Note 1 - Organization and Basis of Presentation
The unaudited consolidated financial
statements were prepared by US Nuclear Corp. (the “Company”), pursuant to the rules and regulations of the Securities
Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring
accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant
to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
The results for the three months ended March 31, 2016, are not necessarily indicative of the results to be expected for the year
ending December 31, 2016.
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.
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.
Basis of Presentation
The accompanying consolidated financial statements
and have been prepared in conformity with accounting principles generally accepted in the United States of America.
Note 2 – Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, Optron Scientific Company, Inc. (“Optron”) and
its wholly-owned subsidiary, Overhoff Technology Corporation (“Overhoff”), and have been prepared in conformity with
accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances
have been eliminated.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due
to the levels of subjectivity and judgment involved.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand
and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months
or less. There were no cash equivalents as of March 31, 2016 and December 31, 2015.
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 March 31, 2016 and December 31, 2015 were $5,000 and $5,000, respectively.
Inventories
Inventories are valued at the lower of cost
(determined primarily by the average cost method) or market. Management compares the cost of inventories with the market value
and allowance is made for writing down their inventories to market value, if lower.
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 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 December 31, 2015 and 2014, the Company believes there was no impairment
of its long-lived assets.
Goodwill
Goodwill represents the excess of purchase
price over the underlying net assets of businesses acquired. The entire goodwill balance in the accompanying financial statements
resulted from the Company’s acquisition of Overhoff Technology Corporation in 2006. The Company complies with ASC 350,
Goodwill
and Other Indefinite Lived Intangible Assets
, requiring that a test for impairment be performed at least annually. As of December
31, 2015 and 2014 the Company performed the required impairment analysis which resulted in no impairment adjustments.
Fair Value of Financial Instruments
For certain of the Company’s financial
instruments, including cash, accounts receivable, accounts payable, accrued liabilities, customer deposits, and line of credit,
the carrying amounts approximate their fair values due to their short maturities. In addition, the Company has a note payable to
shareholder that the carrying amount also approximates fair value.
Revenue Recognition
The Company’s revenue recognition policies
comply with FASB ASC Topic 605. Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the
price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability
is reasonably assured. 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
three months ended March 31, 2016 and 2015. The Company does not provide unconditional right of return, price protection or any
other concessions to its customers.
Customer Deposits
Customer deposits represent cash paid to the
Company by customers before the product has been completed and shipped.
Income Taxes
The Company accounts for income taxes in accordance
with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income
taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. The adoption had no effect on the Company’s consolidated financial statements.
Stock-Based Compensation
The Company records stock-based compensation
in accordance with FASB ASC Topic 718,
Compensation – Stock Compensation
. FASB ASC Topic 718 requires companies to
measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over
the employee’s requisite service period. The Company recognizes in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to employees and non-employees.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share (“EPS”) is based on the weighted average number of common shares
outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised
at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common
stock at the average market price during the period. There were no potentially dilutive securities outstanding during March 31,
2016 and December 31, 2015.
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 7.
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 January 2015, the FASB issued Accounting
Standards Update (ASU) No. 2015-01 (Subtopic 225-20) -
Income Statement - Extraordinary and Unusual Items
. ASU 2015-01 eliminates
the concept of an extraordinary item from GAAP. As a result, an entity will no longer be required to segregate extraordinary items
from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after
income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item.
However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur
infrequently. ASU 2015-01 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected
to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.
In February, 2015, the FASB issued Accounting
Standards Update (ASU) No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
ASU 2015-02 provides
guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate
certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized
debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods
beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s
consolidated financial statements. Early adoption is permitted.
In September, 2015, the FASB issued ASU No.
2015-16,
Business Combinations (Topic 805).
Topic 805 requires that an acquirer retrospectively adjust provisional amounts
recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional
amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified
during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to
also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization,
or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been
completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement
or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item
that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as
of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is
not expected to have a material effect on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU
No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. The new guidance requires that all deferred tax assets and
liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective
for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate
the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations, or cash
flows.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840,
Leases
(FAS 13)
. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating
leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after
December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its
consolidated financial statements.
