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 June 30, 2012[  ]
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





U.S.FUEL CORPORATION


(Name of Small Business Issuer in its Charter)





Nevada

0-31959

88-0433815State of Incorporation)

Commission File No.

(IRS Employer Identification No.)





277 White Horse Pike, Ste.200, Atco, N.J.
08004(Address of principal executive offices)
(Zip Code)





Registrant’s telephone number, (856) 753- 1046





(Registrant’s former name and address)





NUCLEAR SOLUTIONS,INC.





5505 Connecticut Ave., N.W. Ste.191, Washington, D.C.
20015(Address of principal executive offices)
(Zip Code)





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  [  ]   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]




APPLICABLE ON TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS




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 subsequent to the distribution of securities under a plan confirmed by the court.      Yes  [  ]    No  [X]





APPLICABLE ONLY TO CORPORATE ISSUERS:




Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of September 13, 2012 we had 264,402,076 shares of common stock issued and outstanding.










Contents
Page No.Part I – Financial Information
2Item 1. Financial Statements
3Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
14Item 3. Quantitative and Qualitative Disclosures About Market Risk
17Item 4. Controls and Procedures
17Part II – Other Information
18Item 1. Legal Proceedings
18Item 1A. Risk Factors
19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
20Item 3. Defaults Upon Senior Securities
20Item 4. Submission of Matters to a Vote of Security Holders
20Item 5. Other Information
20Item 6. Exhibits
20Signatures
21





PART I


FINANCIAL INFORMATION





Item 1.
Financial Statements.





US FUEL CORPORATION AND SUBSIDIARY





INDEX TO FINANCIAL STATEMENTS





PageCondensed Consolidated Balance Sheets

as of June 30, 2012 (Unaudited) and December 31, 2011
3Condensed Consolidated Statements of Operations

for the three and six months ended June 30, 2012 and 2011 (Unaudited)
4Condensed Consolidated Statements of Stockholders’ Equity

Year ended December 31, 2011 and the six months ended June 30, 2012 (Unaudited)
5Condensed Consolidated Statements of Cash Flows

for the six months ended June 30, 2012 and 2011 (Unaudited)
6Notes to Condensed Consolidated Financial Statements (Unaudited)
7 - 14





This interim Report on SEC Form 10-Q for the period ending June 30, 2012 is filed by US Fuel Corporation in order to be in compliance with the terms of the Incubation Services Addendum of the Master Services Agreement executed by the Company with Global Private Funding on August 14, 2012 (the “Global Incubation Agreement”).




Under the provisions of the Global Incubation Agreement, US Fuel is undergoing a full audit of operations and procedures.  This audit revealed that the Company had failed to file financial reports since May 24, 2010, when it filed a Form 10-Q for the period ending March 31, 2010.  As an interim step in providing full disclosure of the Company activities, this Form 10-Q is being filed.  The company will file additional historic financial information, to include Form 10-K Annual Reports for the years ending December 31, 2010 and 2011 prior to December 31, 2012.  The Company will file a timely Form 10-Q for the period ending September 30, 2012 and a timely Form 10-K Annual Report for the year ending December 31, 2012.




ALL FINANCIAL INFORMATION IN THIS REPORT, INCLUDING THE INFORMATION ON THE YEAR ENDING DECEMBER 31, 2011 AND THE INFORMATION FOR THE PERIOD ENDING JUNE 30, 2012  IS UNAUDITED AND HAS NOT BEEN REVIEWED BY AN OUTSIDE CPA.  THE INFORMATION WAS ASSEMBLED BY THE US FUEL CFO, WHO IS A CPA, AND WILL SERVE AS THE BASIS OF THE UPCOMING AUDIT OF CORPORATE FINANCIAL RECORDS.




ALL INFORMATION HEREIN IS SUBJECT TO MODIFICATION BASED UPON THE ONGOING AUDIT.




Page 2




US FUEL CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETSJune 30, 2012

(unaudited)


December 31, 2011

(unaudited)ASSETSCurrent assets:Cash

$
0


$
0Note Receivable


24,500



24,500Total current assets


24,500



24,500Property and equipment, net of accumulated depreciation of  $ 14,635 and $ 12,847 as of June 30, 2012 and December 31, 2011, respectively


101,993



103,780Other assets


1,800



1,800Total assets

$
128,293


$
130,080
 LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable and accrued expenses

$
831,365


$
477,299Accrued executive compensation


233,250



137,250Advance payments receivedPreferred Subscribed


245,000



245,000Total current liabilities


1,309,615



859,549Derivative liability


39,000



60,444Total liabilities


1,348,615



919,993Commitments and contingenciesDeficiency in stockholders' equityPreferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding


6,042,081



6,042,081Common stock, $0.0001 par value; 800,000,000 shares authorized, 264,402,076 issued and outstanding, as of June 30, 2012 and December 31, 2011, respectively.


9,789



9,789Additional paid-in capital


19,964,510



19,964,510Deferred equity based expenseAccumulated deficit


(27,746,103
)


(27,315,694
)Deficiency in US Fuel. stockholders' equity


(1,729,723
)


(1,299,314
)Noncontrolling Interest


509,401



509,401Total deficiency in stockholders' equity


(1,220,322
)


(789,913
)Total liabilities and deficiency in stockholders' equity

$
128,293


$
130,080





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




Page 3





US FUEL CORPORATIONAND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF LOSSES(unaudited)





For the Three Months

Ended June 30,


For the Six Months

Ended June 30,2012


2011


2012


2011Revenue

$
0


$
0


$
0


$
0Executive compensation


52,000



78,250



104,000



78,250Consulting


40,300



89,200



305,600



89,200Legal and professional fees


70



37,500



70



37,500General and administrative expenses


9,595



56,130



18,952



78,780Depreciation and amortization


894



894



1,787



1,787102,859



261,974



430,409



285,517Net Loss from operations


(102,859
)


