ITEM
1. BUSINESS
Corporate
History
US
Nuclear Corp f/k/a APEX 3 Inc., was incorporated in the State of Delaware on February 14, 2012, and has since amended its name
to US Nuclear Corp., (“US Nuclear”) on May 4, 2012 with the State of Delaware. US Nuclear Corp was formed as a vehicle
to pursue a business combination with an operating company that would have perceived benefits of becoming a publicly traded
corporation. Optron Scientific was incorporated in the State of California in 1971 and is the operating company of US Nuclear
Corp with two divisions, Optron Scientific Company, Inc., doing business as (“DBA”) Technical Associates and Overhoff
Technology Corporation, both of which design, manufacture and market detection and monitor systems that are used to detect and
identify radioactive material, leaks, waste, contamination, biohazards, nuclear material, as well as products used in airports,
cargo, screening as ports and borders, government buildings, hospitals, and other critical infrastructure, as well as by the military
and emergency responder services The company uses a wide range of technologies including x-ray, trace detection, millimeter-wave,
infra-red, tritium detection, and diagnostics in its product applications.
4
Table
of Contents
US
Nuclear Corp
is a smaller reporting company under SEC Rule 405 because it is currently not
trading, has a public float of zero and annual revenues of less than $50 million during the most recently completed fiscal year
for which audited financial statements are available. As a smaller reporting company, pursuant to Rule 8-01 of Regulation
S-X, the Company is only required to produce financial statements as follows: (a) audited balance sheet as of the end of each
of the most recent two fiscal years, or as of a date within 135 days if the issuer has existed for a period of less than one fiscal
year, (b) audited statements of income, cash flows and changes in stockholders' equity for each of the two fiscal years preceding
the date of the most recent audited balance sheet (or such shorter period as the registrant has been in business), and (c) interim
reviewed financial statements for the current period if the filing is more than 135 days after the end of your fiscal year.
Any and all amendments shall include updated interim or audited financial statements if the financial statements in the prior
filing are more than 135 days old.
On
October 15, 2013, US Nuclear Corp f/k/a APEX 3 Inc., a Delaware corporation (the "Company"), entered into an Agreement
and Plan of Merger between the Company, Robert I. Goldstein, US Nuclear Acquisition Corp ("Merger Sub"), a California
corporation and Optron Scientific Company, Inc. dba Technical Associates, ("Optron Scientific") a California corporation
and the parent company of Overhoff Technology Corp. The Agreement and Plan of Merger provided for the acquisition by the Company
of all of the outstanding shares of Optron Scientific through a reverse merger of Merger Sub into Optron Scientific, the surviving
corporation. We have filed the Agreement and Plan of Merger as Exhibits 3.4 and 2.1 with this statement and with the State of
California.
As
part of the Agreement and Plan of Merger with Optron Scientific the parties agreed to an exchange of shares, in which all of the
98,372 issued and outstanding shares of Optron Scientific were exchanged for 9,150,000 shares of the Company.
Prior
to the share exchange, Mr. Goldstein was the sole owner of 98,372 shares of Optron Scientific Company, Inc., which represented
all of the outstanding shares of Optron Scientific Company, Inc. Mr. Goldstein was the owner of 9,150,000 shares of US Nuclear
Corp prior to the merger, and 9,150,000 shares of US Nuclear Corp were issued to him as a result of the merger in exchange for
98,372 shares of Optron Scientific Company, Inc.
In
conjunction with the Agreement and Plan of Merger, US Nuclear Corp, Optron Scientific and Robert I. Goldstein entered into a Cancellation
Agreement which provided for the cancellation of 9,150,000 shares of US Nuclear Corp held by Robert I. Goldstein, in consideration
of his entering into the Agreement and Plan of Merger, which provided for his right to acquire 9,150,000 shares of US Nuclear
Corp after it had the value of the ownership of Optron Scientific. As part of the consideration for the merger transaction, the
share value of Mr. Goldstein's shares of the Company prior to the merger was estimated at the par value of the shares, or 9,150,000
times the par value of .0001 per share. After the merger, the newly issued 9,150,000 shares of the Company held by Mr. Goldstein
had a value of 85.51 percent of the total value of the outstanding stock of the Company after its acquisition of all of the stock
of Optron Scientific. The Agreement and Plan of Merger was signed by Mr. Goldstein in his individual capacity and as President
and Chief Executive Officer of the Company and as President and Chief Executive Officer of Optron Scientific, and of Merger Sub.
The Cancellation Agreement was signed by Mr. Goldstein in his individual capacity and as President, and Chief Executive Officer
of the Company and of Optron Scientific. The Corporate Secretary of each of the companies, Darian B. Andersen, also signed on
behalf of each of the companies. The remaining 1,550,000 outstanding shares of US Nuclear Corp, which are held by Richard Chiang,
were unaffected by the Cancellation Agreement.
Following
the merger, we began to provide a full line of radiation detection equipment and services to clients’ industries that range
from nuclear reactor plants, universities, local and state hospitals, government agencies, and emergency medical technicians or
EMT/first responders. The Company’s nuclear radiation safety detection equipment company has its roots from the famous Manhattan
Project of the 1940s. In 1971, Allen Goldstein, the father to our current President and CEO, Robert Goldstein, acquired the assets
of Technical Associates and incorporated the company. The Company designed and built the first industrial grade radiation monitors
and continues to innovate its legacy with new product engineering for radiation measurement and safety instruments. The Company
designs and manufactures nuclear radiation detection and safety equipment, survey meters, air and water monitors, port security
equipment and tritium air monitors. The Company’s customers are diverse groups such as Homeland Security, Lawrence Livermore
Labs, Los Alamos National Labs, Department of Defense, FBI, CIA, US Navy, Chevron Corporation, Bechtel Corporation, Biotechnology
Laboratories, Hospitals, Universities, and Civil Emergency Management departments such as Fire, Paramedics and Law Enforcement.
