U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ending March 31, 2010 |
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____to_____
Commission file number 000-31959
NUCLEAR SOLUTIONS, INC.
(Name of Small Business Issuer in its Charter)
| NEVADA | 88-0433815 |
| (State of Incorporation) | (IRS Employer identification No.) |
| 5505 Connecticut Ave NW, Suite 191 Washington, DC | 20015 |
| (Address of principal executive offices) | (Zip Code) |
Issuer's telephone number, (202) 787-1951
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer
[ ], Accelerated filer [ ], Non-accelerated filer [ ], Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 10, 2010 we had 97,890,981 shares of common stock issued and outstanding.
| Contents | Page No. |
| | |
| Part I – Financial Information | 3 |
| | |
| Item 1. Financial Statements | 4 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 14 |
| Item 4T. Controls and Procedures | 14 |
| | |
| Part II – Other Information | 16 |
| | |
| Item 1. Legal Proceedings | 16 |
| Item 1A. Risk Factors | 16 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| Item 3. Defaults Upon Senior Securities | 16 |
| Item 4. Removed and Reserved | 16 |
| Item 5. Other Information | 16 |
| Item 6. Exhibits | 16 |
| Signatures | 17 |
PART I-FINANCIAL INFORMATION
| Item 1. | Financial Statements |
NUCLEAR SOLUTIONS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
| | Page |
| | |
| Condensed Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009 | 4 |
| | |
| Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (Unaudited) | 5 |
| | |
| Condensed Consolidated Statements of Stockholders’ Equity Year ended December 31, 2009 and the three months ended March 31, 2010 (Unaudited) | 6 |
| | |
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (Unaudited) | 7 |
| | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 8-11 |
| NUCLEAR SOLUTIONS ,INC |
| AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| | | March 31, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (unaudited) | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 6,896 | | | $ | 1,576 | |
| Notes receivable | | | 24,000 | | | | 24,000 | |
| Accrued interest | | | 500 | | | | 500 | |
| Prepaid expenses | | | 1,800 | | | | 1,800 | |
| | | | | | | | | |
| Total current assets | | | 33,196 | | | | 27,876 | |
| | | | | | | | | |
| Property and equipment, net of accumulated depreciation of $6,592 and $5,698 as of March 31, 2010 and December 31, 2009, respectively | | | 107,009 | | | | 107,903 | |
| | | | | | | | | |
| Total assets | | $ | 140,205 | | | $ | 135,779 | |
| | | | | | | | | |
| LIABILITIES AND DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 5,080,430 | | | $ | 5,103,783 | |
| Accrued executive compensation | | | 1,267,321 | | | | 1,221,071 | |
| Notes Payable - related parties | | | - | | | | 15,000 | |
| Convertible notes payable | | | 39,000 | | | | 39,000 | |
| | | | | | | | | |
| Total current liabilities | | | 6,386,751 | | | | 6,378,854 | |
| | | | | | | | | |
| Common stock subscription liability | | | 90,000 | | | | - | |
| | | | | | | | | |
| Total liabilities | | | 6,476,751 | | | | 6,378,854 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Deficit | | | | | | | | |
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding | | | - | | | | - | |
| Common stock, $0.0001 par value; 100,000,000 shares authorized, 97,890,981 issued and outstanding, as of March 31, 2010 and December 31, 2009 | | | 9,789 | | | | 9,789 | |
| Additional paid-in capital | | | 19,964,510 | | | | 19,964,510 | |
| Accumulated deficit | | | (26,821,451 | ) | | | (26,729,793 | ) |
| | | | | | | | | |
| Total stockholders' deficit | | | (6,847,152 | ) | | | (6,755,494 | ) |
| | | | | | | | | |
| Non controlling Interest | | | 510,606 | | | | 512,419 | |
| | | | | | | | | |
| Total deficit | | | (6,336,546 | ) | | | (6,243,075 | ) |
| | | | | | | | | |
| Total liabilities and deficiency | | $ | 140,205 | | | $ | 135,779 | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| NUCLEAR SOLUTIONS, INC. |
| AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF LOSSES |
| (unaudited) |
