UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10
Amendment No. 1
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or (g) of the Securities Exchange Act of 1934
US
LIGHTING GROUP, INC.
(Exact
Name of Registrant as Specified in Charter)
Florida
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46-3556776
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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1148
East 222d St, Euclid, OH
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44117
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(Address of Principal
Executive Offices)
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(Zip Code)
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Registrant’s
telephone number, including area code:
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(216)
896-7000
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Securities
to be registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $0.0001 per share
(Title
of class)
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
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☐
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Accelerated Filer
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☐
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Non-accelerated Filer
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☐
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Smaller Reporting Company
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☒
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Emerging growth company
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☐
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY
NOTE
US
Lighting Group, Inc. is filing this General Form for Registration of Securities on Form 10, which we refer to as the Registration
Statement, to register its common stock, par value $0.0001 per share, pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended, or the Exchange Act. Unless otherwise mentioned or unless the context requires otherwise, when used in this
Registration Statement, the terms “US Lighting Group,” “Company,” “we,” “us,” and “our”
refer to US Lighting Group, Inc.
Once
this registration statement is deemed effective, we will be subject to the requirements of Section 13(a) under the Exchange Act,
which will require us to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and
we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements
pursuant to Section 12(g) of the Exchange Act.
FORWARD
LOOKING STATEMENTS
This
Registration Statement contains forward-looking statements that involve substantial risks and uncertainties. All statements, other
than statements of historical fact, contained in this Registration Statement, including statements regarding our strategy, future
operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking
statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“may,” “plan,” “predict,” “project,” “target,” “potential,” “will,”
“would,” “could,” “should,” “continue,” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain these identifying words.
We
may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions
and expectations disclosed in the forward-looking statements we make. We have included important cautionary statements in this
Registration Statement that we believe could cause actual results or events to differ materially from the forward-looking statements
that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make.
You
should read this Registration Statement and the documents that we have filed as exhibits to this Registration Statement with the
understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained
in this Registration Statement are made as of the date of this Registration Statement, and we do not assume any obligation to
update any forward-looking statements except as required by applicable law.
WHERE
YOU CAN FIND MORE INFORMATION ABOUT US
When
this Registration Statement becomes effective, we will begin to file reports, proxy statements, information statements and other
information with the United States Securities and Exchange Commission, or SEC. You may read and copy this information, for a copying
fee, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
more information on its Public Reference Room. Our SEC filings will also be available to the public from commercial document retrieval
services, and at the website maintained by the SEC at http://www.sec.gov.
Our
Internet website address is http://www.uslightinggroup.com and www.intellitronix.com. Information contained on the website
does not constitute part of this Registration Statement. We have included our website address in this Registration Statement solely
as an inactive textual reference. When this Registration Statement is effective, we will make available, through a link to the
SEC’s website, electronic copies of the materials we file with the SEC, including annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, the Section 16 reports filed by our executive officers, directors and 10% stockholders
and amendments to those reports.
US
LIGHTING GROUP, INC.
FORM
10
TABLE
OF CONTENTS
ITEM
1. BUSINESS.
Overview
The Company designs and manufactures commercial
LED lighting. Intellitronix Corporation (“Intellitronix”), our wholly owned subsidiary, is a manufacturer of automotive
aftermarket and original equipment manufacturer (OEM) electronics.
Background
The Company was incorporated in the State of
Florida on October 17, 2003, under the corporate name Luxurious Travel Corp., in order to develop,
market and distribute a hotel booking engine software that interfaces and captures various rate channels and inventory controls
for hotel reservations. The system allowed users to market, manage and sell hotel reservations, and to produce invoices, track
follow up and manage customer relationships.
The Company was a “Reporting Issuer” subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act from January 16, 2014 when it filed a Form S-1 until
it deregistered August 8, 2017 with the filing of a Form 15.
The Company acquired all of the issued and
outstanding capital stock of US Lighting Group, Inc. (founded in 2013 in accordance with the laws of the State of Wyoming) on July
13, 2016, and the corporate name was changed on August 9, 2016 to the US Lighting Group, Inc.
Intellitronix was acquired by the Company on December 1,
2016. The Company agreed to pay $4,000,000.00 to Paul Spivak, seller, sole owner and officer of Intellitronix, in exchange for
all of the shares of Intellitronix. The terms of the purchase were a deposit of $200,000.00 (5%) payable by the Company to Mr.
Spivak on or before January 2, 2017 and the remaining balance of $3,800.000.00 was payable upon closing and memorialized with
a Promissory Note on December 1, 2016. Mr. Spivak is the founder, CEO and product inventor of the Company, but he is not considered
a promoter.
Intellitronix has access to the automotive electronics market
and has an established distributor and consumer base.
As a consolidated entity, the Company has demonstrated
revenue growth; however, the Company has historically reported operating losses primarily from expenses associated with public
company costs, corporate marketing, and product development activities. We intend to raise capital to operate and expand our business
to meet the growing demand for our products. We plan to grow revenue through the increase in sale of our existing products and
our new products via our existing distribution networks, as well as, completing more OEM projects for the recreational vehicle
(RV) and marine industries.
US
Lighting Group
In
recent years, we have seen a more energy-efficient, environmentally safe, and flexible lighting for businesses and residential
homes. Light emitting diodes (LEDs) offer numerous advantages over traditional light bulbs. LEDs are more durable resembling a
hard plastic versus a thin glass. Since mercury is not required in the manufacturing process, LEDs are more environmentally friendly.
Benefits of using our LED lights include an immediate and significant reduction in lighting bills with no yearly bulb or ballast
replacements. LED lights are durable and rugged, resistant to external impacts, and emit virtually no heat and ultraviolet emissions.
Furthermore, unlike the previous fluorescent bulb, LED lights are ecologically friendly as they do not include mercury or hazardous
chemical and are recyclable.
Applications for our LED lights include commercial
spaces such as board rooms, offices, factories, stores, gymnasiums, schools, hospitals, warehouses, and greenhouses, as well as
some residential applications such as garages.
LEDs are acost-effective, energy-savings alternative
to incandescent lights, touting a 2000% efficiency rate over conventional light bulbs and a 500% efficiency rate over compact fluorescent
bulbs. Over a 10-year period, the lighting industry could save $1 trillion in energy costs, eliminate the need for nearly 1 billion
barrels of petroleum leading to a substantial reduction in carbon dioxide emissions. With technology advancements, the true potential
of LED lighting lies in their ability to transform lighting technology. The light spectrum could be custom-tailored for all wavelengths,
accurately matching the sun’s light qualities that could revolutionize indoor agriculture and help night-shift workers. The
use of polarized light from LEDs could also improve computer displays and lower the glare from car headlights.1
References:
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1
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February
28, 2019, “The coming revolution in LED lighting” by Optical Society of America US
Lighting Group has a competitive advantage with its proprietary “transformerless” power supply design that offers
significant energy savings.
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Transformerless
Circuit Controls Speed of Energy
Most LED lighting companies use a transformer
to appropriately drive an LED. Transformers, however, emit heat; that heat reduces a light bulb’s energy efficiency. US Lighting
Group has created a proprietary “transformerless” circuit that controls the speed of energy powered to the LED. Eliminating
the expense of an additional circuit board and timely assembly that goes along with it allows us to put money into the part that
matters most, the actual LED. Our driverless and transformerless technologyallows our LED lights to offer maximum efficiency.
Ballast
or no-ballast fluorescent lighting retrofits
Most
businesses use fluorescent lighting for work areas, conference rooms, and hallways. These fixtures have a “ballast”
which regulates the amount of electricity going through the fluorescent tube providing enough electricity to “start up.”
Our BH4 and GFY LED lighting product lines do not require a ballast in its fixture, allowing for maximum energy efficiency. Our
FEB Ballast Compatible line of bulbs eliminates the guesswork and retrofitting associated with these fixtures. TheseLED bulbs
are “plug-and-play” so customers do not have to worry about the type of ballast, and they can literally begin saving
money on their electricity by removing the old fluorescent bulb and replacing it with our Ballast Compatible LED Bulbs.
LED
Technology
According
to the U.S. Department of Energy, commercial and residential LED usage has shown that LED lights use at least 75% less energy
and last 25 times longer than incandescent bulbs. The actual LED component determines a light’s efficiency. To ensure
our LED is the most efficient, we use one of the most powerful LEDs available, such as Samsung LM561C,that emits the most lumens
per watt. All LEDs are rated to last at least 100,000 hours. However, this lifespan is only possible should an LED not exceed
clearly defined power and temperature limits, which is the main consideration behind our “transformerless” design.
Principal
Products
US Lighting Group
designs, manufactures, and distributes 4’ LED tube lights that are superior in power usage, lifespan, warranty, and cost
savings, because of the exclusive minimalistic design and proprietary manufacturing processes. Channels to market include The
Home Depot drop ship program, and earlier in the company history, a chain of regional distributors. US Lighting Group, Inc. has
research and development, testing, and production facilities based in Euclid, Ohio, USA where all products are engineered and
manufactured from domestic and imported components
The
US Lighting Group currently produces a series of bulbs, each with their own unique specifications and applications:
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●
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BH4
Series is our flagship LED light bulb line and has remained our top seller throughout
the years. The BH4 bulb is a powerful, highly efficient top-level bulb offering the greatest
savings potential and longest life span at 21 years. This light has been engineered to
emit zero RF.