The Company is headquartered in Canoga Park, California and the Company can be accessed through its websites on the Internet at
usnuclearcorp.com, tech-associates.com and overhoff.com.
5
Table
of Contents
The
Company’s two divisions consisting of Optron Scientific Company Inc., DBA Technical Associates and Overhoff Technology Corporation
offer over 200 products that service and address the nuclear power industry, domestically and internationally. Technical Associates
specializes in the design and manufacture of radiation detection equipment monitors and hand held devices, while Overhoff Technology
Corporation specializes in the design and manufacture of tritium air monitors and water monitors.
Technology
and Products
The
Company designs and develops both technologies in-house by its CEO, Robert I. Goldstein as well as offers products from other
manufacturers. Mr. Goldstein’s extensive experience of over forty years in the field of nuclear radiation detection has
allowed the Company to achieve significant recognition that has been approved by US Federal standards set by the Environmental
Protection Agency (EPA), Food and Drug Administration (FDA) and the Nuclear Regulatory Commission (NRC). The Company has complete
ownership of all of its technology and there are no licenses held by any outside party. No persons, company, vendor, distributor
or contractor holds any title or claim to any of the Company’s work or technology. The Company believes that its technology
and business is defensible due to the fact that the barriers of entry are high and technically complex. The Company has sought
out niche markets in its business by becoming a leading category player in devices such as Tritium equipment. The Company’s
products consist of radiation water monitors, tritium monitors, air and water monitors, nano-second x-ray monitors, and vehicle,
personnel, exit and room monitors. The Company also offers handheld survey meters/dosimeters, and port security equipment, along
with supporting software and services.
Radiation
Water Monitors
US
Nuclear Corp’s radiation water monitors allow detection of radioactive materials in drinking water, ground water, rainfall,
rivers, and lakes. In order to detect radioactive materials, the emitted radiation must travel from the radiation emitter to the
detector. Alpha, Beta, Gamma, and Neutron radiation moves well through air, but poorly through water. The complexity of detecting
radiation in water and developing an efficient monitor has given the Company’s monitors a reasonable edge against competitors,
and for this reason, has limited competition in the water monitor business. The Company has invested more than ten years developing
highly sensitive detectors for this market, giving it a clear advantage over competitors. The Company’s radiation water
monitors are used to check for radioactive materials being released as liquid effluent in drain pipes by universities, hospitals,
pharmaceutical companies, oil and gas extraction facilities, industrial chemical plants, and nuclear reactor plants.
Tritium
Monitors
US
Nuclear Corp is one of very few companies that currently operate within the tritium space. The Company’s Overhoff Technology
Corp unit is a leading manufacturer of tritium detection and monitors. The demand for tritium detection and monitors are steadily
increasing as countries develop solutions to their energy needs. In addition to CANDU reactors (Canada Deuterium Uranium),
the next generation of nuclear reactors called Molten Salt Reactors, (MSR) and Liquid-Fluoride Thorium Reactors (LFTR) utilize
fuels other than traditional uranium and plutonium sources. Thorium, which is more significantly abundant than uranium, is very
difficult to use to create nuclear weapons, is favored by many governments, and as a source of conventional energy it has been
proven to be highly effective. By way of energy production, MSR and LFTRs produce high amounts of tritium which need to be constantly
monitored for detection. Additionally, the waste products of LFTR reactors are less hazardous than the current light-water uranium-plutonium
reactors, and thus, LFTR reactors provide higher level of safety and security against terrorist threats. The Company expects that
a significant portion of its future sales and business strategy is tied to the growth of MSR and LFTRs, as well as from CANDU
reactors.
6
Table
of Contents
Tritium
is produced naturally in the upper atmosphere when cosmic rays strike nitrogen molecules in the air. More commonly, tritium is
produced during nuclear weapons explosions, and as a byproduct in reactors producing electricity. Generally, tritium
has several important uses; its most significant contribution is its use as a component in the triggering mechanism in thermonuclear
weapons. Very large quantities of required for the maintenance of nuclear weapons capabilities. Tritium is also produced commercially
in nuclear reactors, as well as used in various self-luminescent devices, such as exit signs in buildings, aircraft dials, gauges,
luminous paints, and wristwatches. In the mid-1950s and early 1960s, tritium was widely dispersed during above-ground testing
of nuclear weapons. Today, sources of tritium come from commercial nuclear reactors, research reactors, and government weapons
production plants. Tritium may also be released as steam from these facilities or may leak into the underlying soil and ground
water. Additionally, self-luminescent devices illegally disposed in municipal landfills come into contact with water which pass
through water ways, carrying dangerous levels of tritium. Tritium holds a very dangerous health risk and high levels of exposure
to tritium increases risk of developing cancer. To combat tritium leaks and to maintain acceptable levels, the Company has developed
several tritium monitors to gauge tritium in water and in the air.
Alpha,
Beta, Gamma and Tritium Monitors
US
Nuclear Corp’s radiation water monitors allow detection of radioactive materials in drinking water, ground water, rainfall,
rivers, and lakes. In order to detect radioactive materials, the emitted radiation must travel from the radiation emitter to the
detector. Alpha, Beta, Gamma, and Neutron radiation moves well through air, but poorly through water. The complexity of detecting
radiation in water and developing an efficient monitor has given the Company’s monitors a reasonable edge against competitors,
and for this reason, has limited competition in the water monitor business. The Company has invested more than ten years developing
highly sensitive detectors for this market, giving it a clear advantage over competitors. The Company’s radiation water
monitors are used to check for radioactive materials being released as liquid effluent in drain pipes by universities, hospitals,
pharmaceutical companies, oil and gas extraction facilities, industrial chemical plants, and nuclear reactor plants.
For
the past 20 years, Overhoff Technology has been devoted exclusively to the design, manufacturing and servicing of Tritium monitors.