(261,974
)


(430,409
)


(285,517
)Loss before provision for income taxes


(102,859
)


(261,974
)


(430,409
)


(285,517
)Provision for income taxes


0$
(102,859
)

$
(261,974
)

$
(430,409
)

$
(285,517
)Add Net Loss attributable to the noncontrolling interest

$
0


$
0


$
0


$
0Net Loss attributable to Nuclear Solutions, Inc.common shareholders

$
(102,859
)

$
(261,974
)

$
(430,409
)

$
(285,517
)Basic and diluted loss per share

$
(.000389
)

$
(.002652
)

$
(.001628
)

$
(.00289
)Weighted average number of common shares outstanding, basic and diluted


264,402,076



98,794,498



264,402,076



98,794,498





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




Page 4




US FUEL CORPORATIONAND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITYFOR THE PERIOD JANUARY 1, 2012 TO June 30, 2012(unaudited)





Common Stock

Shares
Amount
Additional

Paid - In Capital
Preferred

Stock
Accumulated

Deficit
Noncontrolling

Interest
Total Deficiency in Stockholders'

Equity
  Balance January  1, 2012


264,402,076


$
9,789


$
19,964,510


$
6,042,081


$
(27,315,694
)


509,401


$
(789,913
)
  Reclassification of derivative liability upon settlementNet loss














(430,409
)





(430,409
)Balance June 30, 2012


264,402,076


$
9,789


$
19,964,510


$
6,042,081


$
(27,746,103
)

$
509,401


$
(1,220,322
)





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





Page 5




US FUEL CORPORATIONAND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited)  For The Six Months Ended June 30,2012


2011CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(430,409
)

$
(285,518
)Adjustments to reconcile net loss to net cash used  in operating activities:Depreciation and amortization


1,787



1,789Amortization of debt discount - beneficial conversion feature of convertible note and warrantsChange in fair value of derivative liability


(21,444
)Loss attributable to noncontrolling interestStock and warrants issued for services






6,042,081Amortization of deferred compensationChanges in operating assets and liabilities:Prepaid ExpensesOther AssetsAccounts payable and accrued expenses


354,066



(4,510,503
)Accrued executive compensation


96,000



(1,244,821
)Advance payments receivedNet cash used in operating activities






3,028CASH FLOWS FROM INVESTING ACTIVITIES:Net cash used in investing activities






(3,028
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stockPayment of LoansNet cash provided by financing activitiesNet increase/(decrease) in cashCash, beginning of period


0



0Cash, end of period

$
0


$
0Supplemental disclosures:Cash paid for:Interest

$



$Income taxes

$



$Non-cash investing and financial activities:Amortization of debt discount - beneficial conversion feature of convertible note and warrantsReclassification of derivative liability to equity upon settlement

$



$Payment of debt and interest with common stock

$



$Beneficial conversion discount

$



$Payment of accrued expenses with common stock

$



$




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




Page 6





US FUEL CORPORATION


AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




JUNE 30, 2012


(Unaudited)




NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS




US Fuel Corporation ("the "Company") was organized February 27, 1997 under the laws of the State of Nevada, as Stock Watch Man, Inc. The initial business strategy was to become an informative, comprehensive and user friendly Internet-based financial site by developing and then marketing a website through internet search engines and links to financial resources.




In 2001, the Company took actions to change the business focus from web services to nuclear waste remediation and entered into an Asset Purchase Agreement to acquire a Patent License Agreement that involved new technologies believed to be potentially effective in the remediation of nuclear waste products.




On September 12, 2001, the Company amended its articles of incorporation to change its name to Nuclear Solutions, Inc. (NSOL) to ensure the corporate name properly reflected the new corporate business focus




On September 2, 2005 NSOL formed a wholly owned subsidiary, Fuel Frontiers Inc.(“FFI”), to pursue alternative fuel technology and projects.  In 2009, the Nuclear Solutions Board of Directors elected to focus the company exclusively on the production of synthetic fuels through the FFI subsidiary.




On July 31, 2006 the company formed a wholly owned subsidiary, Liquidyne Fuels, which has had no activity through June 30, 2012.




In early 2011, the Board of Directors became concerned that John Fairweather did not possess the interest needed to develop the coal-to-diesel projects because during his tenure as President & CEO, there was no progress in the development of the Coal To Liquids facility to be located in Muhlenberg County reported to the Board of Directors. Additionally, the Board became concerned that his actions were not in the best interests of the Company and its shareholders.




The concern about Mr. Fairweather’s actions arose when the Board learned that, after a confidential Board discussion of strategy involving the litigation in the Commonwealth of Kentucky, Franklin Circuit Court, Case No 10-CI-01548 filed by Scott Shrader against Nuclear Solutions, Fuel Frontiers and other individuals, Mr. Fairweather revealed that confidential legal strategy to Mr. Shrader. The Board believed that this breach of confidentiality may have been the basis for the decision by Mr. Shrader to file an amended complaint in December 2010. While this was a significant cause for concern, it was not the reason for Mr. Fairweather’s ultimate termination.




After the amended complaint was filed, the Company retained counsel in Kentucky to defend against claims which, in the opinion of the Board were without merit. Without authorization, Mr. Fairweather attempted to terminate the Company’s Kentucky counsel, an action that would have caused the Company to be in a position whereby it could not properly respond to the Amended Shrader Complaint and could have resulted in a default judgment being entered against the Company.




After learning of Mr. Fairweather’s actions in attempting to inappropriately terminate local counsel and further consideration of the overall state of corporate governance, as reflected in various Company Board minutes, on March 10, 2011, the Board of Directors suspended John Fairweather, for cause, from all duties and powers commensurate with the office of President and CEO, including the power to bind and represent the Company in any capacity, access to corporate bank accounts and records, and transfer or transmission of any and all corporate documents and material, except as explicitly authorized in writing by the Board of Directors. All duties and powers of President and CEO were assumed by the Board of Directors only to be delegated by the Board in writing.  The suspension was for a period of 10-business days, to allow the Board time to determine the appropriate course of action.