Note 3 – Inventories
Inventories at March 31, 2016 and December 31, 2015 consisted of
the following:
|
|
March 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Raw materials
|
$
|
916,305
|
$
|
1,139,827
|
Work in Progress
|
|
618,756
|
|
710,041
|
Finished goods
|
|
928,134
|
|
470,465
|
|
$
|
2,463,195
|
$
|
2,320,333
|
Note 4 – Property and Equipment
The following are the details of the property, equipment and improvements
at March 31, 2016 and December 31, 2015:
|
|
March 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Furniture and fixtures
|
$
|
146,684
|
$
|
146,684
|
Leasehold Improvements
|
|
50,091
|
|
50,091
|
Equipment
|
|
212,076
|
|
212,076
|
Computers and software
|
|
27,259
|
|
27,259
|
|
|
436,110
|
|
436,110
|
Less accumulated depreciation
|
|
(429,846)
|
|
(428,210)
|
Property and equipment, net
|
$
|
6,264
|
$
|
7,900
|
Depreciation expense for the three months ended March 31, 2016 and
2015 was $1,636 and $1,624, respectively. At March 31, 2016, the Company has $299,429 of fully depreciated property and equipment
that is still in use.
Note 5 – Note Payable Shareholder
Robert Goldstein, the CEO and majority shareholder,
has loaned funds to the Company from time to time to cover general operating expenses. These loans are evidenced by unsecured,
non-interest bearing notes due on December 31, 2018. During the three months ended March 31, 2016, the Company repaid its majority
shareholder $620 under this note payable agreement. The amounts due to Mr. Goldstein are $248,259 and $248,879 as of March 31,
2016 and December 31, 2015, respectively.
Note 6– Lines of Credit
As of March 31, 2016 the Company had four
lines of credit, all due on demand, with a maximum borrowing amount of $400,000 and interest ranging from 3.25%
to 9.25%. As of March 31, 2016 and December 31, 2015, the amounts outstanding under these four lines of credit were $290,840 and
$306,487, respectively.
Note 7 –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 following tables summarize the Company’s
segment information for the three months ended March 31, 2016 and 2015:
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
Optron
|
$
|
109,267
|
$
|
161,127
|
|
Overhoff
|
|
143,235
|
|
286,357
|
|
Corporate
|
|
-
|
|
-
|
|
|
$
|
252,502
|
$
|
447,484
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
Optron
|
$
|
46,934
|
$
|
91,833
|
|
Overhoff
|
|
75,290
|
|
146,511
|
|
Corporate
|
|
-
|
|
-
|
|
|
$
|
122,224
|
$
|
238,344
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
Optron
|
$
|
546
|
$
|
380
|
|
Overhoff
|
|
(79,428)
|
|
4,924
|
|
Corporate
|
|
(29,164)
|
|
(35,466)
|
|
|
$
|
(108,046)
|
$
|
(30,162)
|
|
|
|
|
|
|
Interest Expenses
|
|
|
|
|
|
Optron
|
$
|
4,361
|
$
|
4,734
|
|
Overhoff
|
|
407
|
|
-
|
|
Corporate
|
|
-
|
|
-
|
|
|
$
|
4,768
|
$
|
4,734
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
Optron
|
$
|
(3,815)
|
$
|
(4,354)
|
|
Overhoff
|
|
(79,835)
|
|
4,924
|
|
Corporate
|
|
(29,164)
|
|
(35,466)
|
|
|
$
|
(112,814)
|
$
|
(34,896)
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
Total Assets
|
|
|
|
|
|
Optron
|
$
|
1,314,694
|
$
|
1,318,749
|
|
Overhoff
|
|
2,089,488
|
|
2,170,499
|
|
Corporate
|
|
8,138
|
|
9,371
|
|
|
$
|
3,412,320
|
$
|
3,498,619
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
Optron
|
$
|
-
|
$
|
-
|
|
Overhoff
|
|
570,176
|
|
570,176
|
|
Corporate
|
|
-
|
|
-
|
|
|
$
|
570,176
|
$
|
570,176
|
Note 8 - Geographical Sales
The geographical distribution of the Company’s
sales for the three months ended March 31, 2016 and 2015 is as follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Geographical sales
|
|
|
|
|
|
North America
|
$
|
163,151
|
$
|
192,418
|
|
Asia
|
|
77,621
|
|
67,123
|
|
South America
|
|
11,022
|
|
141,653
|
|
Other
|
|
708
|
|
46,290
|
|
|
$
|
252,502
|
$
|
447,484
|
Note 9 – Related Party Transactions
The Company leases its current facilities from
Gold Team Inc. which owns both the Canoga Park, CA and Milford, Ohio. Rent expense for the three months ended March 31, 2016 and
2015 were $32,000 and $36,000, respectively. As of March 31, 2016 and December 31, 2015, payable to Gold Team Inc. in connection
with the above leases amount to $0 and $0, respectively.
Also see Note 5.
Note 10 – Concentrations
Four customers accounted for 25%, 21%, 11%
and 10% of the Company sales for the three months ended March 31, 2016 and two customers accounted for 47% and 10% of the Company
sales for the three months ended March 31, 2015.
No vendors accounted for more than 10% of the
Company’s purchases for the three months ended March 31, 2016 and 2015.
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, 2015
filed with the Securities Exchange Commission on Form 10-K on April 14, 2016 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.