Overhoff Technology has leading control over market share in the Tritium monitor space as the top maker of Tritium monitors. Tritium
monitors are a highly delicate process and are particularly dependent on the selection of the finest materials such as Teflon
for low leakage insulators and nafion membranes for separation of noble gas from Tritium. The Company’s Overhoff DC amplifiers
called “electrometers” are stable with the ability to register small currents down to the femto-ampere level,
10
-13
to
10
-15
ampre range. The Overhoff electrometer also has the unique ability to reject false counts from Radon gas.
Because Tritium is a radioactive material, the Nuclear Regulatory Commission (“NRC”) regulations and state health
agencies require Tritium to be measured at every nuclear power plant, all national laboratories, in the nuclear-powered Navies
of the United States, France and the United Kingdom, at weapons facilities, at pharmaceutical and pesticide research facilities,
and at Fusion Power research sites.
DroneRAD
Aerial Radiation Detection
US
Nuclear Corp has partnered with FlyCam UAV (a drone manufacturer). The two companies have married their two technologies with
the NEO, an all-weather UAV octocopter capable of carrying a number of radiation and chemical detection sensors. With
the advent of merging FlyCam UAV’s NEO and US Nuclear Corp sensor technology aerial radiation and chemical detection is
now a reality.
The DroneSensor system (the first of its kind) uses state-of-the-art industrial
grade drones carrying radiation & chemical sensors. Wireless transmission to ground station provides real-time data.
Having these UAV mounted sensors quickly and efficiently surveying large areas for contamination eliminates risk to human life.
7
Table
of Contents
Air and Water Monitors
|
The
Company’s Overhoff Air Monitors come in both hand-held portables and mid-to large-sized air and stack monitors. These
are classified as Dual Ion Chamber style detectors or Dual Proportional Detectors. The sample flows into one chamber where
ionization current is measured, and at the same time a sealed background detector of the same volume measures the ionization
current due to any external gamma emitters plus the addition of background from radioactive minerals in the soil with cosmic
rays. The current from the background chamber is subtracted from the current in the main sample chamber to give the net tritium
level without distortion from radon or gamma in the background. In nuclear power plants, radioactive noble gases are also
in the air stream in small or large quantities. Overhoff combats this problem using Dow Chemical Nafion
®
tubing
which physically separates the noble gases from the tritium oxide prior to measurement. The Company is currently expecting
a large number of its users and larger numbers of its competitor’s customers will need to replace or supplement their
current air and stack monitors to combat the two biggest pollution nuclides now coming out of nuclear power plants, tritium
and C-14. As of today, only US Nuclear Corp offers these full-service monitors.
|
Vehicle
Monitors, Personnel Monitors, Exit Monitors and Room Monitors
The
Company’s suite of radiation monitors can be used in various scenarios where humans may come into contact with radiation
contamination. The Company’s Vehicle Monitors, Personnel Monitors, Exit Monitors and Room Monitors are effective tools in
detection of radiation in hospitals where radioactivity is used in many departments such as nuclear medicine, oncology, blood
labs, and imaging. Since radiation is also used in diagnosing and treating cancer, and since some cancers can develop in any organ,
each department in a hospital becomes involved, from ophthalmology to thoracic medicine. Additionally, the Company’s monitors
are used to check hospital laundry to detect any radiation on clothes as well as in trash bins before they are picked up by the
applicable waste management team. Lastly, the Company’s monitors can be placed in the entrance of hospitals in case there
is an incident at a nearby nuclear power plant. These monitors are the first line of defense against further contamination, by
providing early warning detection; doctors can provide treatment without placing other patients and staff in direct contact with
patients who are contaminated with radiation.
Radon
Air Monitors and Radon Switch Products
The
Company produces a full line of radon air monitors and switches that are used to determine the radon content in the air in basements,
mills, mines, buildings, or anywhere that radon concentration is a concern. The radon switch products activate and controls radon
mitigation fans. These switches have a built-in computer storage with data storage. The Company also makes a radon tritium monitor
that is a portable instrument used for detection and measurement of airborne Vadose zone, between the top of the ground surface
to the water table.
Handheld
Survey Meters and Personal Dosimeters, Pocket Micro-R Meters
The
Company’s survey meters are light-weight, hand-held radiation detectors. They function as general purpose radiation survey
meters, but also serve as special purpose survey meters. For example, the Company’s radon monitors are used in mines where
workers are at risk for breathing radon gas along with air. The Company’s surface monitors are used in hospitals, research
labs, even in high school chemistry and physics labs to check for radioactive contamination on lab benches. Friskers are used
to check if worker’s hands or shoe bottoms have picked up any radiation contamination and the Company’s Gamma survey
meter check packages at post offices or airports for radiation, along with scrap metals at collection points and again before
it is accepted for processing.
Port
Security Equipment
|
Due
to increased terror threats from IED (Improvised Explosive Devices), dirty bombs and potential radioactive materials following
9/11 at shipping ports, we began utilizing passive detectors to review radiation emanating from inside containers. While other
port security scanners generally use radioactive materials or x-ray generating machines to check everything from shipping
containers, Federal Express, USPS (United States Postal Service) packages, and luggage for contraband, our scanner solutions
do not use radiation, allowing for safe usage by investigators. We were approached by the FDA after the events of 9/11, and
we designed our P-8Neon Quick-Scan X-ray detector to provide complete scanning without releasing any harmful radiation in
the process. Our RAD-CANSCAN machines can measure which shipping containers hold radioactive materials by mapping inside the
container so that TSA personnel will know the results without having to open each container. Additionally, our TBM-6SPE is
a multi-detector system that lets an investigator check specifically for each of the four main emissions of radiation, Alpha,
Beta, Gamma and Neutrons.
|
8
Table
of Contents
Software
The
Company’s Overhoff Overview software program provides centralized radiation and environmental monitoring for entire facilities
within one building or several square miles allowing monitoring of a nuclear power plant or subway station. Overview accepts data
from networked radiation detectors, environmental monitors and webcams, and allows the user to view and generate reports on the
data, as well as track maintenance due on instruments. Additionally, Overview lets the user see real-time monitoring for differential
pressure on containment boxes or rooms. Our software measures gamma and neutron radiation levels, airborne radioactivity levels,
temperature and humidity in the facility, status of security doors, wind speed and direction, and barometric pressure.