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●
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GFY
Series designed for those looking for something a little less powerful and lower
cost. This series combines the demand for lower-watt bulbs with the need for highly efficient,
sustainable lighting options to create two highly affordable LED bulb options. This tube
is more cost-effective on the upfront purchase, while still offering a 15-year warranty
and significant savings on energy costs.
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●
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FEB
Series is our plug-and-play LED lighting option with power at each end that works
with both electronic and magnetic ballasts.
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Distribution
and Current Market
LED
lighting is a commodity product, which has become very competitive due to overseas imports with low pricing, making it a difficult
climate for US Lighting Group, Inc. to operate in. We are looking into other LED lighting product lines that would leverage our
electronics innovativeness to provide more specialty-type LED lighting. US Lighting Group has a supplier contractual relationship
with The Home Depot. Customers can order product online at HomeDepot.com and it ships to the customer directly from our warehouse,
however the sales have been minimal in the last two years.
US
Lighting Group is looking at other industries such as robotics and fiberglass, but they are still in the early development stage.
Patents
The
following patents have been issued to our majority shareholder, CEO, Paul Spivak:
Patent
No. 10308330 for the company’s new motion stabilized spotlight product for the marine industry, Issued - 06/04/2019, with
a calculated expiration date of 01/27/2037
Patent
No. 6353781 GPS Controlled Marine Speedometer Unit with Multiple Operational Modes, Issued - 03/05/2002 and expired on 07/05/2020
Currently,
there is no formal patent license agreement between the CEO and the Company. The Company intends to acquire patent No. 10308330
once the development of such product aligns with Company’s R&D goals.
Intellitronix
Corporation
In recent years, the Company’s primary
activity has been centered around Intellitronix. Intellitronix is engaged in automotive electronics manufacturing, serving a niche
market of aftermarket electronics for customer installations as well as several emerging OEM applications.
Products
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Automotive - Our portfolio includes direct fit replacement gauge panels for specific vehicle models manufactured by Chevrolet, Ford, Jeep, etc., and universal gauges for numerous other makes and models of classic cars. Other products include vehicle lighting, ignition systems, RPM switches and other automotive electronics. Intellitronix is a well-established brand that is available to consumers through major aftermarket distributors. The Company offers a Limited Lifetime Factory Warranty on all its branded products.
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Marine
- We design and manufacture products for the marine industry including GPS controlled
marine speedometer and Prometheus Ignition System to guard against ignition failures.
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OEM
- In recent years, we have developed several custom OEM projects from design to production
for companies such as Kawasaki Motors and Coachman RV. The Energy Management Multifunctional
System (EMMS) was designed and manufactured for recreational vehicles as an OEM project,
and our first customer orders were recently received. The 4-in-1 unit that is currently
in development incorporates energy management and load shed, a breaker panel, automatic
transfer switch, automatic generator starter plus display unit, Bluetooth, WiFi and multiplexing
capabilities.
|
Our
capabilities include a broad range of design and manufacturing services, such as various microprocessor-controlled products for
the automotive, electronic, marine, and recreational vehicle markets and the Company has been leveraging its competitive advantage
as an efficient low-cost manufacturing partner to other OEM providers. We are focusing on growing the OEM and private label segments
that provide high-volume and low-overhead manufacturing opportunities.
The
vast majority of our products are manufactured at our facility in Euclid, Ohio.
Distribution
We
currently have three sales channels, including Intellitronix branded automotive product lines sold through business-to-consumer
(B2C) and retail channels, business-to-business (B2B) and private labeled product lines, and original equipment manufacturers
(OEM). For OEM customers, we provide design and manufacturing services to meet original equipment manufacturer’s specifications
and these products are incorporated in the new vehicles. The most recent projects have been completed in the growing RV industry,
meeting all applicable safety standards.
Our
customers include O’Reilly Auto Parts, Summit Racing Equipment, JEGS, Kawasaki Motors, Coachman RV, US Auto Parts, CJ Pony
Parts, Corvette Central, Mid America Motorworks, Eckler’s, and others. We also sell our products through eBay, Amazon, and
other e-commerce platforms.
Employees
As of September 2020, we had 37 employees,
of which 9 employees are part-time. Our engineering staff designs products from conception through prototype, testing, and production.
Our staff consists of both electrical and mechanical engineers, and we periodically utilize contractors on an as-needed basis.
Our other departments include sales, marketing, administration, production, and technical support.
Equipment
We
have a line of automated electronic assembly equipment and other machinery required to assemble and test printed circuit boards.
We are expanding our capabilities by regularly purchasing in-house equipment in order to produce more intricate or customized
products. Our current equipment line includes Stencil printers, SMT (Surface Mount Technology) pick-and-place machine, reflow
oven, wave soldering machine, wire stripping, and laser cutting.
Markets
The
global Automotive Electronics market was valued at $285 billion in 2018 and is estimated to be worth more than $645 billion by
2030 based on the compound annual growth rate (CAGR*) of 7% between 2019 and 2030. The Automotive Electronics global market includes
automotive software, electrical/electronic component, ECUs/EDUs, power electronics, sensors, software, integration, verification
and validation, and other electronic components.2
The COVID-19 pandemic has made a significant
impact on the automotive industry. The automotive industry may see a shift in its global supply chain due to the level of dependence
on Chinese production and tooling. The industry could potentially reduce its reliance on China, because of the supply chain disruptions.
In this scenario, a larger percentage of production could feasibly move back to the U.S. It is expected that the Chinese tooling
and production industries will be extremely aggressive with pricing and will have the full backing of local Chinese authorities
and governments. Our strategic business plan for Intellitronix includes plans to reduce our dependency on Chinese imports.3
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*
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Compound
annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning
balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment’s lifespan.
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References:
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2
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2018,
“Global Automotive Electronics Market Report” by Global Market Insights
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3
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2020,
“Automotive Industry Insight” by Peakstone
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Suppliers
– International and Domestic
US
Lighting Group and Intellitronix both source components from preferred vendors and alternative sources:
US
Lighting Group
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LED
manufacturers (preferred vendor with alternative vendors)
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Circuit
boards (per specifications)
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Enclosures
(per specifications)
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Induction
components (per specifications)
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Tooling
(per specifications)
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Intellitronix Corporation
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LED
manufacturers (custom tooled)
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Circuit
boards (per specifications)
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Sending
units and sensors (custom made)
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Electronics
components (USA based distributors)
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Competition
US
Lighting Group
We
compete with numerous companies in the LED Lighting marketplace including Lithonia Lighting, Toggled, Feit Electric and countless
Chinese companies.
Intellitronix Corporation
We compete primarily with four companies in
the Automotive Aftermarkets industry for automotive electronics, including Dakota Digital, Autometer, Classic Instruments, and
Holley Ignition Boxes (MSD).
Product
Safety
We use Intertek Testing Services NA, Inc. for product safety testing. We comply with environmental regulations
regarding product safety.
Reports
to Shareholders
The Company is a Pink Sheet Issuer
filing current, public information with OTC Markets Group Inc. electronic quotation venue under the trading symbol “USLG.”
There is a highly illiquid nature in investing in the Company’s common stock.
When
this Registration Statement becomes effective, we will be a fully public reporting company and we will begin to file reports,
proxy statements, information statements and other information with the United States Securities and Exchange Commission, or SEC.
You may read and copy this information, for a copying fee, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its Public Reference Room. Our SEC filings will also
be available to the public from commercial document retrieval services, and at the website maintained by the SEC at http://www.sec.gov.
Regulatory
Mandates
Government
Regulations
We
are subject to regulations by securities laws as a public company.
Compliance
with Environmental Laws and Regulations
No
industry specific governmental approvals are required related to the operation of our business.
ITEM
1A. RISK FACTORS.
Not
required for smaller reporting companies.
ITEM
2. FINANCIAL INFORMATION.
MANAGEMENTS’
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and
cash flows of our company for the years ended December 31, 2019 and 2018, and for the six months ended June 30, 2020. You should
read this discussion together with the consolidated financial statements, related notes and other financial information included
in this Form 10. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of
Financial Condition and Results of Operations are forward looking statements that involve risks and uncertainties, and are based
upon judgments concerning various factors that are beyond our control. These risks could cause our actual results to differ materially
from any future performance suggested below.
General
Overview
We
are engaged in the business of manufacturing and distributing LED digital gauges, automotive electronics, and accessories for
commercial and industrial customers, as well as LED lighting tubes and bulbs.
