaction and it was determined that the fair value of the 65,000,000 shares received on March 3, 2023, was $2,539, which was the fair value of the assets transferred upon deconsolidation by the Company. Additionally, this method was used due to there being no active trading by Averox on the date of the transaction. Also at closing, the Company and Cali From Above signed a Cooperation Agreement whereby the Company holds exclusive sourcing and manufacturing rights for Cali From Above products, thus making Cali From Above a new customer of the Company.

 

Upon deconsolidation, the Company recorded a loss of $2,539, reflecting the value of $2,539 in cash in Cali From Above.

 

Note 16 – Concentrations

 

Two customers accounted for 29%, 25%, and 16% of the Company’s sales for the nine months ended September 30, 2023, and two customers accounted for 35% and 25% of the Company’s sales for the nine months ended September 30, 2022.

 

No vendors accounted for more than 10% of the Company’s purchases for the nine months ended September 30, 2023, and 2022.

 

Note 17 – 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:

 

On October 15, 2023, the Company issued 210,000 to a consultant for services at a fair value of $13,650, or $0.065 per share.

 

On October 16, 2023, the Company entered into a note payable with a third party for $125,000, of which the Company received $122,500 after an origination fee of $2,500. The note accrues non-annualized interest of 20%, or $25,000. The note is to be repaid in 52 weekly payments of $2,885, beginning on October 20, 2023. The note provides for monthly incremental prepayment discounts if satisfied in full prior to the due date.

 

On October 25, 2023, the Company issued 50,000 shares to a consultant for services at a fair value of $3,450, or $0.069 per share.

 

On October 27, 2023, the Company issued 450,000 shares of common stock in satisfaction of $47,619 in principal, $581 in interest, and $1,750 in fees on a convertible note payable. The shares were issued at $0.111 per share.

 

On November 8, 2023, the Company amended its convertible promissory notes originally entered into on May 5, 2022, and October 10, 2022, by extending the maturity dates of both notes to May 5, 2024. In connection and for consideration thereof, the Company issued a common stock purchase warrant for the purchase of 1,000,000 shares of common stock. The exercise price of the warrant is $0.06, subject to adjustments, including but not limited to cashless exercise, and expire on November 8, 2028.

 

17

 

 

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, 2022, filed with the Securities Exchange Commission on Form 10-K on May 12, 2023, 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 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. In 2022, we derived 55.9% of our total revenues from sales made by Overhoff to two customers. 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 26.57% of our total revenue in 2022. We expect this to increase over time as we continue to field new orders inquires and engage new customers overseas and recover post-pandemic. We believe that South 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.

 

18

 

 

For the next twelve months, we anticipate we will need less than $1,000,000 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 on 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 is 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 March 3, 2023, the Company divested itself of its wholly owned subsidiary, Cali From Above, through a Membership Interest Purchase Agreement with the Company’s President and Chief Executive Officer, Robert Goldstein. Consideration received by the Company was 65,000,000 shares of Averox, Inc. (OTC:AVRI), resulting in the Company owning 26% of the issued and outstanding shares of common stock of AVRI. The Company and Cali From Above also signed a Cooperation Agreement whereby the Company holds exclusive sourcing and manufacturing rights for Cali From Above products, thus making Cali From Above a new customer of the Company.

  

Results of Operations

 

For the three months ended September 30, 2023 compared to the three months ended September 30, 2022:

 

  

Three Months Ended

September 30,

   Change 
   2023   2022   $   % 
                 
Sales  $593,502   $617,434   $(23,392)   -4.03%
Cost of goods sold   127,727    405,471    (277,744)   -217.45%
Gross profit   465,775    211,963    (253,812)   54.49%
Selling, general and administrative expenses   539,337    695,381    (156,044)   -28.93%
Loss from operations   (73,562)   (483,419)   409,857    -557.15%
Other income (expense)   (686,500)   (172,403)   (514,097)   74.89%
Loss before provision for income taxes   (760,062)   (655,822)   (104,240)   13.71%
Provision for income taxes   -    -    -      
Net loss  $(760,062)  $(655,822)  $(104,240)   13.71%

 

Sales for the three months ended September 30, 2023, were $593,502 compared to $617,434 for the same period in 2022. The decrease of $23,392 or 4.03% is a result of an increase in sales from our Optron subsidiary of $86,165, a decrease in sales from our Overhoff subsidiary of $95,464, and a decrease of $14,633 reported through US Nuclear. The overall decrease in sales reflects the decrease in international sales. The sales breakdown for the three months ended September 30, 2023, is as follows:

 

North America   96.11%
Asia (Including Japan)   1.86%
Other   2.03%

 

Our gross margins for the three months ended September 30, 2023, were 78.48% as compared to 34.33% for the same period in 2022. Gross margins increased by 44.15% for the three months ended September 30, 2023, due to a mix of higher margin products sold during the period. The Company expects this trend to continue due to increased sales of specialized products through our Overhoff subsidiary.