(b)
Item 1 A
Risk
Factors
Risks
Related to Our Business and Industry
Our
business is intensely competitive and our revenues are unpredictable as a small company.
We
compete with a formidable group of competitors in our business, many of which have greater resources and capabilities than our
company. There are numerous companies that have established businesses and command larger market share such as Thermo Fisher Scientific,
Canberra Industries, and Mirion Technologies, Ludlum Measurements, Smiths Detection and Lab Impex Systems Ltd. Many of these companies
have products and services that compete directly with ours and many of them are supported with larger marketing budgets and sales
staff that can provide stronger sales coverage and support to customers than our capabilities. Furthermore, competitors may have
technological advantages and may be able to implement new technologies more rapidly than our Company. Additionally, to the extent
of our bookings, we cannot accurately predict to a large degree of certainty what annual revenues and income outlook may be. Due
to our relatively small size, many factors may contribute to differences in the future and therefore cannot be assured in any
manner. The market for nuclear radiation safety equipment is dependent upon a number of factors beyond the Company’s control,
which cannot be accurately predicted. Some of these factors include pricing, competition from new entrants, newer technologies,
market regulation and government policy, as well as overall market demand. Other factors include fossil fuel energy prices that
may have an effect upon nuclear energy demand. Lower oil, natural gas, and coal prices may result in less favorable decisions
to pursue nuclear energy as a source of energy.
We
rely heavily on our international customers for business and expect to continue to rely on international customers in the future.
Our
international revenues were 34% of our total revenue in 2016. Although this was lower than in 2015 we expect it to increase again
in 2017 as we continue to field new orders inquires and engage new customers overseas. We believe that South Korea and China will
likely be larger contributors 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. There
can be no assurances as to our growth projections and our risk profile as we depend upon increased foreign customers for business.
Government
Regulation
Although
the sales of our equipment are not generally regulated by any local or federal government agency, the nuclear power industry itself
is highly regulated by the Nuclear Regulatory Commission. As an independent agency of the United States government, the NRC is
responsible for overseeing reactor safety, security, reactor licensing, renewal, radioactive material safety, and spent fuel disposal.
The effects of the NRC’s policies therefore have an effect on our business. The impact of any negative decision in the nuclear
power industry will ultimately affect us. We may also be affected by foreign government policy and regulation not covered by the
NRC.
9
Table
of Contents
Nuclear
Power, Fossil Fuel and Renewal Energy
While
the nuclear power industry is a key component in the context of energy supply in the world today there are other competing energy
sources that carry less potential risk hazards. Competing energy sources such as fossil fuels, solar, wind and water are strong
threats to nuclear power. Each one has its benefits and conversely a negative side. The current landscape of nuclear power according
to the Nuclear Regulatory Commission, or NRC, states that as of May 2014, there were 30 countries worldwide operating 435 nuclear
reactors in operation in the world, with 72 new reactors under construction in 15 countries. Within the United States, there are
100 nuclear power plants providing 20% of the country’s total electric energy generation. Additionally, 31 of the 50 US
states generate electricity from nuclear power plants, and four states, New Jersey, South Carolina, Connecticut, and Vermont rely
on nuclear power for more than 50 percent of their electricity. The United States produced approximately 27% of the world’s
gross nuclear-generated electricity in 2010 with France at 17%, Japan 12%, Russia 6%, Germany 5%, South Korea 5%, Ukraine 3%,
Canada 3%, Sweden 2%, Spain 2%, the United Kingdom 3% and the rest of the world at 15%. The growth in new nuclear power plant
construction in the United States has been slower due to issues related to domestic policy and the effects of the Fukushima Dai-ichi
nuclear plant accident, foreign countries such as Russia have plans to build 26 new plants by 2020. It is difficult to predict
if these plans domestically and internationally will materialize or be postponed indefinitely if negative market forces develop.
Opponents
to Nuclear Energy are formidable due to concerns over safety.
Maintaining
the demand for our products and future growth in demand will depend in part upon continued acceptance of nuclear technology as
a means of generating electricity. In many cases, countries have embraced nuclear technology because alternate means of energy
have either been at a high cost with heavy pollution, or other means have not been practical. However, incidents involving nuclear
energy production, such as overheating reactors, radiation leaks and reactor melt-downs, can cause a significant decrease in public
acceptance of nuclear technology. Events at the Fukushima Daiichi nuclear complex in Japan on March 11, 2011 may have adverse
long term effects in some countries decision to either continue using nuclear power or suspend its nuclear power program. While
the long-term impact is unclear, several countries have suspended operations at existing nuclear power plants. Specifically, on
May 30, 2011, Germany announced that in addition to the permanent closure of eight reactors, an additional six reactors will
be taken off-line by 2021 and that all remaining reactors to be shut-down by 2022. Switzerland has made a policy decision to phase
out of their 5 reactors by 2034. Italy, while not having any operating reactors, has implemented a moratorium on nuclear power.
The ultimate results of these safety reviews and/or public resistance to nuclear technology may lead to suspension or cancellation
of permitting and development activities, license extensions of existing nuclear facilities, and possibly even the closure of
operating nuclear facilities by one or more countries. Lack of public acceptance of nuclear technology would adversely affect
the demand for nuclear power and therefore demand for radiation detection equipment.