Principal
Products
US
Lighting Group designs, manufactures, and distributes 4’ LED tube lights that are superior in power usage, lifespan, warranty,
and cost savings, because of the exclusive minimalistic design and proprietary manufacturing processes. Channels to market include
The Home Depot drop ship program, and earlier in the company history, a chain of reginal distributors. US Lighting Group, Inc.
has research and development, testing, and production facilities based in Euclid, Ohio, USA where all products are engineered
and manufactured from domestic and imported components
The
US Lighting Group currently produces a series of bulbs, each with their own unique specifications and applications:
|
●
|
BH4
Series is our flagship LED light bulb line and has remained our top seller throughout
the years. The BH4 bulb is a powerful, highly efficient top-level bulb offering the greatest
savings potential and longest life span at 21 years. This light has been engineered to
emit zero RF.
|
|
●
|
GFY
Series designed for those looking for something a little less powerful and lower
cost. This series combines the demand for lower-watt bulbs with the need for highly efficient,
sustainable lighting options to create two highly affordable LED bulb options. This tube
is more cost-effective on the upfront purchase, while still offering a 15-year warranty
and significant savings on energy costs.
|
|
●
|
FEB
Series is our plug-and-play LED lighting option with power at each end that works
with both electronic and magnetic ballasts.
|
Distribution
and Current Market
LED
lighting is a commodity product, which has become very competitive due to overseas imports with low pricing, making it a difficult
climate for US Lighting Group, Inc. to operate in. We are looking into other LED lighting product lines that would leverage our
electronics innovativeness to provide more specialty-type LED lighting. US Lighting Group has a supplier contractual relationship
with The Home Depot. Customers can order product online at HomeDepot.com and it ships to the customer directly from our warehouse,
however the sales have been minimal in the last two years.
US
Lighting Group is looking at other industries such as robotics and fiberglass, but they are still in the early development stage.
Intellitronix
Corporation
In
recent years, the Company’s primary activity has been centered around Intellitronix. Intellitronix is engaged in automotive
electronics manufacturing, serving a niche market of aftermarket electronics for customer installations as well as several emerging
OEM applications.
Products
|
●
|
Automotive
- Our portfolio includes direct fit replacement gauge panels for specific vehicle models manufactured by Chevrolet, Ford,
Jeep, etc. and universal gauges for numerous other makes and models of classic cars. Other products include vehicle lighting,
ignition systems, RPM switches and other automotive electronics. Intellitronix Corporation is a well-established brand that is
available to consumers through major aftermarket distributors. The Company offers a Limited Lifetime Factory Warranty on all its
branded products.
|
|
●
|
Marine
- We design and manufacture products for the marine industry including GPS controlled marine speedometer and Prometheus Ignition
System to guard against ignition failures.
|
|
●
|
OEM
- In recent years, we have developed several custom OEM projects from design to production
for companies such as Kawasaki Motors and Coachman RV. The Energy Management Multifunctional
System (EMMS) was designed and manufactured for recreational vehicles as an OEM project,
and our first customer orders were recently received. The 4-in-1 unit that is currently
in development incorporates energy management and load shed, a breaker panel, automatic
transfer switch, automatic generator starter plus display unit, Bluetooth, WiFi and multiplexing
capabilities.
|
Our
capabilities include a broad range of design and manufacturing services, such as various microprocessor-controlled products for
the automotive, electronic, marine, and recreational vehicle markets and the Company has been leveraging its competitive advantage
as an efficient low-cost manufacturing partner to other OEM providers. We are focusing on growing the OEM and private label segments
that provide high-volume and low-overhead manufacturing opportunities.
The
vast majority of our products are manufactured at our facility in Euclid, Ohio.
Distribution
We
currently have three sales channels, including Intellitronix branded automotive product lines sold through business-to-consumer
(B2C) and retail channels, business-to-business (B2B) and private labeled product lines, and original equipment manufacturers
(OEM). For OEM customers, we provide design and manufacturing services to meet original equipment manufacturer’s specifications
and these products are incorporated in the new vehicles. The most recent projects have been completed in the growing RV industry,
meeting all applicable safety standards. Our customers include O’Reilly Auto Parts, Summit Racing Equipment, JEGS, Kawasaki
Motors, Coachman RV, US Auto Parts, CJ Pony Parts, Corvette Central, Mid America Motorworks, Eckler’s and others. We also
sell our products through eBay, Amazon, and other e-commerce platforms.
COVID-19
Considerations
Through
the date these financial statements were issued, the COVID-19 pandemic did not have a net material impact on our operating results.
In the future, the pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary
economic environment, which negatively effects the consumers who purchase our products.
Our
ability to operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability
to protect our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and
health authorities to protect our employees. Through the date that these financial statements were issued, we maintained the consistency
of our operations during the onset of the COVID-19 pandemic. However, the uncertainty resulting from the pandemic could result
in an unforeseen disruption to our workforce and supply chain (for example an inability of a key supplier or transportation supplier
to source and transport materials) that could negatively impact our operations.
Through
the date that these financial statements were issued, the COVID-19 pandemic has not negatively impacted the Company’s liquidity
position as of such date, and the Company continues to generate cash flows to meet its short-term liquidity needs, and it expects
to maintain access to the capital markets. The Company has not observed any material impairments of its assets or a significant
change in the fair value of its assets due to the COVID-19 pandemic.
Critical
Accounting Policies
This
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section is based upon
our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”). The preparation of consolidated financial statements requires that we
make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosures.
On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to inventories, income taxes, accounts
receivable allowance, fair value derivatives, and reserve for warranty claims. We base our estimates on historical experience,
performance metrics and on various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results will differ from these estimates under different assumptions or conditions. We apply the following
critical accounting policies in the preparation of our consolidated financial statements:
Use
of Estimates
Financial
statements prepared in accordance with accounting principles generally accepted in the United States require management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the
estimated collectability of its accounts receivable, the valuation of long lived assets, warranty reserves, the assumptions used
to calculate derivative liabilities, assumptions used to value equity instruments issued for financing and compensation, and the
valuation of deferred tax assets. Actual results could differ from those estimates.
Revenue
recognition
We
recognize revenue in accordance with Accounting Standard Update (“ASU”) No. 2014-09. This standard provides authoritative
guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. generally accepted
accounting principles. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of
promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in the exchange for those goods or services.
Under
this guidance, revenue is recognized when control of promised goods or services is transferred to the Company’s customers,
in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The
Company reviews its sales transactions to identify contractual rights, performance obligations, and transaction prices, including
the allocation of prices to separate performance obligations, if applicable. Revenue and costs of sales are recognized once products
are delivered to the customer’s control and performance obligations are satisfied.
Products
sold by the Company are distinct individual products. The products are offered for sale as finished goods only, and there are
no performance obligations required post-shipment for customers to derive the expected value from them. Most of the Company’s
sales are received through several eBay web-commerce websites, which requires customer payment at time of order placement.
The
Company does offer a 30-day return policy from the date of shipment. The Company also provides a limited lifetime warranty on
its products. Due to a limited history of returns, the Company does not maintain a warranty reserve.
Recent
Accounting Pronouncements
See
Note 1 of Notes to Consolidated Financial Statements contained in this Form 10 for management’s discussion of recent accounting
pronouncements.
Results
of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Our
revenue, operating expenses, and net loss from operations for the year ended December 31, 2019 as compared to the year ended December
31, 2018, were as follows:
|
|
For the year ended
|
|
|
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
Inc. (Dec.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales, net
|
|
|
2,647,000
|
|
|
|
2,422,000
|
|
|
|
225,000
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of goods sold
|
|
|
1,041,000
|
|
|
|
1,602,000
|
|
|
|
(561,000
|
)
|
|
|
(35
|
)%
|
Gross profit
|
|
|
1,606,000
|
|
|
|
820,000
|
|
|
|
786,000
|
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,902,000
|
|
|
|
3,257,000
|
|
|
|
(1,355,000
|
)
|
|
|
(42
|
)%
|
Product development costs
|
|
|
230,000
|
|
|
|
465,000
|
|
|
|
(235,000
|
)
|
|
|
(51
|
)%
|
Stock-based compensation
|
|
|
7,976,000
|
|
|
|
812,000
|
|
|
|
7,164,000
|
|
|
|
882
|
%
|
Loss on disposal of property and equipment
|
|
|
-
|
|
|
|
149,000
|
|
|
|
(149,000
|
)
|
|
|
(100
|
)%
|
|
|
|
10,108,000
|
|
|
|
4,683,000
|
|
|
|
5,425,000
|
|
|
|
116
|
%
|
Loss from operations
|
|
|
(8,502,000
|
)
|
|
|
(3,863,000
|
)
|
|
|
(4,639,000
|
)
|
|
|
120
|
%
|
Interest
|
|
|
(200,000
|
)
|
|
|
(222,000
|
)
|
|
|
(22,000
|
)
|
|
|
(10
|
)%
|
Net loss
|
|
$
|
(8,702,000
|
)
|
|
$
|
(4,085,000
|
)
|
|
$
|
(4,617,000
|
)
|
|
|
113
|
%
|
Sales
Sales
increased by $225,000 (9%) to $2.6 million for the year ended December 31, 2019, compared to $2.4 million for the year ended December
31, 2018. The increase in revenue is attributed to the utilization of the eBay e-commerce website, which has provided us access
to a larger customer base.
Cost
of Goods Sold
Cost
of goods sold decreased by $561,000 (35%) to $1.0 million for the year ended December 31, 2019, compared to $1.6 million for the
year ended December 31, 2018. The decrease in costs of goods sold was primarily attributable to increased automation leading to
reduced labor costs, and improved supply chain management. Gross profit as a percentage of sales increased by 80% to 60.7% for
the year ended December 31, 2019, compared to 33.8% for the year ended December 31, 2018.
Operating
Expenses
Operating expenses include selling, general
and administrative expenses, product development costs, and non-cash stock-based compensation expense, and loss on disposal of
property and equipment.
