Form 10QSB for NUCLEAR SOLUTIONS INC
--------------------------------------------------
20-Nov-2006
Quarterly Report
Item 2. Management's Discussion and Analysis or Plan of Operation.
FORWARD-LOOKING STATEMENT NOTICE:
This quarterly report on Form 10-QSB and our future filings with the Securities and Exchange Commission contain many forward-looking statements, which involve risks and uncertainties. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, statements 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.
These statements are intended to identify forward-looking statements within the meaning of the various securities acts. We wish to caution the reader that all forward-looking statements contained in this Form 10-QSB 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 cautioned not to place undue reliance on any forward-looking statements contained in this Quarterly Report on Form 10-QSB. 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.
Our 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.
The company operates its business by utilizing technical expertise to develop innovative and emerging technologies that we believe have significant market potential. We strive to develop technologies identified as viable to the point that they may be licensed, joint-ventured or sold to an industrial or governmental entity, or otherwise commercialized. We do not maintain technical facilities or a laboratory of our own. Our business model is to utilize the technical facilities and capabilities of appropriate outside laboratories under contract to us when appropriate. By taking advantage of existing technology infrastructures, this preferred method of technology development reduces capital investment costs and the length of time required to develop technologies. This is especially important in light of the extensive requirements for the government approval and safe handling of nuclear materials. Any development efforts contemplated or planned that involve nuclear materials are intended to be carried out by an existing and already licensed scientific or technical facility through the establishment of a contractual relationship. This approach also mitigates the potential liability involved with the handling and use of nuclear materials. We have identified several facilities in the United States and abroad that have the capabilities we may require in the future. As an example, we may contract with or establish a teaming relationship with a U.S. national laboratory such as Los Alamos National Labs, Lawrence Livermore National Labs, or others that have a history and willingness to perform work under well-established contracting channels such as Cooperative Research and Development Agreements (CRADA) and Work for Others (WFO) agreements. Although we believe this is adequate for our development purposes and preferable in the case of nuclear material handling, we may choose to operate our own laboratory facility in the future, subject to available capital.
When a technology is deemed market ready, the company will offer it to potential customers for commercial licensing. As an example, after the successful prototype construction and operation of our shielded nuclear material detector, we will offer the sensor system to companies that have the appropriate experience to integrate the sensor into a working environment to meet the performance criteria as required by the end user. We do not intend to establish manufacturing operations of our own. Nor do we intend to establish extensive marketing and distribution operations of our own. Our business model is centered on the sale and/or licensing of our technologies through strategic partnerships with companies that have established manufacturing, sales and marketing infrastructures. By way of example, companies that could be potential partners for our shielded nuclear material detection technology may be: Lockheed-Martin, General Atomics, Raytheon and other such companies. Currently we do not have any partnership agreements or material contracts with the aforementioned companies.
Our primary role is to add value by initially developing, and providing the enabling core intellectual property to our customers and partners. Typically, after licensing, we will remain involved as a consultant for the customer to ensure appropriate technology transfer to the customer and to assist with any improvements or modification that may be needed during the course of commercialization. This is a highly leveraged business model that is believed by management to offer the greatest advantages in terms of corporate flexibility, and reduced capital requirements compared to a traditional research and development operation. However, management is opportunistic and may consider adopting a production model if the right conditions are met. We will pursue all avenues that will lead to the commercialization of our technologies.
Since our business model is to establish partnerships during development and ultimately as production and marketing partners for our technologies, we are constantly looking for and evaluating potential strategic partners. We especially require partnerships to take advantage of the business opportunities available through government agencies such as the Homeland Security Advanced Projects Agency (HSARPA), The Defense Advanced Research Projects Agency (DARPA) and others. A partnering relationship with experienced companies that have a positive track record of providing products or services to the government agencies that are our potential customers in the related field will probably increase the likelihood that we could secure money from the government to develop one of our technologies for a specific government need.
The following is a general example of a technology development plan:
1.) A market opportunity is identified in an area of interest to us.
2.) A technical assessment of the opportunity and existing related technologies is performed with an appropriate combination of in-house and outside analysis.
3.) If the technical assessment indicates a viable market, research is performed to identify and define an appropriate technology.
4.) The technology identified in the previous step is reevaluated in light of the expected development costs and market opportunity. A decision is made to proceed with identified technology, suspend development, or research supplementary approaches.
5.) Intellectual property is secured through initiation of the patent process and/or identified technology is licensed. Selected technologies may be kept proprietary or trade secret.
6.) Selected technology is validated by an appropriate laboratory under contract.
7.) Once successfully validated, the technology is then marketed to appropriate entities for licensing or sale. Depending on the technology being developed, a strategic partnership arrangement may be consummated at many different points along the development track.