On March 23, 2011, the last day of the suspension and after further consideration and deliberations on the matter, the Board of Directors of Nuclear Solutions, Inc., now US Fuel Corporation Inc., terminated John Fairweather for cause from all positions of responsibility including, President and Chief Executive Officer for Nuclear Solutions, Inc. and it's subsidiary Fuel Frontiers, Inc.




When Mr. Fairweather left the Company offices, he took with him a number of company files, records and computers, making it difficult to accurately determine the state of the Company. Mr. Fairweather refused to return the corporate materials and his actions are currently the subject of a case entitled The State of New Jersey v. John Fairweather, a criminal action pending in the Municipal Court of Waterford Township, Complaint number S 2012 00165, in which Mr. Fairweather is charged with theft of company property. At the first hearing of this matter on September 13, 2012, Mr. Fairweather failed to appear.





On March 26, 2011, the Board of Directors of Nuclear Solutions, Inc. appointed Harry Bagot as a Director and as the new President and Chief Executive Officer of Nuclear Solutions, Inc. and Fuel Frontiers, Inc.




On April 3, 2011, NSOL formed an Executive Committee consisting of Stanley Drinkwater, Harry Bagot, William Chady and Kenneth Faith.  The Executive Committee was formed to ensure that the Board of Directors could operate without interference from John Fairweather and to refocus the corporate purpose on the building of coal-to-diesel facilities.




Page 7




Mr. Faith resigned as Chief Financial Officer and left the Executive Committee on May 10, 2011; this action was required by a third party in order for Mr. Faith to participate in another business opportunity; his relationship with US Fuel was excellent.




On May 13, 2011, the Board of Directors of Nuclear Solutions, Inc. hired William Chady, C.P.A. as the chief Financial Officer of the Corporation. Mr. Chady is also a member of the Board of Directors of the corporation.




On June 10, 2011, the US Fuel Board of Directors passed a series of resolutions, including




1.
Amending the US Fuel Articles of Incorporation




2.
Amending the US Fuel Bylaws




3.
Changing the company name from Nuclear Solutions, Inc. to US Fuel Corporation




4.
Authorizing the change of the corporate trading symbol




5.
Increasing the amount of stock authorized to be issued; and




6.
Ratifying a stock purchase agreement with G & A CAPITAL DEVELOPMENT, LLC..




One of the provisions of the G & A Capital agreement was:




2.1 (g) Appointment of Independent Executive Committee Member: As soon as practical, but no later than 30 days after the date of this agreement, the COMPANY will nominate an independent member to the Executive Committee, as established by the Board of Directors. Nominee shall only be seated to the Executive Committee with the prior written consent of the PURCHASER.




On June 24, 2011, Robert Schwartz was appointed to the Executive Committee as the independent member required under the G & A Capital stock purchase agreement.




In late May 2011, Mr. Bagot began discussion with Paul Adams and Steve Luck regarding development of a project plan and securing financing.  As background, Mr. Adams and Mr. Luck had worked with NSOL in 2008 on project planning and financing and again during the summer of 2010 with Mr. Fairweather.  In the summer of 2010, Mr. Adams developed an advanced draft of a project plan and Mr. Luck had identified a potential funding source for the project described in that plan, but Mr. Fairweather broke contact with Mr. Adams and Mr. Luck in September 2010.




Starting in June 2011, Mr. Bagot, Mr. Adams and Mr. Luck picked up from the earlier efforts and began working together to develop and refine a project plan that could be financed.  Those discussions resulted in a formal consulting contract, executed on December 1, 2011.  The key to the new plan being developed was to focus on a smaller, scalable facility, as financing was problematic for the typical large-scale plants previously considered by the Company.




A formal technology survey commenced in January 2012, leading to technology selections in June 2012.




On May 22, 2012, US Fuel executed a consulting contract with Brian Wishneff & Associates, LLC to manage the process associated with certain tax credit programs that might be applicable to the Muhlenberg County project, with a special focus on the New Market Tax Credit program.




On June 29, 2012, US Fuel executed a non-binding project financing term sheet with Berkeley House Investments (BHI) in a total amount of $76,817,138.  Berkeley House International Ltd is a specialist project financier with offices in Australia and the United Kingdom offering lending solutions to project owners worldwide.  To take advantage of the financing offered in the term sheet, the Company needed to arrange bridge financing of approximately $4,500,000 and arrange a credit enhancement deposit of approximately $12,000,000.  The Credit Enhancement Deposit will be utilized by BHI to commence the aggregation of the loan facility via its credit enhancement programs used to facilitate financing.




On July 19, 2012, the Company executed a Strategic Alliance with its project technology partners, Pyrolyzer, Inc. and Preon Power, “to collaborate in the development of renewable energy projects, with a special focus on Coal to Diesel projects.  The Parties seek to exploit each other’s expertise, relationships and sales channels to the mutual benefit of all Parties.”




On July 27, 2012, Shaw Environmental & Infrastructure, Inc. delivered to US Fuel the report on Shaw’s Phase I Environmental Site Assessment of the site in Central City, Kentucky, selected by US Fuel for the first US Fuel coal to diesel project.  This report, prepared in conformance with the scope and limitations of ASTM Practice E1527, was requested as part of US Fuel’s pre-acquisition due diligence and revealed no evidence of recognized environmental conditions in connection with the Property.  It did note that the property included areas formerly designated as wetlands and advised to ensure all applicable wetlands related requirements are followed, should facility construction activities impact those wetlands.




On August 6, 2012, 2,000 pounds of coal was shipped from Muhlenberg County, Kentucky to the pilot plant in Germany for testing in order to begin facility engineering.  The coal is expected to arrive in Germany in mid-October.