Selling, general and administrative expenses
decreased approximately $1.4 million to $1.9 million during the year ended December 31, 2019, compared to $3.3 million during the
year ended December 31, 2018. The decrease in selling, and general and administrative expenses was due to planned personnel and
expense reductions leading to decreased compensation and benefit expense, and decreased professional fees, as compare to the prior
year period.
Product
development costs decreased approximately $235,000 to $230,000 during the year ended December 31, 2019, compared to $465,000 during
the year ended December 31, 2018. The decrease in product development costs was due primarily to the completion of major engineering
milestones for the RV industry in early 2019.
Non-cash stock-based compensation expense increased
approximately $7.2 million to $8.0 million during the year ended December 31, 2019 compared to $812,000 during the year ended December
31, 2018. We issued stock in lieu of cash payment for services received from employees and contractors. During the year ended December
31, 2019, we issued 27,091,000 shares of the Company’s common to our CEO valued at $6.8 million.
Loss
from Operations
Loss
from operations increased to approximately $8.5 million during the year ended December 31, 2019, compared to $3.9 million during
the year ended December 31, 2018. The increase in operating loss was due primarily to the increase in non-cash stock based compensation
expense discussed above, offset by increased sales and gross profit, decreased selling, general and administrative expenses, and
decreased product development costs.
Other
Expense
Other
expenses include interest. Interest decreased approximately $22,000 to $200,000 during the year ended December 31, 2019, compared
to $222,000 during the year ended December 31, 2018. The decrease in interest was primarily attributable to the decrease in notes
payable to related parties as compared to the prior year period.
Net
Loss
Net
loss increased $4.6 million to $8.7 million during the year ended December 31, 2019, compared to a net loss of $4.1 million for
the year ended December 31, 2018. The increase in net loss was due to the increase in non-cash stock based compensation expense
discussed above, offset by increased gross profit, decreased selling, general and administrative expenses, and decreased product
development costs. Net loss per common share increased to $0.15 per share for the year ended December 31, 2019, compared to $0.09
net loss per common share for the year ended December 31, 2018, due to the increase in net loss for the year ended December 31,
2019, offset by the increase in weighted-average shares outstanding during the year ended December 31, 2019.
Results
of Operations for the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
Our
revenue, operating expenses, and net loss from operations for the six months ended June 30, 2020 as compared to the six months
ended June 30, 2019 were as follows:
|
|
For the six months ended
|
|
|
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
Inc. (Dec.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales, net
|
|
|
1,562,000
|
|
|
|
1,286,000
|
|
|
|
276,000
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of goods sold
|
|
|
604,000
|
|
|
|
373,000
|
|
|
|
231,000
|
|
|
|
62
|
%
|
Gross profit
|
|
|
958,000
|
|
|
|
913,000
|
|
|
|
45,000
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
891,000
|
|
|
|
1,055,000
|
|
|
|
(164,000
|
)
|
|
|
(16
|
)%
|
Product development costs
|
|
|
220,000
|
|
|
|
111,000
|
|
|
|
109,000
|
|
|
|
98
|
%
|
Stock-based compensation
|
|
|
31,000
|
|
|
|
225,000
|
|
|
|
(194,000
|
)
|
|
|
(86
|
)%
|
Total operating expenses
|
|
|
1,142,000
|
|
|
|
1,391,000
|
|
|
|
(249,000
|
)
|
|
|
(18
|
)%
|
Loss from operations
|
|
|
(184,000
|
)
|
|
|
(478,000
|
)
|
|
|
294,000
|
|
|
|
62
|
%
|
Interest
|
|
|
(98,000
|
)
|
|
|
(88,000
|
)
|
|
|
10,000
|
|
|
|
11
|
%
|
Net loss
|
|
$
|
(282,000
|
)
|
|
$
|
(566,000
|
)
|
|
$
|
284,000
|
|
|
|
50
|
%
|
Sales
Sales
increased by $276,000 (21%) to $1.6 million for the six months ended June 30, 2020, compared to $1.3 million for the six months
ended June 30, 2019. The increase in revenue is attributed to the utilization of the eBay e-commerce website, which has provided
us access to a larger customer base.
Cost
of Goods Sold
Cost of goods sold increased by $231,000 (62%)
to $604,000 for the six months ended June 30, 2020, compared to $373,000 for the six months ended June 30, 2019. The increase in
costs of goods sold was primarily attributable to our increase in sales, offset by increased material, freight, and tariffs costs,
as compared to the prior year period. Gross profit as a percentage of sales decreased by 14% to 61.3% for the six months ended
June 30, 2020, compared to 71.0% for the six months ended June 30, 2019. The decrease in gross margin as a percentage of sales
was due to increased material, freight, and tariffs costs, as compared to the prior year period.
Operating
Expenses
Operating
expenses include selling, general and administrative expenses, product development costs, and non-cash stock-based compensation
expense.
Selling, general and administrative expenses
decreased approximately $164,000 to $891,000 during the six months ended June 30, 2020, compared to $1.1 million during the six
months ended June 30, 2019. The decrease in selling, and general and administrative expenses was due to planned personnel and expense
reductions leading to decreased compensation and benefit expense, and decreased professional fees, as compare to the prior year
period.
Product
development costs increased approximately $109,000 to $220,000 during the six months ended June 30, 2020, compared to $111,000
during the six months ended June 30, 2019. The increase in product development costs was due primarily to new product engineering
initiatives and various OEM projects.
Non-cash
stock-based compensation expense decreased approximately $194,000 to $31,000 during the six months ended June 30, 2020, compared
to $225,000 during the six months ended June 30, 2019. During the six months ended June 30, 2020, the reduced the amount of stock
we issued to our employees and contractors, as compared to the prior year period.
Loss
from Operations
Loss from operations decreased to approximately
$184,000 during the six months ended June 30, 2020, compared to $478,000 during the six months ended June 30, 2019. The decrease
in operating loss was due primarily to the increase in gross profit, and decreased operating expenses discussed above.
Other
Expense
Other
expenses include interest. Interest increased approximately $10,000 to $98,000 during the six months ended June 30, 2020, compared
to $88,000 during the six months ended June 30, 2019. The increase in interest was primarily attributable to the increase in notes
payable and convertible notes payables balances as compared to the prior year period.
Net
Loss
Net
loss decreased $284,000 to $282,000 during the six months ended June 30, 2020, compared to $566,000 for the six months ended June
30, 2019. The decrease in operating loss was due to the increase in gross profit, and decreased operating expense discussed above.
Net loss per common share decreased to $0.00 per share for the six months ended June 30, 2020, compared to $0.01 net loss per
common share for the six months ended June 30, 2019, due to an increase in weighted-average shares outstanding during the six
months ended June 30, 2020, and the decrease in net loss for the six months ended June 30, 2020.
Liquidity
and Capital Resources
Our
working capital deficiency as of June 30, 2020 and December 31, 2019 was as follows:
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
$
|
360,000
|
|
|
$
|
314,000
|
|
Current Liabilities
|
|
|
3,902,000
|
|
|
|
2,484,000
|
|
Net Working Capital Deficiency
|
|
$
|
(3,542,000
|
)
|
|
$
|
(2,170,000
|
)
|
The
following summarizes our cash flow activity for the six months ended June 30, 2020, and the fiscal year ended December 31, 2019:
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Net cash provided by (used in) Operating Activities
|
|
$
|
14,000
|
|
|
$
|
(315,000
|
)
|
Net cash used in Investing Activities
|
|
|
(769,000
|
)
|
|
|
(101,000
|
)
|
Net cash provided by Financing Activities
|
|
|
711,000
|
|
|
|
299,000
|
|
Decrease in Cash during the period
|
|
|
(44,000
|
)
|
|
|
(117,000
|
)
|
Cash, Beginning of Period
|
|
|
107,000
|
|
|
|
224,000
|
|
Cash, End of Period
|
|
$
|
63,000
|
|
|
$
|
107,000
|
|
Since
inception, our principal sources of liquidity have been cash provided by financing, including through the private placement of
convertible notes and equity securities, loans, and gross profit from the sales of our products. Our principal uses of cash have
been primarily for labor and outside services, expansion of our operations, development of new products and improvement of existing
products, expansion of marketing efforts to promote our products and brand, and capital expenditures. We anticipate that additional
expenditures will be necessary to develop and expand our assets before sufficient and consistent positive operating cash flows
will be achieved, including sufficient cash flows to service existing liabilities and related interest. Additional funds may be
needed in order to continue production and operations, maintain profitability and to achieve our objectives. As such, our cash
resources may not be sufficient to meet our current operating expense and production requirements, and planned business objectives
beyond the date of this Form 10 filing without additional financing.
As further presented in our consolidated financial
statements and related notes included in this Form 10, during the six months ended June 30, 2020 we incurred a net loss of $282,000,
and at June 30, 2020, had a stockholders’ deficit of $3.5 million. In addition, during the fiscal year ended December 31,
2019, we incurred a net loss of $8.7 million, and used cash in operations of $315,000, and at December 31, 2019, we had a stockholders’
deficit of $3.3 million, and a working capital deficit of $2.2 million. These factors raise substantial doubt about our ability
to continue as a going concern, as noted by our independent registered public accounting firm in its report on our December 31,
2019 financial statements.