| | | For the Three Months Ended March 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Revenue | | $ | - | | | $ | - | |
| | | | | | | | | |
| Executive compensation | | | 59,000 | | | | 125,313 | |
| Consulting | | | 13,000 | | | | 285,646 | |
| Legal and professional fees | | | 7,618 | | | | 258,251 | |
| General and administrative expenses | | | 12,485 | | | | 192,502 | |
| Depreciation and amortization | | | 894 | | | | 371 | |
| Payments received pursuant to collaborative arrangement | | | - | | | | (125,625 | ) |
| | | | 92,997 | | | | 736,458 | |
| | | | | | | | | |
| Loss from operations | | | (92,997 | ) | | | (736,458 | ) |
| | | | | | | | | |
| Other Income(expenses) | | | | | | | | |
| Interest expense | | | (475 | ) | | | (2,891 | ) |
| Change in fair value of derivative liability | | | - | | | | (3,441 | ) |
| Loss before provision for income taxes | | | (93,472 | ) | | | (742,790 | ) |
| | | | | | | | | |
| Provision for income taxes | | | - | | | | - | |
| Net loss | | | (93,472 | ) | | | (742,790 | ) |
| | | | | | | | | |
| Net Loss attributable to the noncontrolling interest | | | 1,813 | | | | - | |
| | | | | | | | | |
| Net Loss attributable to Nuclear Solutions, Inc. | | | | | | | | |
| | | $ | (91,659 | ) | | $ | (742,790 | ) |
| | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.00 | ) | | $ | (0.01 | ) |
| | | | | | | | | |
| Weighted average number of common shares outstanding, basic and diluted | | | 97,693,721 | | | | 97,490,981 | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| NUCLEAR SOLUTIONS, INC |
| AND SUBSIDIARIES |
| CONSOLIDATED STATEMENT OF DEFICIT |
| FOR THE PERIOD JANUARY 1, 2010 TO March 31, 2010 |
| (unaudited) |
| | | | | | | | | Additional | | | | | | | | | Total Deficiency | |
| | | Common Stock | | | Paid - In | | | Accumulated | | | Non-Controlling | | | in Stockholders' | |
| | | Shares | | | Amount ($) | | | Capital ($) | | | Deficit ($) | | | Interest ($) | | | Equity ($) | |
| | | | | | | | | | | | | | | | | | | |
| Balance January 1, 2010 | | | 97,890,981 | | | $ | 9,789 | | | $ | 19,964,510 | | | $ | (26,729,793 | ) | | $ | 512,419 | | | $ | (6,243,075 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | $ | (91,659 | ) | | $ | (1,813 | ) | | $ | (93,472 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance March 31, 2010 | | | 97,890,981 | | | $ | 9,789 | | | $ | 19,964,510 | | | $ | (26,821,452 | ) | | $ | 510,606 | | | $ | (6,336,547 | ) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| NUCLEAR SOLUTIONS ,INC |
| AND SUBSIDIARY |
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
| (unaudited) |
| | | For The Three Months Ended March 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss | | $ | (91,659 | ) | | $ | (742,790 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 894 | | | | 371 | |
| Amortization of debt discount - beneficial conversion feature of convertible note and warrants | | | - | | | | 1,666 | |
| Change in fair value of derivative liability | | | - | | | | 3,441 | |
| Loss attributed to noncontrolling interest | | | (1,813 | ) | | | - | |
| Stock and warrants issued for services | | | - | | | | - | |
| Amortization of deferred compensation | | | - | | | | 270,046 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Prepaid Expenses | | | - | | | | 12,900 | |
| Other Assets | | | - | | | | 79,500 | |
| Accounts payable and accrued expenses | | | (23,353 | ) | | | 215,851 | |
| Accrued executive compensation | | | 46,250 | | | | 115,413 | |
| Advance payments received | | | - | | | | (125,625 | ) |
| | | | | | | | | |
| Net cash used in operating activities | | | (69,681 | ) | | | (169,227 | ) |
| | | | | | | | | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| | | | | | | | | |
| Net cash used in investing activities | | | - | | | | - | |
| | | | | | | | | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Advances payable | | | - | | | | 9,950 | |
| Proceeds from common stock subscription | | | 90,000 | | | | - | |
| Payments of loans | | | (15,000 | ) | | | - | |
| | | | | | | | | |
| Net cash provided by financing activities | | | 75,000 | | | | 9,950 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | 5,319 | | | | (159,277 | ) |
| | | | | | | | | |