On August 14, 2012, US Fuel entered into a Master Services Agreement with Global Private Funding, Inc., which included the following:




Page 8




Business Incubation Services.




Under the provisions of the US Fuel - Global Business Incubation Addendum to the Master Services Agreement, Global will assist US Fuel




•  To establish or enhance business relationships and increase revenue, licensing, channel partnerships, or distribution opportunities for US Fuel products, services and intellectual properties, including all future derivations of the same; and




•  To promote US Fuels’ business enterprise including strategic planning, required management restructuring, contingency planning and implementation oversight and financial oversight.




In addition, Global will




•  Provide oversight to US Fuel relating to services such as accounting, payroll, materials management, sourcing, marketing, public relations, event planning and facilities management and




•  Take steps to ensure and preserve the integrity of US Fuel’s business enterprise, by conducting, in its sole discretion, background checks, qualification reviews, interviews and performance reviews of Client's employees, suppliers, vendors and others who receive payment from US Fuel business or may have impact on the brand, operation or finances of US Fuel.




Legal & Compliance Services




Under the provisions of the Legal & Compliance Addendum to the Master Services Agreement, Global will assist US Fuel in the management of Client's legal and compliance matters to reduce the potential that Client's legal matters will interfere with business operations and development.  As part of this agreement, US Fuel shall not enter into any contract without Global's review and written approval.




Underwriting Services




Under the provisions of the Borrowers Addendum to the Master Services Agreement, for the purposes of supporting US Fuel’s working capital, and at Global's sole discretion, Global may elect in writing to underwrite or finance certain costs and expenses incurred by Global on Client's behalf that would otherwise be immediately reimbursable to Global.  US Fuel will have the obligation to reimburse Global for any such underwriting.




On September 10, 2012, the Board of Directors took the following actions




1.
Voted unanimously to hire Paul Adams as Chief Operating Officer of US Fuel Corporation along with all of the obligations and benefits associated with the position.  Mr. Bagot as CEO was given full authority to execute an employment contract with Mr. Adams.




2.
Voted unanimously to nominate Mr. Stephen Luck to the Board of Directors along with all of the obligations and benefits associated with the position.




3.
Unanimously approved the decision by Mr. Bagot as CEO to execute a quit claim deed to resolve the quiet title action pending between the Company and Scott Schrader.




4.
The board was informed by G & A Capital that, because of its confidence in the new US Fuel management team and Board of Directors, it no longer needed an independent member on a US Fuel Executive Committee.  Accordingly, the Board unanimously and reluctantly accepted the resignation of Mr. Robert Schwartz from the Executive Committee.  The Board’s reluctance in accepting Mr. Schwartz’ resignation was because he had been instrumental in the successful effort to reposition the company and recover from the problems discovered in early 2011 regarding corporate governance.




5.
The Board having concluded that the Executive Committee had accomplished its purpose and was no longer needed, voted unanimously to dissolve that committee.




6.
Unanimously approves the dissolution of FFI. The nature of the dissolution is such, that the technology embedded in FFI has been deemed unfeasible and completely un-financeable at this time.  Management, under Mr. Harry Bagot's direction, has adopted a more modular and easily expandable approach.




7.
Unanimously approved a salary for Mr. William Chady of $110,000 per year.




8.
Unanimously agreed that, in the event of a dead lock vote of  the Board of Directors, Mr. Stanley Drinkwater will cast the tie breaking vote.  G&A Capital also has agreed to this provision as majority shareholder and has also agreed to proxy their votes to Mr. Stanley Drinkwater if required.




On September 10, 2012, the Company launched a new and updated website and retained the services of a webmaster.




Fuel Frontiers, Inc. was dissolved effective September 12, 2012.




Page 9




The current Company management team consists of
  Harry Bagot, President & CEO
 Paul F. Adams, COO
 William E. Chady, CFO
 Gary Sparks, Lead Project Manager




Board of Directors




Stanley Drinkwater II, Esq., Chairman of the Board


Harry Bagot


William E. Chady


Stephen Luck




Two board members will be nominated by Global in the next 30 days.




The consolidated financial statements include the accounts of the Company and its subsidiaries; although Fuel Frontiers, Inc. was dissolved effective September 12, 2012, financial information regarding Fuel Frontiers is included in these consolidated financial statements. All significant intercompany transactions and balances have been eliminated in the consolidated financial statement.




Business




The business of US Fuel Corporation is to acquire and develop the intellectual property necessary to support the construction of multiple, scalable facilities capable of producing alternative fuels, with a primary feedstock of coal.  The current project plan involves engineering a unique combination of technologies as the core of a scalable process to support multiple production facilities.




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 Company has failed to file timely financial reports, with its last Quarterly Report being filed on Form 10-Q on May 24, 2010 for the period ending March 31, 2010.  The Company intends to file an Interim Annual Report for the year ended December 31, 2011; because corporate records are being reconstructed, this will not be an audited Annual Report and it will be amended when corporate audits are completed.  The Company will also file a fully audited Annual Report for 2010, as quickly as possible after reconstructing records sufficiently to ensure that accurate historical information is provided for that period.  All interim reports are being filed in order for the Company to be in compliance with its obligations under it Incubation Services Agreement with Global Private Funding, executed on August 14, 2012.  Information is subject to change as the audit progresses.




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 Staff Accounting Bulletin No. 104, “Revenue Recognition” ("SAB104"), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” ("SAB101"). SAB 101 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 other 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.




SAB 104 incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"), “Multiple-Deliverable Revenue Arrangements”. EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing EITF 00-21 on the Company's consolidated financial position and results of operations was not significant.




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 cannot be reasonably assured. Accordingly, revenues will be recognized as collected.




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.




Page 10




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 June 30, 2012, and 2011, the Company had no potentially dilutive securities, respectively.




Liquidity




As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred net losses of $102,859 and $261,974 during the three month periods ended June 30, 2012 and 2011, respectively. The Company's current liabilities exceeded its current assets by $1,285,115 as of June 30, 2012. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.