On April 18, 2012, Richard Chiang, then our
sole director and shareholder, entered into a Stock Purchase Agreement whereby Mr. Goldstein of US Nuclear Corp purchased 10,000,000
shares of our common stock from Mr. Chiang, which constituted 100% of our issued and outstanding shares of common stock. Mr. Chiang
then resigned from all positions. Subsequently, on May 18, 2012, the Registrant appointed Mr. Chiang to serve as a member of the
Board of Directors. He resigned from this position on March 31, 2013.
Since our acquisition of Overhoff Technology
in 2006, we have had discussions with other companies in our industry for an acquisition. While we targeted Overhoff due to its
unique position in the tritium market, we had not commenced an acquisition since our Overhoff Technology acquisition; we believe
in part the reason was due to lack of additional capital, our status as a privately-held entity at the time, and focus on developing
our own products. We will seek out companies whom our management believes will provide value to our customers and will complement
our business. We will focus on diversifying our product line into a larger range so that our customers and vendors may have a more
expansive experience in type, choice, options, price and selection. We also believe that with a more diverse product line we will
become more competitive as our industry is intensely competitive.
Our current product concentration places a
heavy reliance on our Overhoff Technology division; where we derived 19% of our total revenues in 2015 from one customer. We expect
to encounter a continuation of this trend unless we are successful in diversifying our client base, executing our acquisition strategy
and experience increases in business from our Technical Associates division.
Our international revenues were 54% of our
total revenue in 2015. We expect this to increase over time as we continue to field new orders inquires and engage new customers
overseas. We believe that Korea and China will likely be a larger contributor to revenue within the next few years. While we maintain
steady growth domestically, the international side of our business may be a larger component as nuclear technology and rapid development
for clean energy grows abroad. Additionally, the Company relies on continued growth and orders from CANDU reactors (Canada Deuterium
Uranium), and rapid development of the next generation of nuclear reactors called Molten Salt Reactors, (MSR) and Liquid-Fluoride
Thorium Reactors (LFTR), all of which purchase tritium detection and monitor products. There can be no assurances as to our growth
projections and our risk profile as we depend upon increased foreign customers for business.
Additionally, we are inexperienced as a public
company and may find it difficult to meet all of the challenges and expenses of being a public company. As we commencing
as a public company, we plan to raise capital by offering shares of our common stock or convertible debt to investors. For
the next twelve months, we anticipate we will need approximately $5,000,000 in additional capital to fund our business plans. If
we do not raise the required capital we may not meet our expenses and there can be no assurance that we will be able to do so and
if we do, we may find the cost of such financing to be burdensome on the Company. Additionally, we may not be able to execute on
our business plans due to unforeseen market forces such as lower natural gas prices, difficulty attracting qualified executive
staff, general downturn in our sector or by competition as we operate in an extremely competitive market for all of our product
offerings.
Robert I. Goldstein, our President, Chief Executive
Officer and Chairman of the Board of Directors also maintains a position as President of Gold Team Inc., a Delaware company that
invests in industrial real estate properties for investment purposes. He holds an 8% interest in Gold Team Inc. and spends approximately
5 hours per week with affairs related to Gold Team Inc. The Company leases its current facilities from Gold Team Inc. which owns
both the Canoga Park, CA and Milford, Ohio properties at an expense of $6,000 for each facility per month.
On September 30, 2014, we entered into a Forgiveness
of Debt and Conversion Agreement with our President, Chief Executive Officer and Chairman of the Board of Directors, Robert I.
Goldstein. We owed Mr. Goldstein, $868,828 in related party debt. Pursuant to this Agreement, Mr. Goldstein agreed to forgive $668,828
and we agreed to convert the balance of the debt, $200,000 into restricted shares of our Company at $0.20 cents per share. We then
issued Mr. Goldstein 1,000,000 shares of our restricted common stock.
On October 16, 2014, our Chief Financial Officer,
and Secretary, Darian B. Andersen resigned, effective, October 31, 2014. Mr. Andersen has been of service to the Company for more
than 2 years. Our relationship with him was considered to be positive and his departure from our company was because of his desire
to continuing pursuing his work as a legal attorney. On that same day, we retained the services of Rachel Boulds, as our Chief
Financial Officer, and Secretary to fill the void left by Mr. Andersen. Ms. Boulds is an experienced accountant and former auditor
for public companies having been employed at PCAOB member firms.
On November 4, 2014, we entered into a five-year
Employment Agreement with our President, Chief Executive Officer and Chairman of the Board of Directors, Robert I. Goldstein. The
Agreement calls for a salary of $100,000 per year, payable at the end of the fiscal year, with his compensation beginning in fiscal
2015 and payable in January 2016. Mr. Goldstein later agreed to reduce his compensation to $50,000 beginning in 2015.