 

Selling, general and administrative expenses for the three months ended September 30, 2023, were $539,339 compared to $695,381 for the same period in 2022. The decrease of $156,042 or 28.93% was principally due to decreases in professional fees and trade show expenses. During the three months ended September 30, 2023, stock-based compensation was $396,847 compared to $158,425 during the same period in 2022. Stock-based compensation is issued as an incentive to consultants to increase revenues through the acquisition of new customers.

 

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Other expense for the three months ended September 30, 2023, was $686,499, an increase of $514,096 from other expense of $172,403 for the same period in 2022. The increase was due to an increase in the amortization of debt discounts associated with convertible debentures of $518,012 offset by a decrease in interest expense of $3,916.

 

Net loss for the three months ended September 30, 2023, was $760,062 compared to $655,822 for the same period in 2022. The change was principally attributed to the factors described above.

  

 For the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022:

 

  

Nine Months Ended

September 30,

   Change 
   2023   2022   $   % 
                 
Sales  $1,588,099   $1,539,517   $48,492    3.05%
Cost of goods sold   651,992    837,523    (185,531)   -28.460%
Gross profit   936,017    701,994    234,023    25.00%
Selling, general and administrative expenses   1,875,583    2,103,637    (228,054)   -12.16%
Loss from operations   (939,565)   (1,401,644)   462,078    -49,18%
Other income (expense)   (1,356,549)   (270,099)   (1,086,450)   80.09%
Loss before provision for income taxes   (2,296,114)   (1,671,743)   (624,372)   27.19%
Provision for income taxes   -    -    -      
Net loss  $(2,296,114)  $(1,671,743)  $(624,372)   27.19%

 

Sales for the nine months ended September 30, 2023, were $1,588,099 compared to $1,539,517 for the same period in 2022. The increase of $48,492 or 3.05% is a result of an decrease in sales from our Overhoff subsidiary of $39,591 and an increase in sales from our Optron subsidiary of $102,716, and a decrease of $14,633 reported through US Nuclear. The overall increase in sales is principally due to recovery from the impact of COVID-19. The sales breakdown for the nine months ended September 30, 2023, is as follows:

 

North America   87.50%
Asia (Including Japan)   8.58%
Other   3.91%

 

Our gross margins for the nine months ended September 30, 2023, were 58.94% as compared to 45.6% for the same period in 2022. Gross margins increased by 13.34% for the nine months ended September 30, 2023, due to a mix of higher margin products sold. The Company expects this trend to continue due to increased sales of specialized products through our Overhoff subsidiary.

 

Selling, general and administrative expenses for the nine months ended September 30, 2023, were $1,875,583 compared to $2,103,637 for the same period in 2022. The decrease of $228,054 or 12.16% was principally due to an increase in stock-based compensation offset by decreases in employee benefits and advertising expenses. During the nine months ended September 30, 2023, stock-based compensation was $396,847 compared to $238,670 during the same period in 2022. Stock based compensation is issued as an incentive to consultants to increase revenues through the acquisition of new customers.

 

Other expense for the nine months ended September 30, 2023, was $1,356,549, an increase of $1,086,450 from other expense of $270,099 for the same period in 2022. The increase reflects an increase in the amortization of debt discounts associated with convertible debentures of $1,042,867, an increase in interest expense of $32,985, a $2,539 loss on the deconsolidation of Cali From Above, and a $8,059 loss on equity in our investment with Grapheton.

 

Net loss for the nine months ended September 30, 2023, was $2,296,114 compared to $1,671,743 for the same period in 2022. The change was principally attributed to an increase in stock compensation, an increase in amortization of debt discounts, and the factors described above.

 

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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. 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.

 

As of September 30, 2023, total assets decreased by .18% to $3,103,296 from $3,108,737 on December 31, 2022. The decrease reflects increases in cash, accounts receivable, and inventory, decreased by the fair value of our fixed assets and the carrying value of our investments, offset by a note receivable recorded during the period.

 

As of September 30, 2023, total liabilities increased by 20.94% to $4,372,908 from $3,457,041 on December 31, 2022. The increase is principally related to an increase in accrued liabilities, notes payable, and accrued compensation to officers.

 

Net cash used in operating activities for the nine months ended September 30, 2023, was ($102,283) compared to ($884,222) for the same period in 2022. The increase in cash from operations was principally due to changes in working capital accounts offset by non-cash transactions including stock-based compensation, amortization of debt discounts, and the equity loss on investment in Grapheton.