Fair Value Accounting




In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 were adopted January 1, 2008. In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of FSP FAS 157-2 are effective for the Company’s fiscal year beginning January 1, 2009.




FAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FAS 157 are described below:




Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 Level 2
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).





The following table sets forth the Company’s financial liabilities measured at fair value by level within the fair value hierarchy. As required by FAS 157, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company designates cash equivalents as Level 1. As of June 30, 2012 and December 31, 2010, the Company did not have any cash equivalents, therefore there were no assets measured at fair value.




Fair Value at June 30, 2012Total


Level 1


Level 2


Level 3Liabilities:Conversion option liability

$
0


$
-


$
0


$
-





The Company’s conversion option liability is valued using pricing models and the Company generally uses similar models to value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility, and correlations of such inputs. These financial liabilities do not trade in liquid markets, and as such, model inputs cannot generally be verified and do involve significant management judgment. Such instruments are typically classified within Level 3 of the fair value hierarchy.




The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (detachable warrants and conversion option liabilities) for the six months ended June 30, 2012.




Balance at beginning of period

$
0Change in fair value of conversion optionReclassification to equity upon repayment of debtBalance at end of period

$
0





The total amount of the changes in fair value for the period was included in net loss as a result of changes in the Company’s stock price from December 31, 2011.




Page 11




In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of FAS 159 were adopted January 1, 2008. The Company did not elect the Fair Value Option for any of its financial assets or liabilities, and therefore, the adoption of FAS 159 had no impact on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows.




New Accounting Pronouncements




In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 ” (SFAS 160). SFAS 160 requires that non-controlling (or minority) interests in subsidiaries be reported in the equity section of the company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement. SFAS 160 also establishes guidelines for accounting or changes in ownership percentages and for deconsolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 15, 2008 and interim periods within those years. The adoption of SFAS 160 did not have a material impact on our consolidated financial position, results of operations or cash flows.




In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 ” (SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of SFAS 161 did not have a material impact on our consolidated financial position, results of operations or cash flows.




In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  This Statement will not have an impact on the Company’s financial statements.




In June 2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5),Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.  EITF 07-5 requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of Statement of Financial Accounting Standards No. 133,“Accounting for Derivative Instruments and Hedging Activities” , paragraph 11(a), and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings. The adoption of this pronouncement will not have a significant impact on the Company’s consolidated financial position and results of operations.




In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20 ” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets ” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.




Effective January 1, 2009, the Company adopted the Financial Accounting Standards Board's Staff Position (FSP) on the Emerging Issues Task Force (EITF) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities .”  The FSP required that all unvested share-based payment awards that contain non-forfeitable rights to dividends should be included in the basic Earnings Per Share (EPS) calculation.  This standard did not affect the unaudited condensed consolidated financial position or results of operations.




In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ” (“FSP FAS No. 115-2”). FSP FAS No. 115-2 provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. This FSP is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The adoption of this standard during the second quarter of 2009 had no impact on the Company’s consolidated financial position or results of operations.




In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly ” (“FSP FAS No. 157-4”). FSP FAS No. 157-4 provides additional guidance in determining whether the market for a financial asset is not active and a transaction is not distressed for fair value measurement purposes as defined in SFAS No. 157, “Fair Value Measurements .” FSP FAS No. 157-4 is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The adoption of this standard during the second quarter of 2009 had no impact on the Company’s consolidated financial position or results of operations.




Page 12




In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments ” (“FSP FAS No. 107-1 and APB 28-1”). This FSP amends FASB Statement No. 107, “Disclosures about Fair Values of Financial Instruments,” to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. APB 28-1 also amends APB Opinion No. 28, “Interim Financial Reporting ,” to require those disclosures in all interim financial statements. This standard is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The adoption of this standard during the second quarter of 2009 had no impact on the Company’s consolidated financial position or results of operations.




In May 2009, the FASB issued SFAS No. 165,“Subsequent Events” (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 will be effective for interim and annual financial periods ending after June 15, 2009. The Company adopted SFAS No. 165 during the three months ended June 30, 2009 and evaluated subsequent events through the issuance date of the financial statements. SFAS No. 165 did not have a material impact on the Company’s consolidated financial position or results of operations.




In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers and Servicing of Financial Assets – an amendment of SFAS Statement No. 140 ” (“SFAS No. 166”). SFAS No. 166 will require more information about transferred of financial assets and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.




In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under SFAS No. 167, determining whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.




In June 2009, the FASB issued SFAS No. 168, “TheFASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principals – a replacement of FAS No.162 ” (“SFAS No. 168”). SFAS 168 represents the last numbered standard to be issued by FASB under the old (pre-Codification) numbering system, and amends the GAAP hierarchy. On July 1, FASB will launch new FASB’s Codification (full name: the FASB Accounting Standards Codification TM.) The Codification will supersede existing GAAP for nongovernmental entities; governmental entities will continue to follow standards issued by FASB's sister organization, the Governmental Accounting Standards Board (GASB). This pronouncement has no effect on the Company’s financial statements.




Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future unaudited condensed consolidated financial statements.




NOTE 3 - GOING CONCERN




The accompanying unaudited condensed 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 unaudited condensed consolidated financial statements, the Company has a net loss of $430,409 during the six months ended June 30, 2012 and a working capital deficiency of $895,377 and a stockholders' deficiency of $887,311 at June 30, 2012.. 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 unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company 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.