| Cash, beginning of period | | | 1,577 | | | | 176,279 | |
| | | | | | | | | |
| Cash, end of period | | $ | 6,896 | | | $ | 17,002 | |
| Supplemental disclosures: | | | | | | |
| Cash paid for: | | | | | | |
| Interest | | $ | - | | | $ | - | |
| Income taxes | | $ | - | | | $ | - | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
NUCLEAR SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Nuclear Solutions, Inc. ("the "Company") was organized February 27, 1997 under the laws of the State of Nevada, as Stock Watch Man, Inc. On September 12, 2001, the Company amended its articles of incorporation to change its name to Nuclear Solutions, Inc.
On September 2, 2005 the Company formed a wholly owned subsidiary, Fuel Frontiers Inc.(“FFI”), formally, Future Fuels, Inc., which had minimal operations through June 30, 2008.
On July 31, 2006 the company formed a wholly owned subsidiary, Liquidyne Fuels, which has had no activity through March 31, 2010.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidated financial statement
Business
Nuclear Solutions, Inc. is engaged in the research, development, and commercialization of innovative product technologies, which are generally early-stage, theoretical or commercially unproven. We operate a highly technical business and our primary mission is to develop advanced product technologies to address emerging market opportunities in the fields of homeland security, nanotechnology, and nuclear remediation. Our subsidiary Fuel Frontiers, Inc. concentrates on developing fuel production facilities to produce ultra-clean synthetic diesel from feedstocks such as coal.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Instructions to Form 10-Q and Regulation S-X promulgated by the Securities and Exchange Commission and do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, these interim financial statements include all adjustments, which include only normal recurring adjustments, necessary in order to make the financial statements not misleading. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company and management's discussion and analysis of financial condition and results of operations included in the Company's Annual Report for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on Form 10-K.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Revenue Recognition
Revenues are recognized in the period that services are provided. For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 “Revenue Recognition”. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and oth er adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Payments received in advance are deferred.
Licensing fee income generally is being recognized ratably over the term of the license. The Company's management has determined that the collectibility and length of time to collect the remaining contracted price due from its licensee can not be reasonably assured. Accordingly, revenues will be recognized as collected.
Collaborative Arrangement
The Company, through its subsidiary FFI, has entered into a collaborative arrangement with Kentucky Fuel Associates, Inc. (“KFA”) for the development of coal-based gas-to-liquid (CTL) fuel production facilities in the State of Kentucky. KFA has agreed to provide an initial funding of $2,000,000 per site to be applied by FFI towards any and all costs and expenses incurred in the ordinary course of business for the development, construction and arranging of financing to closure including without limitation the following costs: engineering, procurement, administrative, development management, financing, legal, operations and maintenance costs for each said fuel production facility. In consideration for KFA’s initial minimum funding contribution, KFA will receive 7% of the annual net pre-tax income of each jointly develop ed CTL diesel fuel facility and 2.5% equity interest in the first CTL diesel fuel facility developed by FFI and KFA. Additionally, KFA will have the exclusive right to develop CTL diesel fuel facilities with FFI in the state of Kentucky and a conditional first right of refusal to develop CTL diesel fuel facilities in the remainder of the United States.