Continued
growth of CANDU reactors and rapid development of next generation Molten Salt (MSR) and Liquid-Fluoride Thorium Reactors (LFTR).
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), for its tritium-based
equipment. MSR and LFTR are new types of reactors that utilize thorium as a fuel rather than traditional uranium or plutonium.
Thorium is a more abundant element than uranium. Many countries with heavy energy needs such as China have begun to adopt MSR
and LFTR programs. However, the numbers of these types of reactors are still small in numbers and there can be no assurances that
they will ever reach large numbers capable of sustaining rapid growth and development for nuclear-radiation safety products such
as our tritium equipment. If CANDU reactors experience adverse events such as long term inactivity due to political or environmental
concerns, or economic issues, and if MSR and LFTR reactors fail to develop beyond its current growth forecasts worldwide, the
Company will experience lower demand for its products which would have an adverse effect on the Company’s sales and profitability.
Failure
to make accretive acquisitions and successfully integrate them could adversely affect our future financial results.
As
part of our growth strategy, we plan to seek, when management deems advantageous to the Company, to acquire complementary (including
competitive) businesses, facilities or technologies and enter into joint ventures. Our goal is to make such acquisitions,
integrate these acquired assets into our operations and reduce operating expenses. The process of integrating these acquired
assets into our operations may result in unforeseen operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of our business. We cannot assure you that the anticipated
benefits of any acquisitions will be realized. In addition, future acquisitions by us could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, any of which can materially and adversely affect our operating results and financial position. Acquisitions
also involve other risks, including entering geographic markets in which we have no or limited prior experience and the potential
loss of key employees.
10
Table
of Contents
We
have filed a provisional patent for our product based on our tritium products but hold no current patents on our products, and
our business employs proprietary technology and information which may be difficult to protect and may infringe on the intellectual
property rights of third parties.
In
general, we rely primarily on a combination of trade secrets, copyright and trademark laws, and confidentiality procedures to
protect our technology. Due to the technological change that characterizes our business, we believe that the improvement of existing
products, reliance upon trade secrets and unpatented proprietary know-how and the development of new products are generally as
important as patent protection in establishing and maintaining a competitive advantage.
We
have currently filed a provisional utility-type patent on our tritium products to protect our intellectual property, but currently
rely on trade secrets, proprietary know-how and technology that we seek to protect, in part, by confidentiality agreements with
prospective joint venture partners, employees and consultants. We cannot assure you that these agreements will not be breached,
that we will have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not otherwise become
known or be independently discovered by others. Other than the provisional patent, we currently do not hold patents from the United
States Patent and Trademark Office on any of our products we manufacture. Our success depends, in part, on our ability to keep
competitors from reverse engineering our products, maintain trade secrecy and operate without infringing on the proprietary rights
of third parties. We cannot assure you that the patents of others will not have an adverse effect on our ability to conduct
our business, that any of our trade secrets and applications will be protected, that we will develop additional proprietary technology
that is defensible against theft or will provide us with competitive advantages or will not be challenged by third parties. Further,
we cannot assure you that others will not independently develop similar or superior technologies, duplicate elements of our technology
or design around it.
It
is possible that we may need to acquire licenses to, or to contest the validity of, issued or pending patents or claims of third
parties. We cannot assure you that any license acquired under such patents would be made available to us on acceptable terms,
if at all, or that we would prevail in any such contest. In addition, we could incur substantial costs in defending ourselves
in suits brought against us for alleged infringement of another party’s patents or in defending the validity or enforceability
of any patents we may seek in the future, or in bringing patent infringement suits against other parties.
In
December, 2013, we were granted a registered trademark of the US Nuclear Corp name and logo from the United States Patent and
Trademark Office and consider it important to the protection of our US Nuclear Corp brands. We have not been nor are we currently
involved in or aware of any litigation regarding any of our intellectual property.
Our
failure to obtain capital may significantly restrict our proposed operations.
We
will need to raise more capital to expand our business. It is anticipated that we will require an additional capital raise of
$5 million dollars over the next twelve months to fund our business plans. Future sources of capital may not be available to us
when we need it or may be available only on unacceptable terms.
We
are subject to the risk that certain key personnel, including key employees named below, on whom we depend, in part, for our operations,
will cease to be involved with us. The loss of any these individuals would adversely affect our financial condition and
the results of our operations.
11
Table
of Contents
We
are dependent on the experience, knowledge, skill and expertise of our President and CEO Robert I. Goldstein. We are also in large
part dependent on current CFO, and Secretary Rachel Boulds. The loss of any of the key personnel listed above could materially
and adversely affect our future business efforts. Our success depends in substantial part upon the services, efforts and abilities
of Robert I. Goldstein, our Chairman and Chief Executive Officer, due to his experience, history and knowledge of the nuclear
radiation industry and his overall insight into our business direction. The loss or our failure to retain Mr. Goldstein, or to
attract and retain additional qualified personnel, could adversely affect our operations. We do not currently carry key-man
life insurance on Mr. Goldstein or any of our officers and have no present plans to obtain this insurance. See “Management.”
The
loss of any of our executive officers could adversely affect our business.
We
depend to a large extent on the efforts and continued employment of our executive officers, one of these officers, Rachel Boulds
maintains employment at other companies, and her other responsibilities could take precedence over her duties to us. The time
Ms. Boulds plans to devote to our business will primarily be based upon the financial accounting duties as CFO, and Secretary.
Competition
from other radiation detection or related companies could result in a decrease our business and a decrease in our financial performance.
We
operate in the highly competitive industry. Many of our current and potential competitors, including larger multinational companies,
domestic manufacturing companies with multiple product lines in radiation detection products have existed longer and have larger
customer bases, greater brand recognition and significantly greater financial, marketing, personnel, technical and other resources
than US Nuclear Corp. In addition, many of these competitors may be able to devote significantly greater resources to:
·
research
and development of new products
·
attracting
and retaining key employees;
·
maintaining
a large budget for marketing and promotional expenses
·
providing
more favorable credit terms to suppliers and channel distributors
Regulations,
including those contained in and issued under the Sarbanes-Oxley Act of 2002 (“SOX”) and the Dodd–Frank Wall
Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), increase the cost of doing business and may make
it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our
business and our ability to obtain or retain listing of our Common Stock.