Page 13




NOTE 4 - CONVERTIBLE DEBT




Notes payable at June 30, 2012 and December 31, 2011:




June 30, 2012


December 31, 2011(unaudited)


(unaudited)Global Atomic Inc. demand note payable to related party at 10% per year, convertible into common stock at $1.00 per share

$
4,000


$
4,000International Fission demand note payable to related party at 10% per year, convertible into common stock at $1.00 per share


15,000



15,000Jackie Brown, demand note payable to related party, non -interest bearing, convertible into common stock at $1.00 per share


20,000



20,000John Powers note payable to related party, convertible into common stock At a 50% discount to market; interest rate 14%; maturity June 4, 2009


—



13,444John Powers note payable to related party, convertible into common stock At a 50% discount to market; interest rate 14%; maturity June 4, 2009


—



8,000Total notes payable


39,000



60,444Less: current portion


39,000



(60,444
)Balance notes payable (long term portion)

$
—


$
—





During the three months ended June 30, 2009, we repaid two convertible notes aggregating $21,444. As a result, the fair value of the derivative liability associated with the conversion feature of these notes on the date of repayment, aggregating $12,607, was reclassified to additional paid-in capital.




NOTE 5 - STOCKHOLDER'S EQUITY




The Company is authorized to issue 800,000,000 shares of common stock with $0.0001 par value per share.  As of June 30, 2012 and December 31, 2011, the Company has issued and outstanding 264,402,076 shares of common stock, respectively.




NOTE 6 - Deficiency in stockholders' equity




Under the provisions of the G&A Capital Stock Purchase Agreement approved on June 10, 2011, G&A Capital assumed responsibility for certain Company obligations.  As the corporate audit progresses, the details of the account settlements will be verified and this financial component will be updated.




Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation





When used in this Form 10-Q and in our future filings with the Securities and Exchange Commission, the words or phrases will likely result, management expects, or we expect, will continue, is anticipated, estimated or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. These statements are subject to risks and uncertainties, some of which are described below. Actual results may differ materially from historical earnings and those presently anticipated or projected. We have no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated events or circumstances occurring after the date of such statements.




Business Overview




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 cautioned 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.




The Company history is shown in Note 1 to the Financial Statements, above.




Plan for the next 12 months




The Company intends to fully engineer the integration of the coal to gas and gas to liquid technologies in order to develop a permitting package that can be used as the basis of a permitting application and as a template for additional sites.  The estimated time for engineering is 2 months; the engineering is expected to be complete late in 2012 or early 2013.




Page 14




The permitting process will take approximately 5 months.




The Company intends to close on the property identified for the first project in Muhlenberg County, Kentucky in the last quarter of 2012.




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. 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.




Within the next six months and subject to available resources, the company anticipates holding one or more special shareholder meetings to refer certain matters to the shareholders for approval and resolution.




Progress




Progress in the development of our technologies have 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 a working capital requirement of at least $500,000 over the next 12 months to maintain operations at a minimum level.




We believe that the success of our business will depend, in part, on our ability to attract, retain, and motivate highly qualified sales, technical and management personnel, and upon the continued service of our senior management and key sales and technical personnel. We cannot assure you that we will be able to successfully attract, retain, and motivate a sufficient number of qualified personnel to conduct our business in the future.




Results of Operations




REVENUES: The Company reported revenues of $0, for the six months ended June 30, 2012 as compared with revenues from continuing operations of $0 for the six months ended June 30, 2012.




TOTAL COSTS AND EXPENSES: Total costs and expenses from continuing operations increased from $285,518 for the six months ended June 30, 2011 to $430,409 for the six months ended June 30, 2012. The principal reason for this increase was due to increased Consulting Fees and Deferred Compensation Expenses.




OPERATING EXPENSES: Operating expenses from continuing operations increased from 285,517 for the six months ended June 30, 2011 to $430,409 for the six months ended June 30, 2012. This increase was primarily due to a increase in Consulting fees, Legal fees, and General and Administrative expenses. Depreciation expense remained the same for the first six months of 2012 and 2011.




INTEREST EXPENSE: Interest expense remained unchanged from $0 for the six months ended June 30, 2011 to $0 for the six months ended June 30, 2012. This decrease is due primarily to the company’s prior repayment of outstanding debt.




GENERAL AND ADMINISTRATIVE: General & Administrative expenses decreased by $59,828 during the six months ended June 30, 2012 to a total amount of $18,952 as compared to $78,780 for the six months ended June 30, 2011. The decrease was due primarily to legal and consultant fees.




NET LOSS: The Company incurred a net loss of ($430,409) for the six months ended June 30, 2012, compared with a net loss of ($285,518) for the six months ended June 30, 2011, which reflects a year-to-year increased in the amount of loss for the period of $144,891. The principal reason for this decrease was due to Consulting fees, Legal fees, and General and Administrative expenses.





LIQUIDITY AND CAPITAL RESOURCES:




As of June 30, 2012, we had a working capital deficit of $1,285,115 which compares to a working capital deficit of $835,049 as of December 31, 2011. As a result of our operating losses for the six month period ended June 30, 2012, we generated a cash flow deficit of $0 from operating activities. Cash flows used in investing activities was $0 during the period. Cash flows provided by financing activities were $0.




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.




New Accounting Pronouncements




In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” (SFAS 160). SFAS 160 requires that non-controlling (or minority) interests in subsidiaries be reported in the equity section of the company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement. SFAS 160 also establishes guidelines for accounting or changes in ownership percentages and for de-consolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 15, 2008 and interim periods within those years. The adoption of SFAS 160 did have a material impact on our financial position, results of operations or cash flows.




Page 15




Effective January 1, 2009, the Company adopted the Financial Accounting Standards Board's Staff Position (FSP) on the Emerging Issues Task Force (EITF) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.”  The FSP required that all unvested share-based payment awards that contain non-forfeitable rights to dividends should be included in the basic Earnings Per Share (EPS) calculation.  This standard did not affect the unaudited condensed consolidated financial position or results of operations.




In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS No. 115-2”). FSP FAS No. 115-2 provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. This FSP is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt the provisions of this Staff Position during the second quarter of 2009, but does not believe this guidance will have a significant impact on its unaudited condensed consolidated financial statements.