The company intends to commercialize our technologies through: strategic partners, joint-venture partners, licensees, and other customers who will carry out project implementation, manufacturing, end-user marketing activities, and deployment of our technologies. We intend to generate revenue from the licensure, sale, and other usage agreements associated with our technologies.
During 2004, the company filed two U.S. patent applications for our (Tritiated Water Remediation) TWR technology that are currently pending; and to date, we have filed three U.S. patent applications for our Nuclear Weapons Detection Technology. Furthermore, the company expects to file additional patent applications in 2006 for our TWR technology, Nuclear Weapons Detection Technology, and our Nuclear Micro Battery Technology.
On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc.(IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology.
Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a Bi-annual basis in the amount of $485,000 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight (8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. On January 10, 2006 we modified the March 15, 2005 licensing agreement with I.P. Technology Holding, Inc. wherein license fees totaling $465,416 on December 31, 2005 were deferred until April 2006 and IPTH's payment schedule was changed to bi-annual.
We continued our strategic relationship with Multipartner, S.P.A, an Italian Corporation, for consulting and developmental services in Europe; and as a result of this relationship, we now have access to offices in Rome, Italy. Currently we are poised to establish our European headquarters in Rome, Italy. Our offices in Rome will serve as a base for our European operations from which we intend to market our technologies, explore technologies being developed in Europe, and utilize European technical resources for technology development where applicable.
Additionally in 2005, we have worked with our Russian office and scientific advisory board to explore additional technology and developmental opportunities with the Russian scientific establishment. Previously we were researching the expansion of our weapons detection technology portfolio by investigating the acquisition of rights to a Russian developed Improvised Explosive Detection Technology. We have elected to forgo pursuit of this technology in order to focus resources on other projects.
During 2005, we continued business development operations in Moscow. The Moscow office is staffed by Dr. Alexander Nigmatulin, our Director of Russian business development. The Russian office is responsible for identifying licensable technologies and to secure additional research capacity within the Russian academic and scientific establishment as the need arises. Additionally, the Moscow office will contract with qualified research facilities and personnel as well as assess any additional business opportunities that may exist within the Russian scientific and technical infrastructure. We initially hired Dr. Nigmatulin in February 2003 on a contingency basis. At present, we have a shared office arrangement with Dr. Nigmatulin at the Moscow Institute of Steel and Alloys and do not have a commitment or requirement for rent. We believe that this arrangement is adequate for our needs and activities in Russia. During the last twelve months our Director of Russian Business Development, assembled a scientific advisory board consisting of Twenty-four selected scientists from a wide spectrum of disciplines and areas of expertise. The prominent scientists come from organizations such as the Russian Academy of Sciences, the Russian Defense Industrial complex, and private and state owned R&D companies. The scientists have agreed to remain in standby mode until presented with a specific Project. The terms and conditions of a contractual consulting arrangement with a selected scientist or group of scientists will be negotiated at that time. To date we have not activated the services of the Russian Scientific Advisory Board. Currently our Moscow office is investigating various anti-terrorist technologies and additional tritiated water remediation methods developed within the Russian scientific community.
In June of 2003, Patrick Herda, a director, and previously Vice President of Business Development was appointed to the position of President and Chief Executive Officer by the board of directors. We devoted a significant portion of our time to evaluating, planning, and reorganizing the business strategy of the company. These activities were undertaken with the goal of structuring the company for the highest probability of securing long-term operating capital to fund our operations. We evaluated our portfolio of projects and technologies in relation to the following criteria: market demand and trends, capital requirements, government regulations, time and effort to bring a technology to market, expected time to return revenue, financeability, our available resources, and overall synergism with other projects. Our goal was to come up with a corporate strategy and technology mix that would be the best fit with our corporate strengths. In addition to this, we wanted to reduce the number of projects we were pursuing, streamline operations, and reduce operating expenditures.
After careful evaluation, we determined that it would be in the company's best interest to indefinitely suspend work on the photonuclear reactor technology and any related or derivative projects. We evaluated potential market demand in light of current economic conditions and redirection of government resources to improving homeland security and those appropriated for military expenditures. We concluded that until the economic situation improves greatly, and the threat of homeland terrorism is sufficiently mitigated, and the country is no longer on a wartime stance, a new type of nuclear reactor technology would be extremely difficult to fund, develop, and build. As of April 5, 2004, we sent notice to Global Atomics Licensing, Ltd. (GALL), the licensor of the technology, and unilaterally terminated the license agreement which was originally executed on September 11, 2001. Currently no royalties or commissions are due to GALL.
Based upon our evaluation, we have refocused our business objectives in the previously mentioned areas of Homeland Security, specifically portable nuclear weapon and shielded nuclear material detection, Nanotechnology, specifically nuclear micro battery technology, and nuclear remediation, specifically tritiated water processing. Over the next 12 months, we plan on raising working capital to fund development of these technological areas through private placements of debt or equity, using our common stock in lieu of cash, and applying for government grants, where appropriate.