Our ability to continue as a going concern
is dependent upon our ability to raise additional capital and to maintain revenues and generate profit from operations. Subsequent
to June 30, 2020, we received aggregate proceeds of $274,000 through proceeds received from a private placement transaction. During
the six months ended June 30, 2020, we were able to raise $58,000 through proceeds received from a private placement transaction
and $227,000 from the issuance of convertible notes. During the fiscal year ended December 31, 2019, we were able to raise $622,000
through proceeds received from a private placement transaction and $113,000 from the issuance of convertible notes. At June 30,
2020, we had cash on hand of approximately $63,000, and may not be able to generate sufficient funds from our future operations
to meet our cash flow requirements. We may need additional funds to meet our cash flow requirements to operate our business through
December 31, 2020.
At
June 30, 2020, we had a working capital deficit of approximately $3.5 million compared to a working capital deficit of $2.2 million
at December 31, 2019. The increase in working capital deficit was primarily related to the increase in short-term debt. At December
31, 2019, we had a working capital deficit of approximately $2.2 million compared to a working capital deficit of $1.6 million
at December 31, 2018. The increase in working capital deficit was primarily related to the increase in short-term debt and the
increase in accrued and unpaid payroll to our President and CEO during the year ended December 31, 2019.
Net
cash provided by operating activities for the six months ended June 30, 2020 totaled $14,000, compared to net cash used in operating
activities for the six months ended June 30, 2019 of $260,000. The decrease in net cash used in operations for the six months
ended June 30, 2020 was primarily due to a decrease in net loss during the six months ended June 30, 2020 of $282,000 compared
to a net loss of $566,000 incurred during the six months ended June 30, 2019. Net cash used in operating activities for the fiscal
year ended December 31, 2019 totaled $315,000. This compares to net cash used in operating activities of $2.7 million for the
year ended December 31, 2018.
Net
cash used in investing activities was approximately $769,000 for the six months ended June 30, 2020, compared to $3,000 for the
six months ended June 30, 2019. During the six months ended June 30, 2020, the Company purchased land, building, and improvements
for $736,000, and moved its operations to Euclid, Ohio. Net cash used in investing activities was approximately $101,000 for year
ended December 31, 2019, compared to $70,000 for the year ended December 31, 2018, and relates to the purchase of automobiles,
machinery and equipment.
Net cash provided by financing activities
for the six months ended June 30, 2020 was $711,000, and included proceeds of $58,000 received in the private placement of common
stock, $227,000 from the issuance of secured convertible promissory notes, $345,000 from proceeds from the issuance of notes payable,
and $408,000 in proceeds from the issuance of a note payable to a related party. These proceeds were offset by the payment of
$2,000 on a finance lease, repayment of $131,000 of notes payable, and repayment of $194,000 of notes payable to a related party.
Net cash provided by financing activities for the six months ended June 30, 2019 was $123,000, which included $493,000 of proceeds
from private placement of common stock, offset by payment of $4,000 on a finance lease, and repayment of $66,000 of notes payable,
and repayment of $300,000 on notes payable to a related party. Net cash provided by financing activities for the year ended December
31, 2019 was $299,000, and included $622,000 of proceeds from the private placement of common stock, $113,000 from the issuance
of secured convertible promissory notes, and $280,000 in proceeds from loans payable. These proceeds were offset by the payment
of $8,000 on a finance lease, repayment of $174,000 of notes payable, and repayment of $534,000 of notes payable to a related
party. Net cash provided by financing activities for the year ended December 31, 2018 was $3.0 million, and included $3.9 million
of proceeds from the private placement of common stock, $60,000 on the conversion of warrants into common stock, offset by the
repayment of $182,000 of notes payable, and repayment of $743,000 of a note payable to a related party.
Off-Balance
Sheet Arrangements
We
have not entered any off-balance sheet arrangements.
Commitments
Lease
Obligations
We
currently have no lease obligations.
ITEM
3. PROPERTIES
Our
principal corporate office and production facility, which we purchased on April 27, 2020, is located at 1148 East 222nd
Street, Euclid, Ohio 44117. The commercial building has 26,000 sq. ft. of manufacturing,
warehouse and office space and sits on 2.0 acres of land. Previously, the Company rented space at 34099 Melinz Parkway,
Unit E, Eastlake, Ohio. We believe our facilities are adequate to meet our current and near-term needs.
ITEM
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The
following table sets forth information with respect to the beneficial ownership of our outstanding common stock by:
|
●
|
each
person who is known by us to be the beneficial owner of five percent (5%) or more of our common stock;
|
|
●
|
our
executive officers, and each director as identified in the “Management — Executive Compensation” section; and
|
|
●
|
all
of our directors and executive officers as a group.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are
currently exercisable or convertible within 60 days of the date of this document into shares of our common stock are deemed to
be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose
of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
The
information below is based on the number of shares of our common stock that we believe was beneficially owned by each person or
entity as of September 25, 2020.
(a)
Security Ownership of Certain Beneficial Owners
Title
of Class
|
|
Name
and Address of
Beneficial Owner
|
|
Amount
and Nature of
Beneficial
Owner
|
|
Percent
of Class
Outstanding
|
Common
Stock
|
|
None
|
|
|
|
|
(b)
Security Ownership of Management
Title
of Class
|
|
Name
and Address of
Beneficial Owner
|
|
Amount
and Nature of
Beneficial
Owner
|
|
Percent
of Class
Outstanding
|
Common
Stock
|
|
Paul
Spivak
309
Lake Breeze Cv,
Eastlake,
OH 44095
|
|
50,000,479
shares
CEO
|
|
55.153%
|
(b)
Changes in Control
None.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The
following table sets forth the names, positions and ages of our current executive officers and directors. All directors serve
until the next annual meeting of stockholders or until their successors are elected and qualified. Officers are appointed by our
board of directors and their terms of office are, except to the extent governed by an employment contract, at the discretion of
our board of directors.
Name
|
|
Age
|
|
Title
|
Paul
Spivak (a)
|
|
61
|
|
President
and Chief Executive Officer
|
(a)
|
Appointed
effective July 13, 2016.
|
Paul
Spivak, President and Chief Executive Officer
Mr.
Spivak is an innovative entrepreneur, design engineer, inventor, and patent holder with over 30 years of experience in
creating new high technology products and successfully developing four profitable startup companies. Initially designing electronic
surveillance equipment for IBM, Motorola, and Westinghouse, he ultimately left his day job to pursue his own business ventures,
inventions, and patents. Mr. Spivak has an extensive list of patents and patents pending and has several patents in the areas
of GPS speedometer, LED Tanning, Spray Tanning, LED Technologies and Automotive Aftermarket Technologies. His engineering and
design specialties include microprocessor-controlled product development, printed circuit board design, analog and digital circuitry,
and LED technology. His innovations and entrepreneurial spirit have led him to successfully develop 4 start-up companies in the
electronics industry, including Cyberdyne, Magic Tan (currently known as Sunless Inc.) and Intellitronix Corporation. Mr. Spivak’s
education includes a Bachelor of Science in Electrical Engineering from Penn State University, Penn College of Technology. Mr.
Spivak resides in Cleveland, Ohio. He is an avid world traveler and enjoys boating and reading history.
Mr. Spivak has been performing duties
of the CEO of Intellitronix Corp. and US Lighting Group Inc. since their inception and for the last consecutive 5 years. Mr. Spivak
works fulltime for the Company.
He is also currently performing functions
of Chief Financial Officer for the Company.
ITEM
6. EXECUTIVE COMPENSATION.
The
following table and related footnotes show the compensation paid to our Chief Executive Officer during the last fiscal year ended
December 31, 2019, and information concerning all compensation paid for services rendered to us in all capacities for our last
two fiscal years.
Name and Principal Position
|
|
Year
|
|
Salary($)
|
|
|
Stock
Awards($) (2)
|
|
|
All Other
Compensation($)
|
|
|
Total($)
|
|
Paul Spivak, CEO
|
|
2019
|
|
|
150,000
|
(1)
|
|
|
6,772,750
|
|
|
|
-
|
|
|
|
6,922,750
|
|
|
|
2018
|
|
|
150,000
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
350,000
|
|
|
(1)
|
This
amount was accrued and unpaid as of December 31, 2019.
|
(2)
|
On December 23, 2019, Mr. Spivak was granted 27,091,000 shares of US Lighting Group, Inc. common stock valued at $0.25 per share.
|
Employment
Contracts and Termination of Employment and Change-in-Control Arrangements
There
are employment contracts with employees but no compensatory plans or arrangements, including payments to be received from us,
with respect to any of our directors or executive officers which would in any way result in payments to any such person because
of his or her resignation, retirement or other termination of employment with us. These agreements do not provide for payments
to be made as a result of any change in control of us, or a change in the person’s responsibilities following such a change in
control.
The
January 2, 2017, the Company entered into an Employment Agreement with Paul Spivak, that outlines Mr. Spivak’s retention
as President and CEO of the Company in exchange for an annual salary of $150,000, with allowances for bonuses and the issuance
of the Company’s common stock. On July 1, 2020, the Company amended the Employment Agreement to increase Mr Spivak’s
annual salary to $156,000.
The Employment Agreement does not require
Mr. Spivak to work for the Company fulltime; however it is estimated that he devotes at least 40 hours a week to the Company.
Compensation
Committee Interlocks and Insider Participation
Our
board of directors in our entirety acts as the compensation committee for the Company.