 

Net cash used in investing activities for the nine months ended September 30, 2023, was ($20,289) compared to ($12,986) for the same period in 2022. The increase in cash used investing activities was due to a decrease of $12,629 in the purchase of property and equipment offset by an increase related to a $18,250 note receivable and cash of $2,539 surrendered in the deconsolidation of Cali From Above during the period.

 

Net cash provided by financing activities for the nine months ended September 30, 2023, was $181,666 compared to $884,392 for the same period in 2022. The decrease in cash from financing activities reflects proceeds received on a convertible note payable and shareholder loan proceeds received in the prior period.

 

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.

 

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.

 

21

 

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

None

 

Item 4. Controls and Procedures.

 

Evaluation of disclosure controls and procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal quarter covered by this report.  Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.  Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of September 30, 2023.

 

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 nine-month period ended September 30, 2023.  Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in the Company’s internal controls over financial reporting during the nine months ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

22

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are not presently 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 May 12, 2023, for Risk Factors.

 

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

 

During the year ending December 31, 2022, the Company issued 400,000 shares of common stock related to a consulting services agreement entered into with Prashant Mehta.

 

During the year ending December 31, 2022, the Company issued 625,000 shares of common stock in relation to debt that was obtained.

 

During the year ending December 31, 2022, the Company issued 1,600,000 shares of common stock in satisfaction of principle, interest, and fees on a Convertible Note held by a third party.

 

During the year ending December 31, 2022, the Company issued 203,027 shares of common stock to Carter Terry & Co. in connection with investor relations services provided by the consultant.

 

During the year ending December 31, 2022, the Company issued 40,000 shares of common stock to Richard Cavalli in connection with investor relations services provided by the consultant.

 

During the year ending December 31, 2022, the Company issued 200,000 shares of common stock to Howard Isaacs in connection with investor relations services provided by the consultant.

 

On January 9, 2023, the Company issued 100,000 shares of common stock related to a consulting services agreement entered into with Prashant Mehta.

 

On January 19, 2023, the Company issued 400,000 shares of common stock in satisfaction of principle, interest, and fees on a Convertible Note held by a third party.

 

On January 23, 2023, the Company issued 50,000 shares of common stock to Richard Cavalli in connection with investor relations services provided by the consultant.

 

On January 23, 2023, the Company issued 210,000 shares of common stock to Howard Isaacs in connection with investor relations services provided by the consultant.

 

On February 23, 2023, the Company issued 400,000 shares of common stock in satisfaction of principle, interest, and fees on a Convertible Note held by a third party.

 

On February 24, 2023, the Company issued 200,000 shares of common stock related to a consulting services agreement entered into with Prashant Mehta.

 

23

 

 

On March 14, 2023, the Company issued an aggregate of 1,500,000 shares to two Directors and its Chief Executive Officer as compensation for services provided to the Company.

 

On March 31, 2023, the Company issued 75,000 shares of common stock related to a consulting services agreement entered into with Prashant Mehta.

 

On April 11, 2023, the Company issued 771,845 common shares for a cashless exercise of warrants outstanding.

 

On April 26, 2023, the Company issued 420,000 shares of common stock to Howard Isaacs in connection with investor relations services provided by the consultant.

 

On April 26, 2023, the Company issued 50,000 shares of common stock to Richard Cavalli in connection with investor relations services provided by the consultant.

 

On May 25, 2023, the Company issued 517,391 common shares for a cashless exercise of warrants outstanding.

 

On June 12, 2023, the Company issued 75,000 shares of common stock related to a consulting services agreement entered into with Prashant Mehta.

 

On August 22, 2023, the Company issued 75,000 shares of common stock related to a consulting services agreement entered into with Prashant Mehta.

 

On August 22, 2023, the Company issued 530,300 shares of common stock related to Richard Landry, our former Chief Financial Officer, for services provided to the Company.

 

On August 25, 2023, the Company issued an aggregate of 1,100,000 shares to two Directors and its Chief Executive Officer as compensation for services provided to the Company.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

24

 

 

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   03/02/2012
3.2   By-Laws       10       3.2   03/02/2012
3.3   Amendment to Certificate of Incorporation       8-K       3.3   05/29/2012
4.1   Specimen Stock Certificate       10       4.1   03/02/2012
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                
32.1   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                
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   Inline XBRL Instance Document                    
101.SCH   Inline XBRL Taxonomy Extension Schema Document                    
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document                    
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document                    
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document                    
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document                    
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)                    

 

25

 

 

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/ Michael Hastings
    Chief Financial Officer

 

Date: November 20, 2023

 

 

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