Our significant assets include our technology license agreement with IP Technology Holding, Inc. Our portfolio of intellectual property which includes trade secrets and know-how in the areas of nuclear weapon detection via gravitational anomaly, detritiation of nuclear wastewater; and our license option agreement for nuclear micro battery technology covered by U.S. Patents Nos. 5,087,533; 6,118,204; 6,238,812, as well as our contractual relationship with our technical consultant Boris Muchnik.
OUR TECHNOLOGIES:
GRAVIMETRIC SHIELDED NUCLEAR MATERIAL/PORTABLE NUCLEAR WEAPON DETECTOR (Patents
Pending)
We are developing a new and unique technology to be integrated into a passive primary portal system that would screen trucks and shipping containers in real time for the presence of shielded nuclear weapons useable materials such as Uranium (U-235) and Plutonium (Pu-239).
Radiation emitted from weapons grade Uranium and Plutonium is relatively weak and easy to shield. Identification of these materials with conventional radiation detectors is unreliable. When the radiation emitted from these materials is effectively shielded, detection by conventional means is not possible.
The company is working on funding the prototype construction of a highly sensitive, portable, low cost, and ruggedized detection device that responds to minute gravitational gradient anomalies. These disturbances are produced by high-density nuclear materials such as Uranium and Plutonium. Unlike radiation, the force of gravity cannot be shielded and is a unique new concept for the detection of shielded nuclear weapons. The company is unaware of any other device with similar targeted performance and size.
This technology is protected by three pending patent applications. We filed our first patent application in October 2004. Subsequently we filed two additional patent applications in January 2005. On October 18, 2005 we filed for our first international patent on this technology via the Patent Cooperation Treaty (PCT). We expect further development work on the intellectual property relating to this technology and expect to file additional patents over the next twelve months.
On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc. (IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology.
Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a Bi-annual basis in the amount of $485,000 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight (8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. On January 10, 2006 we modified the March 15, 2005 licensing agreement with I.P. Technology Holding, Inc. wherein license fees totaling $465,416 on December 31, 2005 were deferred until April 2006 and IPTH's payment schedule was changed to bi-annual.
Over the next 12 months our development plan for our gravimetric nuclear material detector is as follows:
- Continue development of the related intellectual property and file additional patent applications.
- Secure funding of approximately $500,000 to $1.5M through debt or equity instruments to fund this project.
- Secure a strategic commercial development partner.
- Build and demonstrate a proof-of principle prototype.
- Seek additional licensees.
NUCLEAR MICRO-BATTERIES
This program is aimed at developing embeddable nuclear micro-batteries that can supply long-lasting power for computer chips, micromotors, remote sensors, implantable medical devices, and other defense and aerospace applications. This technology is also known as nuclear micro power generation or RIMS (radioisotope micro power sources). The science of nanotechnology is the design of Electrical and mechanical systems smaller than the width of a human hair. The field of nanotechnology includes making functional microscopic mechanical devices like motors, gear systems, and pumps. This field also includes making electronic circuits on an atomic scale. An opportunity exists to address the problem of providing reliable power to these devices for a long period of time. As electronic circuits and nanomachines grow ever smaller, a problem is created by the fact that conventional batteries cannot shrink to the same size and still hold enough power for the device to function for a reasonable period of time. Our nuclear micro battery technology may solve this problem by drawing energy from an embedded radioactive isotope due to the fact that nuclear batteries are known to have power densities up to 1,000 times greater than achievable with conventional chemical battery technology.
In November 2003, the Company entered into a licensing option agreement for three issued U.S. patents for nuclear micro-battery technology (Pat. Nos. 5,087,533; 6,118,204; 6,238,812) with Jackie Brown. The company purchased a one-year option to exclusively license the technology, with an additional six month first right of refusal, in exchange for 100,000 shares of our common stock. In January 2006, the company extended the license option rights under the terms of the agreement until January 2007 in exchange for the payment of all outstanding maintenance fees. When the company does choose to exercise its rights under the licensing option agreement, we will execute a license royalty agreement for 7% of the after tax profits on the sale or licensure of the technology to be paid to Ms. Brown.
In November 2006, we received notification from the United States Patent and Trademark Office that our application to revive patent number 6,118,204 was successfully processed and is enforceable. One of the three nuclear micro-battery patents that we hold a license option for (Pat. Nos. 5,087,533) expired as a result of non-payment of patent maintenance fees by the prior assignee; however, the company has engaged the law firm of Greenberg and Lieberman, P.C. to make application for the revival of those patents and has paid all outstanding maintenance fees. The patent revivals are currently in process and we anticipate receiving further information from the USPTO within the next twelve months. We are currently developing the next generation of nuclear micro-battery technology that could render the previous patents obsolete. However, the reinstatement of the expired patents could offer an additional opportunity to block our competition from this market.