Compensation
of Directors
At
this time, our Directors do not receive cash compensation for serving as members of our Board of Directors. The term of office
for each Director is one (1) year, or until his/her successor is elected at our annual meeting and qualified. The term of office
for each of our Officers is at the pleasure of the Board of Directors. The Board of Directors has no nominating, auditing committee
or a compensation committee. Therefore, the selection of person or election to the Board of Directors was neither independently
made nor negotiated at arm’s length.
During
the years ended 2017, 2018, and 2019, the Company’s sole director, and President and CEO, Paul Spivak, received no compensation
for services provided as a director.
Limitation
on Liability and Indemnification
To
the fullest extent permitted by the laws of the State of Florida, and our Bylaws, we may indemnify an officer or director who
is made a party to any proceeding, including a lawsuit, because of his/her position, if he/she acted in good faith and in a manner
he/she reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent
that the officer or director is successful on the merits in a proceeding as to which he/she is to be indemnified, we must indemnify
him/her against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be
made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged
liable, only by a court order.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is theretofore unenforceable.
Equity
Compensation Plan Information
US
Lighting Group Corporation issues stock bonuses to Company employees from time-to-time based on the CEO’s recommendations.
The Company does not currently offer a Stock Option or Award Plan for its employees.
ITEM
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Other
than the stock transactions discussed below, we have not entered into any transaction nor are there any proposed transactions
in which any of our founders, directors, executive officers, stockholders or any members of the immediate family of any of the
foregoing had or are to have a direct or indirect material interest.
Paul
Spivak
Beginning
in January 2018, the Company’s President voluntarily elected to defer a portion of his employment compensation. The balance
of the compensation owed to the Company’s President was $364,000 and $312,000 as of June 30, 2020 and December 31, 2019,
respectively. There is no maturity date, and the balances bear no interest. The Company has not entered into any agreements
in regard to the deferred compensation repayment.
On
December 23, 2019, the Company issued Paul Spivak, the Company’s President and a shareholder, 27,091,000 shares of Company
common stock, with a fair value of $6,772,000, or $0.25 per shares, which was recognized as compensation cost.
Loans
payable to Paul Spivak, or affiliated with Paul Spivak, consist of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Loan payable to officers/shareholders (a)
|
|
$
|
2,620,000
|
|
|
$
|
2,738,000
|
|
Loan payable to related party (b)
|
|
|
125,000
|
|
|
|
125,000
|
|
Loan payable to related party – past due (c)
|
|
|
30,000
|
|
|
|
32,000
|
|
Loan payable to related party – (d)
|
|
|
413,000
|
|
|
|
-
|
|
Total loans payable to related parties
|
|
|
3,188,000
|
|
|
|
2,895,000
|
|
Loans payable to related parties, current portion
|
|
|
(2,745,000
|
)
|
|
|
(1,662,000
|
)
|
Loans payable to related parties, net of current portion
|
|
$
|
443,000
|
|
|
$
|
1,233,000
|
|
a.
|
Intellitronix was acquired by the Company on December 1,
2016. The Company agreed to pay $4,000,000.00 to Paul Spivak, seller, sole owner and officer of Intellitronix, in exchange for
all of the shares of Intellitronix. The terms of the purchase were a deposit of $200,000.00 (5%) payable by the Company to Mr.
Spivak on or before January 2, 2017 and the remaining balance of $3,800.000.00 was payable upon closing and memorialized with
a Promissory Note on December 1, 2016. Mr. Spivak is the founder, CEO and product inventor of the Company, but he is not considered
a promoter.
The sixty-month loan matures in December 2021, requires monthly payments of $74,000, carries an interest rate of 6.25%,
and is secured by the assets of Intellitronix Corporation. The loan balance on December 31, 2019, including accrued
interest of $619,000, was $2,738,000. During the six months ended June 30, 2020, the Company accrued interest of $75,000,
made principal and interest payments totaling $193,000, leaving a balance outstanding of $2,620,000 at June 30, 2020.
|
b.
|
During the year ended December 31, 2017, the Company’s President and shareholder, contributed $125,000 of working capital to the Company. The contributed working capital balance was converted into a loan with no interest rate, and due on demand. The loan balance was $125,000 on both June 30, 2020 and December 31, 2019.
|
|
|
c.
|
In July 2016, the Company assumed an obligation of Solei Systems, Inc, an entity owned by the Company’s President and shareholder. The Company agreed to enter into a note agreement with Huntington National Bank for $60,000. The loan has an interest rate of 6.00% and requires a monthly payment of $1,000. The loan balance on December 31, 2019 was $32,000. During the six months ended June 30, 2020, the Company made loan payments of $2,000, leaving a balance outstanding of $30,000 at June 30, 2020. The loan is currently past due.
|
|
d.
|
On
April 24, 2020, the Company entered into a loan agreement (the “Loan Agreement”) with the Company’s President
and shareholder, Paul Spivak (the “Lender”), pursuant to which the Company borrowed $408,000 from the Lender. The
Loan has a term of twelve months and carries an interest rate of 6.00%. The Company used the net proceeds from the
Loan to acquire the Facility described in Note 3. During the period ended June 30, 2020, the Company accrued interest
of $5,000, leaving a balance outstanding of $413,000 at June 30, 2020.
|
ITEM
8. LEGAL PROCEEDINGS.
We
anticipate that we (including any future subsidiaries) will from time to time become subject to claims and legal proceedings arising
in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and we cannot assure that
their ultimate disposition will not have a materially adverse effect on our business, financial condition, cash flows or results
of operations. As of the filing of this Form 10, we are not a party to any pending legal proceedings, nor are we aware of any
civil proceeding or government authority contemplating any legal proceeding.
ITEM
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company is a Pink Sheet Issuer
filing current, public information with OTC Markets Group Inc. electronic quotation venue under the trading symbol “USLG.”
There is a highly illiquid nature in investing in the Company’s common stock.
When this Registration Statement becomes
effective, we will be a fully public reporting company and we will begin to file reports, proxy statements, information statements
and other information with the United States Securities and Exchange Commission, or SEC.
The
following quotations reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
Fiscal Year
2020
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
0.90
|
|
|
$
|
0.425
|
|
Second Quarter
|
|
$
|
0.95
|
|
|
$
|
0.375
|
|
Third Quarter
|
|
$
|
0.53
|
|
|
$
|
0.33
|
|
Fourth Quarter
|
|
$
|
|
|
|
$
|
|
|
Fiscal
Year 2019
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
1.00
|
|
|
$
|
0.60
|
|
Second Quarter
|
|
$
|
0.82
|
|
|
$
|
0.35
|
|
Third Quarter
|
|
$
|
1.00
|
|
|
$
|
0.66
|
|
Fourth Quarter
|
|
$
|
0.97
|
|
|
$
|
0.81
|
|
Fiscal
Year 2018
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
1.40
|
|
|
$
|
0.27
|
|
Second Quarter
|
|
$
|
1.49
|
|
|
$
|
0.95
|
|
Third Quarter
|
|
$
|
1.18
|
|
|
$
|
0.80
|
|
Fourth Quarter
|
|
$
|
1.10
|
|
|
$
|
0.78
|
|
Holders
of Record
As
of September 25, 2020, an aggregate of 90,913,193shares of our common stock were issued and outstanding and were owned by approximately
480 stockholders of record.
Dividend
Policy
Prior
to Closing on the purchase of US Lighting Group, Inc., the Company’s, Board of Directors declared and paid a cash dividend
of $0.00575 per share to shareholders of record, other than Todd Delmay, former officer of the Company, who waived the right to
receive the dividend. The aggregate amount of dividend to our shareholders was $105,512.50.
Since
then, the Company has not declared or paid any cash dividends on its common stock and it does not anticipate paying any
cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will be based upon the Company’s financial condition, operating results, capital requirements,
plans for expansion, restrictions imposed by any financing arrangements and any other factors that the Board of Directors deems
relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
Company does not currently maintain any Equity Compensation Plans.
ITEM
10. RECENT SALES OF UNREGISTERED SECURITIES.
The
following issuances of equity securities by the Company were exempt from the registration requirements of the Securities Act of
1933 pursuant to Section 4(a)(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder, during
the three-year period preceding the date of this Form 10:
Six months ended June 30, 2020
Common
shares issued for cash
During
the six months ended June 30, 2020, the Company received proceeds of $58,000 from the sale of 316,667 shares of common stock,
at $0.18 per share, as part of a Regulation D offering.
Shares
issued on conversion of convertible note payable
During
the six months ended June 30, 2020, the Company issued 124,000 shares of the Company’s common stock, for the conversion
of $31,000 of a convertible note payable.
Common
shares issued for services
During
the six months ended June 30, 2020, the Company issued its employees common shares to reward performance. The Company issued 125,000
shares of common stock, valued at $31,000, or $0.25 per share.
Year
Ended December 31, 2019
Common
shares issued for cash
During
the year ended December 31, 2019, the Company received proceeds of $622,000 from the sale of 2,487,998 shares of common stock,
at $0.25 per share, as part of a Regulation D offering.