We
are a public company. The current regulatory climate for public companies, even small and emerging growth companies such
as ours, may make it difficult or prohibitively expensive to attract and retain qualified officers, directors and members of board
committees required to provide for our effective management in compliance with the rules and regulations which govern publicly-held
companies, including, but not limited to, certifications from executive officers and requirements for financial experts on boards
of directors. The perceived increased personal risk associated with these recent changes may deter qualified individuals from
accepting these roles. For example, the enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series
of new rules and regulations and the strengthening of existing rules and regulations by the SEC. Further, recent and proposed
regulations under Dodd-Frank heighten the requirements for board or committee membership, particularly with respect to an individual’s
independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting
and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors,
the management of our business could be adversely affected.
Our
internal controls over financial reporting may not be effective, and our independent auditors may not be able to certify as to
their effectiveness, which could have a significant and adverse effect on our business.
12
Table
of Contents
We
are subject to various SEC reporting and other regulatory requirements. We have incurred and will continue to incur expenses and,
to a lesser extent, diversion of our management’s time in our efforts to comply with SOX Section 404 regarding internal
controls over financial reporting. Our management’s evaluation over our internal controls over financial reporting
may determine that material weaknesses in our internal control exist. If, in the future, management identifies material
weaknesses, or our external auditors are unable to attest that our management’s report is fairly stated or to express an
opinion on the effectiveness of our internal controls, this could result in a loss of investor confidence in our financial reports,
have an adverse effect on our stock price, and subject us to sanctions or investigation by regulatory authorities.
Limitations
on director and officer liability and our indemnification of our officers and directors may discourage stockholders from bringing
suit against a director.
Our
Certificate of Incorporation and By-Laws provide, with certain exceptions as permitted by Delaware corporation law, that a director
or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts
or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood
of derivative litigation brought by stockholders on our behalf against a director. In addition, our Certificate of Incorporation
and By-Laws provide for mandatory indemnification of directors and officers to the fullest extent permitted by governing state
law.
We
may incur a variety of costs to engage in future acquisitions of companies, products or technologies, to grow our business, to
expand into new markets, or to provide new services. As such, the anticipated benefits of those acquisitions may never be
realized.
It
is management’s intention to acquire other businesses to grow our customer base, to expand into new markets, and to provide
new product lines. We may make acquisitions of, or significant investments in, complementary companies, products or technologies,
although no additional material acquisitions or investments are currently pending. Acquisitions may be accompanied by risks
such as:
|
|
☐
|
difficulties in assimilating the operations and employees of acquired companies;
|
|
|
☐
|
diversion of our management’s attention from ongoing business concerns;
|
|
|
☐
|
our potential inability to maximize our financial and strategic position through the successful incorporation
of acquired technology and rights into our products and services;
|
|
|
☐
|
additional expense associated with amortization of acquired assets;
|
|
|
☐
|
additional expense associated with understanding and development of acquired business;
|
|
|
☐
|
maintenance and implementation of uniform standards, controls, procedures and policies; and;
|
|
|
☐
|
impairment of existing relationships with employees, suppliers and customers as a result of the integration
of new management employees.
|
We
must attract and retain skilled personnel. If we are unable to hire and retain technical, sales and marketing, and operational
employees, our business could be harmed.
Our
revenues are generated by the sales of our radiation detection products from our direct sales, sales to catalogs, distributors
and to a lesser extent, our website. Our ability to manage our growth will be particularly dependent on our ability to develop
and retain an effective sales force and qualified technical and managerial personnel. We intend to hire additional employees,
including engineers, sales and marketing employees and operational employees. The competition for engineers, qualified sales,
technical, and managerial personnel in the technology and manufacturing community, is intense, and we may not be able to hire
and retain sufficient qualified personnel. In addition, we may not be able to maintain the quality of our operations, control
our costs, maintain compliance with all applicable regulations, and expand our internal management, technical, information and
accounting systems in order to support our desired growth, which could have an adverse impact on our operations.
Our
failure to manage growth effectively could harm our ability to attract and retain key personnel and adversely impact our operating
results.
13
Table
of Contents
There
can be no assurance that we will be able to manage our expansion through acquisitions effectively. Our current and planned personnel,
systems, procedures and controls may not be adequate to support and effectively manage our future operations, especially as we
employ personnel in multiple geographic locations. We may not be able to hire, train, retain, motivate and manage required personnel,
which may limit our growth, damage our reputation and negatively affect our financial performance and harm our business.
If
we obtain financing, existing shareholder interests may be diluted.
If
we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our shareholders will
be diluted. In addition, any new securities could have rights, preferences and privileges senior to those of our common stock.
Furthermore, we cannot assure you that additional financing will be available when and to the extent we require or that, if available,
it will be on acceptable terms.
Our
President and Chief Executive Officer has not previously received an annual salary or other compensation.
Robert
I. Goldstein, in his role as President, CEO and Chairman of the Board of Directors has not received an annual salary or other
compensation from our company for his services. As of November 4, 2014, we have entered into a 5-year employment agreement with
Mr. Goldstein to secure his services as President, CEO and Chairman of the Board of Directors in the amount of $100,000 per year,
payable at the end of each fiscal year, with his compensation beginning in fiscal 2015 and payable in January 2016. Mr. Goldstein
later agreed to temporarily reduce his compensation to $50,000 for 2015. Compensation for 2016 was increased to $100,000 as authorized
by our Board of Directors. The absence of his compensation in previous years should be taken into consideration when reviewing
our historical financial statements in determining whether to invest in our Company. The impact of his compensation to our financial
condition is unknown. We cannot make any assurances that his annual salary or other compensation will not create an adverse event
on our financial condition.