Results of Operations
For the three months ended March
31, 2016 compared to the three months ended March 31, 2015
|
|
Three Months Ended March 31,
|
|
Change
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
252,502
|
$
|
447,484
|
$
|
(194,982)
|
|
-43.6%
|
Cost of goods sold
|
|
130,278
|
|
209,140
|
|
(78,862)
|
|
-37.7%
|
Gross profit
|
|
122,224
|
|
238,344
|
|
(116,120)
|
|
-48.7%
|
Selling, general and administrative expenses
|
230,270
|
|
268,506
|
|
(38,236)
|
|
-14.2%
|
Loss from operations
|
|
(108,046)
|
|
(30,162)
|
|
(77,884)
|
|
258.2%
|
Other income (expense)
|
|
(4,768)
|
|
(4,734)
|
|
(34)
|
|
0.7%
|
Income before provision for income taxes
|
(112,814)
|
|
(34,896)
|
|
(77,918)
|
|
223.3%
|
Provision for income taxes
|
|
-
|
|
-
|
|
-
|
|
|
Net loss
|
$
|
(112,814)
|
$
|
(34,896)
|
$
|
(77,918)
|
|
223.3%
|
Sales for the three months ended March 31,
2016 was $252,502 compared to $447,484 for the same period in 2015. The decrease of $194,982 or 43.6% is a result of a decrease
in sales from our Optron and Overhoff subsidiaries of $$51,860 and $143,122, respectively. The decrease in sales from our Overhoff
and Optron subsidiaries was due to the timing of the completion of larger orders. We revenue from the sale of our products when
the orders are completed and we ship the product to our customer. At March 31, 2016, we had a backlog of orders that are expected
to ship to our customers during the second and third quarters of 2016. The sales breakdown for the three months ended March 31,
2016 is as follows:
North America 65%
Asia (Including Japan)
31%
South America 4%
Our gross margins for the three months ended
March 31, 2016 were 48.4% as compared to 53.3% for the same period in 2015. The decrease in gross margin is due to higher materials
and overhead costs incurred in the manufacturing process.
Selling, general and administrative expense
for the three months ended March 31, 2016 decreased by $38,236 or 14.2% over 2015 to $230,270 down from $268,506 for the same period
in 2015. The decrease is a result our overall efforts to reduce operating expense.
Other expense for the three months ended March
31, 2016 was $4,768, an increase of $34 from $4,734 for the same period in 2015. The increase is not significant.
Net loss for the three months ended March 31,
2016 was $112,814 compared to $34,896 for the same period in 2015. The increase in net loss of $77,918 was principally attributed
to lower sales.
Liquidity and Capital Resources
Our operations have historically been financed
by our majority stockholder. As funds were needed for working capital purposes, our majority stockholder would loan us the needed
funds. During the year ended December 31, 2015, our majority stockholder loaned the Company $243,293, $52,629 of which was repaid.
During the three months ended March 31, 2016, we repaid $620 of the amount due to our majority stockholder. We anticipate funds
the growth of our business through the sales of shares of our common stock and loans from our majority stockholder if necessary.
At March 31, 2016, total assets decreased by
2.5% to $3,412,320 from $3,498,619 at December 31, 2015 principally related to a decrease in cash offset by an increase in inventory.
At March 31, 2016, 2015, total liabilities
increased by 3.5% to $783,994 from $757,479 at December 31, 2015 principally related to an increase in accounts payable, accrued
expenses and customer deposits offset by a decrease in the line of credit.
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.
Income Taxes
The Company accounts for income taxes in accordance
with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income
taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. The adoption had no effect on the Company’s consolidated financial statements.
We believe the following is among the most
critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies,
as described in our financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
We qualify as an “emerging growth company”
under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For
so long as we are an emerging growth company, we will not be required to:
|
·
|
have an auditor report on our internal controls over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act;
|
|
·
|
comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional
information about the audit and the financial statements (i.e., an auditor discussion and analysis);
|
|
·
|
submit certain executive compensation matters to shareholder advisory
votes, such as “say-on-pay” and “say-on-frequency;” and
|
|
·
|
disclose certain executive compensation related items such as the
correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
|
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected
to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company”
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues
exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700
million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued
more than $1 billion in non-convertible debt during the preceding three year period.
As an emerging growth company, the company
is exempt from Section 14A and B of the Securities Exchange Act of 1934 which require the shareholder approval of executive compensation
and golden parachutes.
The Company is an Emerging Growth Company under
the JOBS Act of 2012, but the Company has irrevocably opted out of the extended transition period for complying with new or revised
accounting standards pursuant to Section 107(B) of the JOBS Act.
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.