Common
shares issued for services
The Company entered into various consulting
agreements with third parties (“Consultants”) pursuant to which these Consultants provided the following services:
|
·
|
Business
Development including services for strategic consulting, coaching, development of proforma
financial information and business plans, and vendor relations. During the year ended
December 31, 2019, the Company issued 525,000 shares of common stock to consultants for
business development services valued at $131,000, or $0.25 per share.
|
|
·
|
Digital
Marketing including services received from one consultant for creating brand awareness,
digital campaigns, and video production. During the year ended December 31, 2019, the
Company issued 600,000 shares of common stock to consultants for digital marketing services
valued at $150,000, or $0.25 per share.
|
|
·
|
Sales
and Marketing including services for lead generation and creation of marketing collateral.
During the year ended December 31, 2019, the Company issued 660,000 shares of common
stock to consultants for sales and marketing services valued at $165,000, or $0.25 per
share.
|
|
·
|
Research
and Development including services for engineering support and assistance with prototype
creation. During the year ended December 31, 2019, the Company issued 300,000 shares
of common stock to consultants for research and development services valued at $75,000,
or $0.25 per share
|
In addition to the shares issued to
Consultants, the Company issued 2,729,000 shares of common stock, valued at $683,000, or $0.25 per share, to its employees to
reward performance.
Common
shares issued to an officer
On December 23, 2019, the Company issued Paul
Spivak, the Company’s President and a shareholder, 27,091,000 shares of Company common stock, with a fair value of $6.8 million,
or $0.25 per share.
Year
Ended December 31, 2018
Common
shares issued for cash
During the year ended December 31, 2018, the
Company received proceeds of $3.9 million from the sale of 14,409,338 shares of common stock, at $0.25 per share, as part of a
Regulation D offering.
Common
shares issued for services
The Company entered into various consulting
agreements with third parties (“Consultants”) pursuant to which these Consultants provided the following services:
|
·
|
Business
Development including services for strategic consulting, coaching, development of proformas
and business plans, and vendor relations. During the year ended December 31, 2018, the
Company issued 432,000 shares of common stock to consultants for business development
services valued at $108,000, or $0.25 per share.
|
|
·
|
Digital
Marketing including services received from one consultant for creating brand awareness,
digital campaigns, and video production. During the year ended December 31, 2018, the
Company issued 600,000 shares of common stock to consultants for digital marketing services
valued at $150,000, or $0.25 per share.
|
|
·
|
Sales
and Marketing including services for lead generation and creation of marketing collateral.
During the year ended December 31, 2018, the Company issued 862,030 shares of common
stock to consultants for sales and marketing services valued at $216,000, or $0.25 per
share.
|
|
·
|
Research
and Development including services for engineering support and assistance with prototype
creation. During the year ended December 31, 2018, the Company issued 525,000 shares
of common stock to consultants for research and development services valued at $131,000,
or $0.25 per share
|
In addition to the shares issued to Consultants, the Company
issued 790,000 shares of common stock, valued at $207,000, or $0.25 per share, to its employees to reward performance.
Shares
issued on exercise of warrants
During
the year ended December 31, 2018, the Company issued 150,000 shares of the Company’s common stock, on the receipt of $60,000
in proceeds from the exercise of warrants.
Year
Ended December 31, 2017
Common
shares issued for cash
During
the year ended December 31, 2017, the Company received proceeds of $149,500 from the sale of 598,000 shares of common stock, at
$0.25 per share, as part of a Regulation D offering.
Common
shares issued for services
During
the year ended December 31, 2017, the Company issued 100,000 shares of common stock, valued at $25,000, or $0.25 per share, to
a consultant who provided digital marketing services including brand awareness, digital campaigns, and video production. During
the year ended December 31, 2017, the Company issued 45,000 shares of common stock valued at $11,250, or $0.25 per share, to its
employees to reward performance.
ITEM
11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.
We
are registering only our common stock. The Company is governed by Florida Law and the Certificate of Incorporation and Bylaws
of the Company.
General
– Description of Common Stock
Common
Stock
Its
authorized capital consists of 100,000,000 shares of common stock, $0.0001 par value. 90,913,193 shares of the Company’s
common stock are issued and outstanding as of September 25, 2020.
Preferred
Stock
The
Company may issue up to 10,000,000 shares of preferred stock, par value $0.0001 per share, from time to time in one or more series. No
shares of preferred stock are currently issued. The Company’s Board of Directors, without further approval of
its stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any series. Issuances of shares of preferred stock, while
providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of US Lighting Group common stock and prior series of preferred stock then outstanding.
Voting
Rights
Each
outstanding share of common stock is entitled to one (1) vote, either in person or by proxy, on all matters that may be voted
upon by their holders at meetings of the stockholders.
Holders
of US Lighting Group common stock:
(1)
have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors;
(2) are
entitled to share ratably in all our assets available for distribution to holders of common stock upon our liquidation, dissolution
or winding up;
(3) do
not have pre-emptive, subscription or conversion rights or redemption or sinking fund provisions; and
(4) are
entitled to one non-cumulative vote per share on all matters on which stockholders may vote at all meetings of our stockholders.
The
holders of shares of US Lighting Group common stock do not have cumulative voting rights, which means that holders of more than
fifty percent (50%) of outstanding shares voting for the election of directors can elect all of the Company’s directors
if they so choose and, in such event, the holders of the remaining shares will not be able to elect any of the Company’s
directors.
Warrants
As
of September 25, 2020, the Company has 20,000 warrants outstanding to purchase shares of common stock at an exercise price of
$0.25. The warrants expire on September 9, 2021.
Stock
Option Plan
Currently,
the Company has not formalized an Employee Stock Option Plan.
ITEM
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our
directors and officers are indemnified as provided by the Florida corporate law and our Bylaws. We have agreed to indemnify
each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in
the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Section
78.7502 of the Florida General Corporation Law contains provisions authorizing indemnification by the Company of directors, officers,
employees or agents against certain liabilities and expenses that they may incur as directors, officers, employees or agents of
the Company or of certain other entities. Section 78.7502(3) provides for mandatory indemnification, including attorney’s
fees, if the director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit
or proceeding or in defense of any claim, issue or matter therein.
Section
78.751 provides that such indemnification may include payment by the Company of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the person
indemnified to repay such payment if he shall be ultimately found not to be entitled to indemnification under the Section. Indemnification
may be provided even though the person to be indemnified is no longer a director, officer, employee or agent of the Company or
such other entities.
Section
78.752 authorizes the Company to obtain insurance on behalf of any such director, officer employee or agent against liabilities,
whether or not the Company would have the power to indemnify such person against such liabilities under the provisions of the
Section 78.7502. The indemnification and advancement of expenses provided pursuant to Sections 78.7502 and 78.751 are not exclusive,
and subject to certain conditions, the Company may make other or further indemnification or advancement of expenses of any of
its directors, officers, employees or agents. Because neither the Articles of Incorporation, as amended, or By-laws of the Company
otherwise provide, notwithstanding the failure of the Company to provide indemnification and despite a contrary determination
by the board of directors or its shareholders in a specific case, a director, officer, employee or agent of the Company who is
or was a party to a proceeding may apply to a court of competent jurisdiction for indemnification or advancement of expenses or
both, and the court may order indemnification and advancement of expenses, including expenses incurred in seeking court- ordered
indemnification or advancement of expenses if it determines that the petitioner is entitled to mandatory indemnification pursuant
to Section 78.7502(3) because he has been successful on the merits, or because the Company has the power to indemnify on a discretionary
basis pursuant to Section 78.7502 or because the court determines that the petitioner is fairly and reasonably entitled to indemnification
or advancement of expenses or both in view of all the relevant circumstances.