The
requirements of being a public company may strain our resources and distract our management, which could make it difficult to
manage our business, particularly after we are no longer an “emerging growth company.”
We
are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with
these reporting and other regulatory requirements are time-consuming and expensive and could have a negative effect on our business,
results of operations and financial condition.
As
a public company, we are subject to the reporting requirements of the Exchange Act, and requirements of SOX. The cost of complying
with these requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly
and current reports with respect to our business and financial condition. SOX requires that we maintain effective disclosure controls
and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls
and procedures, we must commit significant resources, may be required to hire additional staff and need to continue to provide
effective management oversight. We will be implementing additional procedures and processes for the purpose of addressing the
standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management,
operational and financial resources to identify new professionals to join the Company and to maintain appropriate operational
and financial systems to adequately support expansion. These activities may divert management’s attention from other business
concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As
an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”)
enacted on April 5, 2012, we may take advantage of certain temporary exemptions from various reporting requirements including,
but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of SOX (and rules and
regulations of the SEC thereunder, which we refer to as Section 404) and reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements.
When
these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring
compliance with them. We will remain an “emerging growth company” for up to five years, although we may cease to be
an emerging growth company earlier under certain circumstances. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — JOBS Act” for additional information on when we may cease to be deemed to be
an emerging growth company. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming
a public company or the timing of such costs.
14
Table
of Contents
Risks
Related to Our Common Stock
Our
stock price may be volatile or may decline regardless of our operating performance, and the price of our common stock may fluctuate
significantly.
Once
our shares begin trading, the market price for our common stock is likely to be volatile, in part because our shares have not
been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of
factors, most of which we cannot control, including:
|
|
☐
|
competition
from other radiation detection companies or related businesses;
|
|
|
☐
|
changes
in government regulations, general economic or market conditions or trends in our industry or the economy as a whole and,
in particular, in the nuclear power industry;
|
|
|
☐
|
changes
in key personnel;
|
|
|
☐
|
entry
into new geographic markets;
|
|
|
☐
|
actions
and announcements by us or our competitors or significant acquisitions, divestitures, strategic partnerships, joint ventures
or capital commitments;
|
|
|
☐
|
changes
in operating performance and stock market valuations of other radiation detection and related companies;
|
|
|
|
|
|
|
☐
|
investors’
perceptions of our prospects and the prospects of the nuclear power industry;
|
|
|
☐
|
fluctuations
in quarterly operating results, as well as differences between our actual financial and operating results and those expected
by investors;
|
|
|
☐
|
the
public’s response to press releases or other public announcements by us or third parties, including our filings with
the SEC;
|
|
|
☐
|
announcements
relating to litigation;
|
|
|
☐
|
financial
guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
|
|
|
☐
|
changes
in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates
or failure of those analysts to initiate or maintain coverage of our common stock;
|
|
|
☐
|
the
development and sustainability of an active trading market for our common stock;
|
|
|
☐
|
future
sales of our common stock by our officers, directors and significant stockholders; and
|
|
|
☐
|
changes
in accounting principles affecting our financial reporting.
|
These
and other factors may lower the market price of our common stock, regardless of our actual operating performance.
15
Table
of Contents
The
stock markets and trading facilities, including the OTC Bulletin Board, have experienced extreme price and volume fluctuations
that have affected and continue to affect the market prices of equity securities in many companies. In the past, stockholders
of some companies have instituted securities class action litigation following periods of market volatility. If we were involved
in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted
from our business.
Our
Common Stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
Under
a regulation of the SEC known as “Rule 144,” a person who has beneficially owned restricted securities of an issuer
and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions
have been met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will
be 6 months or 1 year, depending on various factors. The holding period for our common stock would be 1 year if our common stock
could be sold under Rule 144. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell
company (other than a business combination related shell company) or that has been at any time previously a shell company. The
SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets
consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal
other assets. Until the merger, we were a shell company.
The SEC has provided an exception to this unavailability if and for as long as the following conditions are
met:
|
|
☐
|
The issuer of the securities that was formerly a shell company has ceased to be a shell company,
|
|
|
|
|
|
|
☐
|
The issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act,
|
|
|
|
|
|
|
☐
|
The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable,
during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other
than Current Reports on Form 8-K; and
|
|
|
|
|
|
|
☐
|
At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the
SEC reflecting its status as an entity that is not a shell company known as “Form 10 Information.”
|
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
The
trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts.
If no securities or industry analysts commence coverage of our company, the trading price for our common stock would be negatively
impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our
common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one
or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease,
which could cause our stock price and trading volume to decline.
Our
internal controls over financial reporting may not be effective and our independent registered public accounting firm may not
be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation
.
16
Table
of Contents
As
a public company, we are required to evaluate our internal controls over financial reporting. Furthermore, at such time as we
cease to be an “emerging growth company,” as more fully described in these Risk Factors, we shall also be required
to comply with Section 404. At such time, we may identify material weaknesses that we may not be able to remediate in time to
meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. In addition, if we fail to achieve
and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time,
we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any
remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404
in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion
due to ineffective internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory
authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence
in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control
system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.
We
are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our Common Stock less attractive to investors, potentially decreasing our stock price.
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 Chief Executive’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. However, we may choose “opt out” of such extended transition period, and
as a result, we would then comply with new or revised accounting standards on the relevant dates on which adoption of such standards
is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended
transition period for complying with new or revised accounting standards would be irrevocable
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.
Until
such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
When
these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring
compliance with them. We may remain an “emerging growth company” for up to five years, although we may cease to be
an emerging growth company earlier under certain circumstances. We cannot predict or estimate the amount of additional costs
we may incur as a result of the change in our status under the JOBS Act or the timing of such costs.