The unexpended balance of payments received was $0 at December 31, 2009.
Noncontrolling Interest
As a result of adopting ASC 810-10 Consolidations – Variable Interest Entities , we present non-controlling interests as a component of equity.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Stock Based Compensation
The Company accounts for its stock based compensation under ASC 718 “Compensation – Stock Compensation” which was adopted in 2006, using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
Loss Per Share
The Company utilizes ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. The assumed exercise of common stock equivalents was not utilized since the effect would be anti-dilutive. At March 31, 2010 and 2009, the Company had 55,000 and 1,019,557 potentially dilutive securities, respectively.
Liquidity
As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred net losses of $91,659 and $742,790 during the three month periods ended March 31, 2010 and 2009, respectively. The Company's current liabilities exceeded its current assets by $6,353,555 as of March 31, 2010. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.
Fair value of financial instruments
Our short-term financial instruments, including cash, notes receivable and convertible notes payable, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes is based on management estimates and reasonably approximates their book value based on their current maturity. The fair value of the Company’s derivative instruments is determined using option pricing models.
New Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during 2010, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, that are of significance, or potential significance to the Company.
NOTE 3 - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has a net loss of $91,659 during the three months ended March 31, 2010 and a working capital deficiency of $6,353,555 and a stockholders' deficiency of $6,336,546 at March 31, 2010. These factors raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds and implement its business plan. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Comp any is unable to continue as a going concern.
The Company is actively pursuing additional equity financing through discussions with investment bankers and private investors. There can be no assurance the Company will be successful in its effort to secure additional equity financing.
If operations and cash flows continue to improve through these efforts, management believes that the Company can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or the resolution of its liquidity problems.
The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the continued developing, marketing and selling of its services and additional equity investment in the Company.
NOTE 4 – STOCKHOLDER'S EQUITY
The Company is authorized to issue 100,000,000 shares of common stock with $0.0001 par value per share. As of March 31, 2010 and December 31, 2009, the Company has issued and outstanding 97,890,981 shares of common stock, respectively.
During the three months ended March 31, 2010, the Company entered into an equity purchase agreement with an investor. The agreement provides for the investor to provide up to $500,000 for the purchase of common stock, at a price per share to be determined. During March the Company received an initial investment of $90,000 pursuant to the agreement. During April, the Company made an initial issuance of 1,230,000 shares of common stock pursuant to the agreement. The final price per share will be determined when the equity purchase is complete.
NOTE 5 – NONCONTROLLING INTEREST
The noncontrolling interest in the financial statements and is summarized as follows at March 31, 2010:
| Balance at December 30, 2009 | | $ | 512,419 | |
| Allocated loss | | | (1,813 | ) |
| | | | | |
| Balance at March 31, 2010 | | $ | 510,606 | |
NOTE 6 – NOTES RECEIVABLE
During 2009 the Company advanced an aggregate of $24,000 to KFA pursuant to promissory notes bearing interest at 5% and maturing January 22, 2010. The note was not paid at maturity. KFA has indicated that the note will be repaid during May, 2010.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains many forward-looking statements, which involve risks and uncertainties, such as our plans, objective, expectations and intentions. You can identify these statements by our use of words such as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," "continue," "plans," or other similar words or phrases. Some of these statements include discussions regarding our future business strategy and our ability to generate revenue, income, and cash flow. We wish to caution the reader that all forward-looking statements contained in this Form 10-Q are only estimates and predictions. Our actual results could differ materially from those anticipated as a result of risk facing us or actual events differing from the assumptions underlying such forward-looking statements. Readers are caution ed not to place undue reliance on any forward-looking statements contained in this quarterly report on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to update any of these factors or to publicly announce any change to our forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise.