Subsequent to entering the licensing option agreement in November of 2003, we began efforts to form development partnerships to assist in the development of and to secure government funding for this technology. We have initiated the process of forming a teaming arrangement with Lawrence Livermore National Laboratories to further develop this technology. Previously, we anticipated finalizing a teaming relationship with Lawrence Livermore National Laboratories in 2005. This was not accomplished, due to lack of working capital to fund this development program in 2006. Management anticipates funding and launching this teaming relationship in 2007.
Our nuclear micro battery technology relies on the application of tritiated amorphous silicon as a betavoltaic, thin-film, intrinsic energy conversion device. A betavoltaic battery is a nuclear battery that converts energy from beta particles released by a beta emitting radioactive source, such as tritium, into electrical power. Common semiconductor designs of betavoltaic batteries use a semiconductor p-n junction device that is either directly exposed to beta decay (Lucent Technologies, Betabatt) or is illuminated by photons created when betas strike a phosphor (Trace Photonics, Inc.). These common betavoltaic batteries suffer from technical problems in that the directly irradiated cells suffer material degradation of the p-n junction limiting the operating life to days while the photo conversion systems are indirect and limited by efficiency to less than 1%. Furthermore, another limitation of conventional betavoltaic batteries and P-N junction devices is the self-absorption of beta energy in the radioactive source itself. In order to reduce the self-absorption of beta energy we incorporate the radioactive isotope into the lattice of a semiconductor.
Tritiated amorphous silicon is a novel thin film material where a suitable radioisotope is bonded with silicon in the amorphous network or adjacent to it. Thin-film contact potential tritiated amorphous silicon cells have been built and operation verified by an independent laboratory.
We are aware of several types of nuclear batteries in development by organizations such as Lucent, The University of Wisconsin, and Trace Photonics, Inc. and Betabatt, Inc. While we believe that our technology is superior due to higher resistance to radiation degradation, our competitors have greater access to capital and resources.
The operation of our nuclear micro battery was proven by an independent lab. However it is still considered a development stage technology. We cannot guarantee that this technology will receive any additional patents or that the technology can be successfully commercialized.
Over the next 12 months we plan on raising capital in the amount of $500,000 to $1,000,000 to fund the development of our nuclear micro-battery technology. We also plan on funding a development program with Lawrence Livermore National Laboratory to build new battery prototypes intended for Micro-Electro-Mechanical Systems (MEMS) applications. We anticipate raising the money to fund this project through a combination of debt and equity financing.
TRITIATED WATER REMEDIATION TECHNOLOGY (TWR) (Patents Pending)
We have identified a need in the nuclear industry for an inexpensive method for tritiated water remediation by way of isotope separation. This is a method to reduce the volume of stored water contaminated with tritium, the radioactive isotope of hydrogen.
We are currently developing a tritiated water remediation method using a combination of in-house and external expertise. Our TWR development program is aimed at developing a tritiated water separation technology that can be transportable and modular or integrated directly into a nuclear power plant. The specific target market for this technology is tritium contaminated water (tritiated water) produced as a by-product of nuclear complex activities. Data indicates the Unites States houses approximately Six billion gallons of tritiated water with an additional 11 million gallons created annually. Countries such as Japan, the United Kingdom, France, and Germany also have this problem.
As of the date of this report, we anticipate the overall development cost not to exceed $500,000. However, since this is a development stage technology the final development cost may differ substantially from what we currently anticipate. We will need to raise additional money to fund this project. 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.
During 2004 we filed two patent applications with the United States Patent and Trademark Office to secure the rights to the tritium remediation technology and the technology is now patent pending. IN 2005 these patent applications published and are still pending. Additionally in 2005 we filed 2 international patent applications based on our previously filed U.S. Patent Applications. Over the next 12 months we plan on developing this technology further and filing for additional patent protection. However, it is possible that we may choose not to file a patent application on the technology if it is determined to be contrary to the security interests of the United States. TWR technology is a development stage technology. We cannot guarantee that we will either receive any patents on the technology or that the technology can be successfully commercialized.
Over the next 12 months we plan on raising capital in the amount of approximately $500,000 to fund the further development and proof-of-principal demonstration of our tritiated water remediation technology. We anticipate raising the money to fund this project through a combination of debt and equity financing.
Progress in the development of our technologies has been slower than expected due to the lack of personnel and lack of working capital. We anticipate increasing staffing levels over the next 12 months. We estimate that with . . .
biz.yahoo.com/e/061120/nsol.ob10qsb.html
Werbung