In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS No. 157-4”). FSP FAS No. 157-4 provides additional guidance in determining whether the market for a financial asset is not active and a transaction is not distressed for fair value measurement purposes as defined in SFAS No. 157, “Fair Value Measurements.” FSP FAS No. 157-4 is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company will apply the provisions of this statement prospectively beginning with the second quarter 2009, and does not expect its adoption to have a material effect on its unaudited condensed  consolidated financial statements.




In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS No. 107-1 and APB 28-1”). This FSP amends FASB Statement No. 107, “Disclosures about Fair Values of Financial Instruments,” to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. APB 28-1 also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. This standard is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt FSP FAS No. 107-1 and APB 28-1 and provide the additional disclosure requirements beginning in second quarter 2009.




Subsequent Events




The Company adopted SFAS No. 165, “Subsequent Events” effective with the six months ended June 30, 2009.   Subsequent events are events or transactions about which information becomes available after the balance sheet date but before the financial statements are issued or are available to be issued.  In the case of the Company as a public entity, the applicable cutoff date is the date the financial statements are issued, whereas prior to SFAS No. 165 the cutoff date could be the date the financial statements were available for issuance.




The statement requires that certain subsequent events (“recognized subsequent events”) be recorded in the financial statements of the latest preceding period currently being issued.  These items provide evidence about conditions that existed at the date of that balance sheet, including estimates inherent in preparing the financial statements for that period.   Other subsequent events (“nonrecognized subsequent events”) are not recorded in balance sheet for the latest preceding period currently being issued. Those items relate to conditions that arose only after the balance sheet date.   Disclosure is required for nonrecognized subsequent events if necessary to prevent those financial statements from being misleading.




In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which changes the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.




In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  This Statement will not have an impact on the Company’s financial statements.




In June 2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5),Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.   EITF 07-5 requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities  , paragraph 11(a), and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings. The adoption of this pronouncement will not have a significant impact on the Company’s consolidated financial position and results of operations.




Page 16




In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.




Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future unaudited condensed consolidated financial statements.




Item 3.
Quantitative and Qualitative Disclosures About Market Risk




Not applicable to Smaller Reporting Companies




Item 4.
Controls and Procedures.




The Company has failed to timely file SEC reports; the last Form 10-Q filing was May 24, 2010, covering the period ending March 31, 2010; the last Form 10-K was filed on April 15, 2010, for the period ending December 31, 2009.  This lapse of proper filing demonstrates that Disclosure Controls and Procedures have been inadequate.




Evaluation of Disclosure Controls and Procedures




Going forward from this filing, the Company intends to re-establish and 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 assumptions 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 were not effective as of June 30, 2012 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 disclosure.




Evaluation of and Report on Internal Control over Financial Reporting




Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of June 30, 2009 based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that, as of June 30, 2009, our internal control over financial reporting were effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.




This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this annual report.




Page 17




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.  As a result of executing the Incubation Services Agreement with Global Private Funding on August 14, 2012, the Company is implementing new internal controls to ensure that reports are filed in a timely manner.  The first report under these new procedures is this Form 10-Q for the period ending June 30, 2012.




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 a party to two pending material legal proceedings.




Litigation One:




Background to the Litigation:




The Company owned 100% of the issued and outstanding common stock of FFI represented by 30,000,000 shares. On June 12, 2009, the Company entered into a Stock Purchase Agreement and sold 10%, or 3,000,000 FFI common shares (the “Shares”) to Schrader & Associates Defined Benefit Pension Plan (herein, “Schrader”) for the sum of $350,000.




FFI granted Schrader demand and piggyback registration rights on the Shares. Schrader granted the Company the first right of refusal to match or exceed any third party bona fide offer to purchase the Shares until June 12, 2014.




Additionally, on June 12, 2009, in consideration of $5,000, the Company granted Schrader an option to purchase an additional 10% of FFI for the sum of $350,000. The option expired on September 12, 2009.




On June 30, 2009, Schrader partially exercised the option and purchased an additional 1,500,000 common shares of FFI, which represents 5.0% percent of the issued and outstanding common stock of FFI, for proceeds of $175,000.




In conjunction with the sale of its partial interest in FFI on June 12, 2009, the Company, FFI and Schrader entered into a Management Agreement, (the “Agreement”). The Agreement states that the Company will use the proceeds of the sale of the Shares according to the Company’s use of proceeds Schedule which is attached the Agreement. Additionally, the Company has agreed to nominate and appoint, and or vote into office one person named by Schrader who will be seated as a member of the FFI board of directors for a 12-month term.




FFI, upon receipt of funds from the Company’s use of proceeds schedule, has agreed to purchase certain real property located in Muhlenberg, Kentucky (the “Muhlenberg Property”) for the proposed construction of a Coal-to-Liquids (CTL) plant for approximately $150,000. FFI has agreed to take title to the Muhlenberg Property in such a manner so that the property ownership would automatically transfer to Schrader in the event FFI were to file a petition in Bankruptcy Court, wind-up or liquidate.




Additionally, if FFI were to abandon its pursuit of a CTL plant on the Muhlenberg Property because FFI’s inability to obtain all appropriate approvals and permits required for a CTL plant, then FFI would sell the Muhlenberg Property and use the net proceeds to acquire another property for a CTL plant according to the same type of acquisition and title structure.




If FFI were able to secure an off-take agreement or fuel purchase agreement for fuels from its proposed CTL Plant, that would permit FFI to secure project financing, or if FFI were to secure project financing using the Muhlenberg or similar property as collateral, the Schrader would quit claim the future interest in and to the property to FFI.