Business Overview
Our Corporate History:
The Company was organized February 27, 1997 under the laws of the State of Nevada, as Stock Watch Man, Inc. an internet e-commerce company. On September 12, 2001, the Company amended its articles of incorporation to change its name to Nuclear Solutions, Inc. At that time, our primary business was the development of a new type of nuclear reactor technology. As of the date of this report, our business is now focused on the production of synthetic diesel fuel from coal concentrating its efforts exclusively on coal-to-diesel projects already underway in the state of Kentucky.
Our Business:
Nuclear Solutions, Inc. and its wholly owned subsidiary, Fuel Frontiers, Inc. (“FFI”) is engaged in the research, development, and commercialization of innovative technologies and processes, which are generally early-stage, theoretical or commercially unproven. We operate a highly technical business and our primary mission is to develop facilities to produce ultra-clean synthetic diesel from coal and other materials using a plasma-based gasification system and a conventional synthesis gas-to-fuel reforming system based upon Fisher-Tropsch technology.
In 2009, The Board of Directors elected to focus the company exclusively on the production of synthetic fuels through the FFI subsidiary. Prior to that, the company was developing nuclear technologies in the areas of shielded nuclear material detection and nuclear micro-batteries in addition to the production of synthetic fuels. Due to the difficulties encountered in raising capital in a declining economic climate coupled with the limited resources of the company, management made the decision to place all nuclear technology development programs into a dormant state. The company will continue to maintain the intellectual property associated with the shielded nuclear detection technology program and will seek a buyer or a master licensee for the patents. The Company will look to create a partnership to develop a prototype for a nuclear m aterial detection device using its patents. The company is discontinuing all further business development associated with nuclear micro-battery technology and other nuclear legacy technologies. It is the intent of the company to spin off FFI once adequate capital is raised to move projects forward. Management team for FFI has been identified and will consist of Key Members of KFA.
Plan of Operation
We will need to raise additional money to fund our operations. Management estimates a minimum capital requirement of $500,000 to maintain operations at a minimum level. We intend to use debt, equity or a combination thereof to fund this project. There is no guarantee that we will be able to successfully raise the required funds for operations, or that such funds will be available on terms satisfactory to us. Any inability to raise additional funds would require that we significantly scale back our planned operations and would lengthen the period of time required to bring the technology to the marketplace.
Since our products and technologies are still in development and there can be no assurances as to when and whether we will be able to commercialize our products and technologies. Our technologies have never been utilized on a large-scale commercial basis.
Over the next 12 months we expect that we will continue to generate losses until at least such time as we can generate revenue. No assurance can be given that we can complete the development of any project or technology or that, if any technology or project is fully developed, it can be manufactured and marketed on a commercially viable basis. Furthermore, no assurance can be given that any technology or product will receive market acceptance. Until commercial operations are established, no assurance can be given that the Company's technologies will be commercially successful. Being a company with limited resources, we are subject to all risks inherent with the establishment of a developing or new business. The technologies and synthetic fuel projects we are developing may be regulated now or in the future by the United States Governme nt and may subject to regulatory requirements or export restrictions. We are also subject to additional regulations concerning nuclear technologies. Some of the technologies we develop may be subject to the Atomic Energy Act of 1954.
The implementation of Company's business development phases outlined above will be dependent on successful financing. Financing options may include a combination of debt and equity financing. Equity financing may result in a substantial equity dilution to existing shareholders.
Results of Operations
REVENUES: The Company reported revenues of $0 from our existing technology license agreement, for the three months ended March 31, 2009 as compared with revenues from continuing operations of $0 for the three months ended March 31, 2010.
TOTAL COSTS AND EXPENSES: Total costs and expenses from continuing operations decreased from $736,458 for the three months ended March 31, 2009 to $92,997 for the three months ended March 31, 2010. The principal reason for this decrease was due to a cost cutting initiative in the areas of Consulting fees, Legal fees, and General and Administrative expenses.