17
Table
of Contents
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.
Our
management and other affiliates have significant control of our Common Stock and could control our actions in a manner that conflicts
with the interests of other stockholders.
Our
executive officers, directors and their affiliated entities together will beneficially own approximately 75% of our Common Stock,
representing approximately 77% of the voting power of our outstanding capital stock. As a result, these stockholders, acting together,
will be able to exercise considerable influence over matters requiring approval by our stockholders, including the election of
directors, and may not always act in the best interests of other stockholders. Such a concentration of ownership may have the
effect of delaying or preventing a change in our control, including transactions in which our stockholders might otherwise receive
a premium for their shares over then current market prices.
Penny
Stock Considerations
Our
shares likely will be "penny stocks" as that term is generally defined in the Securities Exchange Act of 1934 to mean
equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure
requirements on broker-dealers who engage in certain transactions involving a penny stock.
Under
the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited
investor must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent
to the transaction prior to the sale. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the
penny stock regulations the broker-dealer is required to:
|
|
☐
|
Deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission
relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
|
|
|
☐
|
Disclose
commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
|
|
|
☐
|
Send
monthly statements disclosing recent price information pertaining to the penny stock held in a customer's account, the account's
value and information regarding the limited market in penny stocks; and
|
|
|
☐
|
Make
a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction, prior to conducting any penny stock transaction in the customer's account.
|
Failure
to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have
a material adverse effect on our business and operating results. In addition, current and potential stockholders could lose confidence
in our financial reporting, which could have an adverse effect on our stock price.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, our operating results could be harmed.
Upon
the effectiveness of the Company’s contemplated current report under the Securities Exchange Act of 1934, we will be required
to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting
and a report by our independent registered public accounting firm addressing these assessments.
16
Table
of Contents
During
the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed
by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy
of our internal accounting controls, as such standards are modified, supplemented or amended from time to time, we may not be
able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance
with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory
action and also cause investors to lose confidence in our reported financial information, either of which could have an adverse
effect on our stock price.
We
do not expect to pay any cash dividends for the foreseeable future.
The
continued operation and growth of our business will require substantial cash. Accordingly, we do not anticipate that we will pay
any cash dividends on shares of our Common Stock for the foreseeable future. Any determination to pay dividends in the future
will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, contractual
restrictions relating to indebtedness we may incur, restrictions imposed by applicable law and other factors our Board of Directors
deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on
the appreciation of the price of our Common Stock, which may never occur. Investors seeking cash dividends in the foreseeable
future should not purchase our Common Stock.
OTC
Bulletin Board Qualification for Quotation
On
February 6, 2015, we were issued our ticker symbol, UCLE on the OTC Bulletin Board from FINRA. On March 20, 2015, we were approved
for DTC eligibility by the Depository Trust and Clearing Corporation,) ("DTCC").
Holders
As
of the date of this 10-K, we had 42 holders of record of our Common Stock.
Quantitative
and Qualitative Disclosures about Market Risk
We
have not utilized any derivative financial instruments such as futures contracts, options and swaps, forward foreign exchange
contracts or interest rate swaps and futures. We believe that adequate controls are in place to monitor any hedging activities.
We do not have any borrowings and, consequently, we are not affected by changes in market interest rates. While we do have significant
sales outside the United States, all of our sales are settled with US currency, and we do not currently own assets and operate
facilities in countries outside the United States and, consequently, we are not affected by foreign currency fluctuations or exchange
rate changes. Overall, we believe that our exposure to interest rate risk and foreign currency exchange rate changes
is not material to our financial condition or results of operations.
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.
Critical
Accounting Policies
On
April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain
reporting requirements for qualifying public companies. As an “emerging growth company,” we have the option
to delay adoption of new or revised accounting standards until those standards would otherwise apply to private companies, until
the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively
and irrevocably opt out of the extended transition period for complying with such new or revised accounting standards. We have
elected to opt out of this extended transition period. As noted, this election is irrevocable.
19
Table
of Contents
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.
Recent
Accounting Pronouncements
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”)
2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas
of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual
periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company
is in the process of evaluating the impact of this accounting standard update.
In
November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted
cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash
flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet.
ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The
Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In
October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early
adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial
statements.
20
Table
of Contents
In
August 2016, the FASB issued ASU 2016-15
, Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash
payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is
effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is
in the process of evaluating the impact of this accounting standard update on its statements of cash flows.
In
March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
.
ASU 2016-09, which amends several aspects of accounting for employee share-based payment transactions including the accounting
for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows.
ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within annual periods beginning
after December 15, 2016, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting
standard update on its financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets
and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018,
with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its
financial statements.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability
to Continue as a Going Concern
, which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability
to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain
disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU
2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is
permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company's financial statements
and disclosures.
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from
Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all
existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue
recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services
as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets
recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods
beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December
15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively
or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact
of ASU 2014-09 on the Company's financial statements and disclosures.
Authorization
of Preferred Stock
Our
Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock with designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly, our Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely
affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
Although we have no present intention to issue any shares of its authorized preferred stock, there can be no assurance that we
will not do so in the future.
Control
by Management
As
of December 31, 2017, management currently owns 72.2% of all the issued and outstanding capital stock of the Company. Consequently,
management has the ability to control the operations of the Company and will have the ability to control substantially all matters
submitted to stockholders for approval, including:
21
Table
of Contents
•
Election of the board of directors;
•
Removal of any directors;
•
Amendment of the Company’s certificate of incorporation or bylaws; and
•
Adoption of measures that could delay or prevent a change in control or
impede
a merger, takeover or other business combination.
This
Report Contains Forward-Looking Statements and Information Relating to Us, Our Industry and To Other Businesses.