The Litigation Overview




On 30 September 2010, plaintiff Scott Schrader initiated litigation in the Commonwealth of Kentucky, Franklin Circuit Court, Case No 10-CI-01548 against Nuclear Solutions, Fuel Frontiers and other individuals.  In the lawsuit, plaintiff alleges a dispute over an investment in Nuclear Solutions and presents claims for




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1.
Breach of Contract


2.
Negligent/Intentional Misrepresentations


3.
Fraud and Fraudulent Inducement


4.
Unjust Enrichment


5.
Breach of Constructive or Resulting Trust




Plaintiff is seeking actual and punitive damages.




There have been multiple Court appearances and both sides have filed Motions to Dismiss.  The parties participated in a mediation session with a former Court of Appeals of Judge presiding as Mediator.  During that mediation session, plaintiffs were invited make a record in support of their allegations, but failed to do so.  The last time any motions were addressed to the Court was 26 July 2011; as of 15 August 2012, the Judge has not issued a ruling on any motions and plaintiff has taken no steps to move the case forward.




Litigation Two:  On 30 July 2012, Schrader & Associates, LLC filed a complaint against Fuel Frontiers, Inc. in the Commonwealth of Kentucky, Muhlenberg Circuit Court Division, as Civil Action No. 12-CI-352 to Quiet Title on property acquired by Fuel Frontiers, Inc.  The property that is the subject of this litigation is not the site selected for the US Fuel Muhlenberg County coal to diesel facility.




The Company has executed a quitclaim deed relative to the subject property for delivery to plaintiff and expects that action to resolve this litigation





Item 1A.
Risk Factors


The Company is subject to a high degree of risk. The following risks, if any one or more occurs, could materially harm the business, financial condition or future results of operations of the Company. If that occurs, the trading price of the Company’s common stock could decline.




Cautionary Factors that may Affect Future Results




We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business and our products. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us.




Trends, Risks and Uncertainties




The Company has sought to identify what it believes to be the most significant risks to its business as discussed in "Risk Factors" above, but cannot predict whether or not or to what extent any of such risks may be realized nor can there be any assurances that the Company has identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to the Company's common stock.




Limited operating history; anticipated losses; uncertainly of future results




The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The Company’s prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the business model that the Company intends to market and the potential acceptance of the Company’s business model. The Company will be incurring costs to develop, introduce and enhance its products, to establish marketing relationships, to acquire and develop products that will complement each other, and to build an administrative organization. To the extent that such expenses are not subsequently followed by commensurate revenues, the Company's business, results of operations and financial condition will be materially adversely affected. There can be no assurance that the Company will be able to generate sufficient revenues from the sale of its products and services. The Company expects that negative cash flow from operations may exist for the next 12 months as it continues to develop and market its products and services. If cash generated by operations is insufficient to satisfy the Company's liquidity requirements, the Company may be required to sell additional equity or debt securities. The sale of additional equity or convertible debt securities would result in additional dilution to the Company's shareholders.




Risk Factors:




INTELLECTUAL PROPERTY RIGHTS




The company regards its engineered processes, patents, trademarks, trade secrets, and other intellectual property (collectively, the "Intellectual Property Assets") as critical to its success. The company relies on a combination of engineered processes, patents, trademarks, and trade secret and copyright laws, as well as confidentiality procedures, contractual provisions, and other similar measures, to establish and protect its Intellectual Property Assets.




We generally enter into confidentiality and invention agreements with our employees and consultants. However, patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:




Our pending patent applications may not be granted for various reasons, including the existence of similar patents or defects in the applications; parties to the confidentiality and invention agreements may have such agreements declared unenforceable or, even if the agreements are enforceable, may breach such agreements;




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The costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement cost prohibitive;




Even if we enforce our rights aggressively, injunctions, fines and other penalties may be insufficient to deter violations of our intellectual property rights; and




Other persons may independently develop proprietary information and techniques that, although functionally equivalent or superior to our intellectual proprietary information and techniques, do not breach our patented or unpatented proprietary rights.




Because the value of our company and common stock is rooted primarily in our proprietary intellectual property, our inability to protect our proprietary intellectual property or gain a competitive advantage from such rights could have a material adverse effect on our business.




In addition, we may inadvertently be infringing on the proprietary rights of other persons and may be required to obtain licenses to certain intellectual property or other proprietary rights from third parties. Such licenses or proprietary rights may not be made available under acceptable terms, if at all. If we do not obtain required licenses or proprietary rights, we could encounter delays in product development or find that the development or sale of products requiring such licenses is foreclosed.




We anticipate that any business model we develop will be subject to change. At this time it is impossible for us to predict the degree to which demand for our products will evolve or whether any potential market will be large enough to provide any meaningful revenue or profit for us.




We have not been profitable since our inception. Although we believe that we may recognize revenues during the next twelve months based on our license agreement with IPTH, and expressions of interest from third parties, there can be no assurances as to when and whether we will be able to commercialize our products and technologies and realize any revenues. Our technologies have never been utilized on a large-scale commercial basis.




We expect that we will continue to generate losses until at least such time as we can commercialize our technologies. No assurance can be given that we can complete the development of any technology or that, if any technology is fully developed, it can be manufactured and marketed on a commercially viable basis. Furthermore, no assurance can be given that any technology will receive market acceptance. We are subject to all risks inherent in the establishment of a developing or new business. Certain alternative fuel producing or energy generating technologies we are developing may be regulated now or in the future by the United States Government and may subject to regulatory requirements or export restrictions.




Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds.  None
 Item 3.
Defaults upon Senior Securities.None.
 Item 4.
Submission of Matters to a Vote of Security Holders.
 
 No matter was submitted to a vote of the security holders, through the solicitation of proxies or otherwise, during the quarter of the fiscal year covered by this report.
 
 Item 5.
Other Information.None.
 Item 6.
Exhibits





(a) Exhibits




Exhibit No.
Description31.1
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.





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SIGNATURES





In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Dated:
September 17, 2012





US FUEL CORPORATION





By:
/s/ Harry Bagot

By:
/s/ William E. ChadyHarry Bagot


William E. ChadyTitle: President, CEO


Title: CFO





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