OPERATING EXPENSES: Operating expenses from continuing operations decreased from $736,458 for the three months ended March 31, 2009 to $92,997 for the three months ended March 31, 2010. This decrease was primarily due to a decrease in Consulting fees, Legal fees, and General and Administrative expenses. Depreciation expense increased for the first three months of 2010 versus the first three months of 2009, from $371 for the three months ended March 31, 2009 to $894, for the three months ended March 31, 2010. This increase was due to the acquisition of new assets.
INTEREST EXPENSE: Interest expense decreased from $2,891 for the three months ended March 31, 2009 to $475 for the three months ended March 31, 2010. This decrease is due primarily to the company’s prior repayment of outstanding debt.
GENERAL AND ADMINISTRATIVE: General & Administrative expenses decreased by $180,017 during the three months ended March 31, 2010 to a total amount of $12,485 as compared to $192,502 for the three months ended March 31, 2009. The decrease was due to project development costs associated with Fuel Frontiers, INC.
NET LOSS: The Company incurred a net loss of ($91,659) for the three months ended March 31, 2010, compared with a net loss of ($742,790) for the three months ended March 31, 2009, which reflects a year-to-year decreased in the amount of loss for the period of $651,131. The principal reason for this decrease was due to Consulting fees, Legal fees, and General and Administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES:
As of March 31, 2010, we had a working capital deficit of $6,353,555 which compares to a working capital deficit of $6,350,978 as of December 31, 2009. As a result of our operating losses for the three month period ended March 31, 2010, we generated a cash flow deficit of $69,681 from operating activities. Cash flows used in investing activities was $0 during the period. Cash flows provided by financing activities were $75,000 on proceeds from a bridge financing transaction.
Additional financing will be required in order to meet our current and projected cash flow deficits from operations and development. We are seeking financing in the form of equity capital in order to provide the necessary working capital. There is no guarantee that we will be successful in raising the funds required. We intend to use the proceeds derived from revenues or financing to pay salaries, and general and administrative expenses to maintain the core operations of the company.
If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable to Smaller Reporting Companies
| Item 4T. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “ SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain ass umptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures are effective as of March 31, 2010 to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required d isclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls over financial reporting identified in connection with the requisite evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations.
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any pending material legal proceedings.
Item 1A. Risk Factors
There have been no material changes from risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2009.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
On March 28, 2010, the board of directors authorized the issuance of 1,230,000 common shares as partial consideration for a bridge financing transaction with G and A Capital Development, LLC. The shares were issued to G and A for $90,000 consideration. Pursuant to G and A’s instruction, the shares were issued to the following persons: David Anselmo 200,000, John Regalbuto 100,000, Dave Mitchell 30,000, John Swartz 200,000, James Scott 400,000 and David Postiglione 300,000.
We believe the securities issued to G and A Capital Development, LLC were issued in a private transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the "Securities Act"). These shares are considered restricted securities and may not be publicly resold unless registered for resale with appropriate governmental agencies or unless exempt from any applicable registration requirements.
Item 3. Defaults upon Senior Securities. None.
Item 4. Removed and Reserved.
Item 5. Other Information. During the three months ended March 31, 2010, the Company entered into an equity purchase agreement with an investor. The agreement provides for the investor to provide up to $500,000 for the purchase of common stock, at a price per share to be determined. During March the Company received an initial investment of $90,000 pursuant to the agreement. During April, the Company made an initial issuance of 1,230,000 shares of common stock pursuant to the agreement. The final price per share will be determined when the equity purchase is complete.
Item 6. Exhibits
| 31.1 | Chief Executive Officer-Section 302 Certification pursuant to Sarbanes-Oxley Act. |
| 31.2 | Chief Financial Officer-Section 302 Certification pursuant to Sarbanes-Oxley Act. |
| 32.1 | Chief Executive Officer-Section 906 Certification pursuant to Sarbanes-Oxley Act. |
| 32.2 | Chief Financial Officer-Section 906 Certification pursuant to Sarbanes-Oxley Act. |