ITEM
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index
to Consolidated Financial Statements
US
LIGHTING GROUP, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,000
|
|
|
$
|
107,000
|
|
Accounts receivable
|
|
|
120,000
|
|
|
|
94,000
|
|
Inventories, net
|
|
|
118,000
|
|
|
|
108,000
|
|
Prepaid expenses and other current assets
|
|
|
59,000
|
|
|
|
5,000
|
|
Total Current Assets
|
|
|
360,000
|
|
|
|
314,000
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
954,000
|
|
|
|
216,000
|
|
Right of use asset, net
|
|
|
-
|
|
|
|
25,000
|
|
Other assets
|
|
|
3,000
|
|
|
|
3,000
|
|
Total Assets
|
|
$
|
1,317,000
|
|
|
$
|
558,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
300,000
|
|
|
$
|
194,000
|
|
Accrued expenses
|
|
|
62,000
|
|
|
|
69,000
|
|
Accrued payroll to an officer
|
|
|
364,000
|
|
|
|
312,000
|
|
Customer advance payments
|
|
|
91,000
|
|
|
|
15,000
|
|
Lease payable, current portion
|
|
|
-
|
|
|
|
29,000
|
|
Loans payable, current portion, net of discount of $18,000 and $27,000, respectively
|
|
|
227,000
|
|
|
|
203,000
|
|
Convertible notes payable, current portion
|
|
|
113,000
|
|
|
|
-
|
|
Loans payable, related party, current portion
|
|
|
2,745,000
|
|
|
|
1,662,000
|
|
Total Current Liabilities
|
|
|
3,902,000
|
|
|
|
2,484,000
|
|
|
|
|
|
|
|
|
|
|
Loans payable, net of current portion
|
|
|
265,000
|
|
|
|
66,000
|
|
Convertible notes payable, net of current portion
|
|
|
207,000
|
|
|
|
113,000
|
|
Loans payable, related party, net of current portion
|
|
|
443,000
|
|
|
|
1,233,000
|
|
Total Liabilities
|
|
|
4,817,000
|
|
|
|
3,896,000
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 90,913,193 and 90,347,526 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
|
|
|
9,000
|
|
|
|
9,000
|
|
Additional paid-in-capital
|
|
|
16,567,000
|
|
|
|
16,447,000
|
|
Accumulated deficit
|
|
|
(20,076,000
|
)
|
|
|
(19,794,000
|
)
|
Total Shareholders’ Deficit
|
|
|
(3,500,000
|
)
|
|
|
(3,338,000
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
$
|
1,317,000
|
|
|
$
|
558,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
US
LIGHTING GROUP, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX
MONTHS ENDED JUNE 30, 2020 AND 2019
(UNAUDITED)
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,562,000
|
|
|
$
|
1,286,000
|
|
Cost of goods sold
|
|
|
604,000
|
|
|
|
373,000
|
|
Gross profit
|
|
|
958,000
|
|
|
|
913,000
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
922,000
|
|
|
|
1,280,000
|
|
Product development costs
|
|
|
220,000
|
|
|
|
111,000
|
|
Total operating expenses
|
|
|
1,142,000
|
|
|
|
1,391,000
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(184,000
|
)
|
|
|
(478,000
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Interest (including $80,000 and $86,000 from a related party, respectively)
|
|
|
(98,000
|
)
|
|
|
(88,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(282,000
|
)
|
|
$
|
(566,000
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED – AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
|
|
90,527,314
|
|
|
|
56,307,097
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
US
LIGHTING GROUP, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(UNAUDITED)
Six
months ended June 30, 2020
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance, December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
90,347,526
|
|
|
$
|
9,000
|
|
|
$
|
16,447,000
|
|
|
$
|
(19,794,000
|
)
|
|
$
|
(3,338,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
316,667
|
|
|
|
-
|
|
|
|
58,000
|
|
|
|
|
|
|
|
58,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued on conversion of convertible notes
|
|
|
|
|
|
|
|
|
|
|
124,000
|
|
|
|
-
|
|
|
|
31,000
|
|
|
|
|
|
|
|
31,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
|
|
|
|
31,000
|
|
|
|
|
|
|
|
31,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(282,000
|
)
|
|
|
(282,000
|
)
|
Balance, June 30, 2020 (Unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
90,913,193
|
|
|
$
|
9,000
|
|
|
$
|
16,567,000
|
|
|
$
|
(20,076,000
|
)
|
|
$
|
(3,500,000
|
)
|
Six
months ended June 30, 2019
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Common Stock
Issuable
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
Balance, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
55,508,998
|
|
|
$
|
6,000
|
|
|
|
445,530
|
|
|
$
|
111,000
|
|
|
$
|
7,741,000
|
|
|
$
|
(11,092,000
|
)
|
|
$(3,234,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
2,415,530
|
|
|
|
-
|
|
|
|
(445,530
|
)
|
|
|
(111,000
|
)
|
|
|
604,000
|
|
|
|
|
|
|
493,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
883,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225,000
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(566,000
|
)
|
|
(566,000)
|
Balance, June 30, 2019 (Unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
58,807,528
|
|
|
$
|
6,000
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
8,570,000
|
|
|
$
|
(11,658,000
|
)
|
|
$(3,082,000)
|
The
accompanying notes are an integral part of these consolidated financial statements.
US
LIGHTING GROUP, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six months ended
June 30
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(282,000
|
)
|
|
$
|
(566,000
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
31,000
|
|
|
|
29,000
|
|
Amortization of right of use asset
|
|
|
25,000
|
|
|
|
29,000
|
|
Change in lease liability
|
|
|
(27,000
|
)
|
|
|
(26,000
|
)
|
Amortization of debt discount
|
|
|
9,000
|
|
|
|
-
|
|
Stock issued for services
|
|
|
31,000
|
|
|
|
225,000
|
|
Provision for inventory reserves
|
|
|
5,000
|
|
|
|
-
|
|
Accrued interest on loans
|
|
|
11,000
|
|
|
|
|
|
Accrued interest on related party loans
|
|
|
79,000
|
|
|
|
86,000
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
(Increase) Decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(26,000
|
)
|
|
|
(50,000
|
)
|
Inventories
|
|
|
(15,000
|
)
|
|
|
(71,000
|
)
|
Prepaid expenses and other
|
|
|
(54,000
|
)
|
|
|
(4,000
|
)
|
(Decrease) Increase in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
106,000
|
|
|
|
3,000
|
|
Accrued expenses
|
|
|
(7,000
|
)
|
|
|
19,000
|
|
Accrued payroll to an officer
|
|
|
52,000
|
|
|
|
78,000
|
|
Customer advanced payments
|
|
|
76,000
|
|
|
|
(12,000
|
)
|
Net cash provided by (used in) operating activities
|
|
|
14,000
|
|
|
|
(260,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(769,000
|
)
|
|
|
(3,000
|
)
|
Net cash used in investing activities
|
|
|
(769,000
|
)
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
58,000
|
|
|
|
493,000
|
|
Proceeds from secured convertible note payable
|
|
|
227,000
|
|
|
|
-
|
|
Proceeds from loans payable
|
|
|
345,000
|
|
|
|
-
|
|
Payment of finance lease
|
|
|
(2,000
|
)
|
|
|
(4,000
|
)
|
Payment of loans payable
|
|
|
(131,000
|
)
|
|
|
(66,000
|
)
|
Proceeds from notes payable related party
|
|
|
408,000
|
|
|
|
-
|
|
Payments on notes payable related party
|
|
|
(194,000
|
)
|
|
|
(300,000
|
)
|
Net cash provided by financing activities
|
|
|
711,000
|
|
|
|
123,000
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(44,000
|
)
|
|
|
(140,000
|
)
|
Cash and cash equivalents beginning of period
|
|
|
107,000
|
|
|
|
224,000
|
|
Cash and cash equivalents end of period
|
|
$
|
63,000
|
|
|
$
|
84,000
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
20,000
|
|
|
$
|
2,000
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing Activities
|
|
|
|
|
|
|
|
|
Recording of right of use asset and lease liability upon adoption of new lease accounting rule on January 1, 2019
|
|
$
|
-
|
|
|
$
|
79,000
|
|
Property and equipment transferred to right of use assets
|
|
$
|
-
|
|
|
$
|
14,000
|
|
Convertible note payable converted into common stock
|
|
$
|
31,000
|
|
|
$
|
-
|
|
The
accompanying notes are integral part of these consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
AND 2019
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION
History and Organization
US Lighting Group, Inc. (the Company) was
founded in 2013 in accordance with the laws of Wyoming and is located in Euclid, Ohio. On July 13, 2016, the Luxurious Travel Corp.
acquired all of the issued and outstanding capital stock of the Company and changed its name to US Lighting Group, Inc.
Overview of Business
The Company is engaged in the business
of manufacturing and distributing LED digital gauges, automotive electronics, and accessories for commercial and industrial customers,
as well as LED lighting tubes and bulbs. The Company sells its products primarily in the United States, with international sales
totaling less than 10% of revenue.
COVID-19
Considerations
Through the date
these financial statements were issued, the COVID-19 pandemic did not have a net material impact on our operating results. In the
future, the pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary economic
environment, which negatively effects the consumers who purchase our products.
Our ability to
operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect
our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities
to protect our employees. Through the date that these financial statements were issued, we maintained the consistency of our operations
during the onset of the COVID-19 pandemic. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption
to our workforce and supply chain (for example an inability of a key supplier or transportation supplier to source and transport
materials) that could negatively impact our operations.
Through the date
that these financial statements were issued, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position
as of such date, and the Company continues to generate cash flows to meet its short-term liquidity needs, and it expects to maintain
access to the capital markets. The Company has not observed any material impairments of its assets or a significant change in the
fair value of its assets due to the COVID-19 pandemic.
Going Concern
The accompanying 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 consolidated financial statements,
during the period ended June 30, 2020, the Company incurred a net loss of $282,000, and had a shareholders’ deficit of $3,500,000
as of June 30, 2020. In addition, as of June 30, 2020, the Company is delinquent in payment of $30,000 of its notes payable. These
factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date
of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s
ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern. In addition, the Company’s independent registered
public accounting firm, in its report on the Company’s December 31, 2019 financial statements, has raised substantial doubt
about the Company’s ability to continue as a going concern.
At June 30, 2020, the Company had cash
on hand in the amount of $63,000. Subsequent to June 30, 2020, the Company received aggregate proceeds of $274,000 from the sale
of Company common stock (see Note 11). Management estimates that the current funds on hand will be sufficient to continue operations
through December 31, 2020. No assurance can be given that any future financing will be available or, if available, that it will
be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, it may contain undue restrictions
on our operations in the case of debt financing, or cause substantial dilution for our stockholders, in the case or equity financing.
In conjunction with the Company’s
capital raising efforts, management is working to improve its cash flows by increasing its private label manufacturing opportunities
for high volume and low overhead production orders, and managing its operating expenses to support planned revenue growth. However,
no assurance can be given that these efforts will be successful.
Preparation of Interim Financial Statements
The consolidated financial statements included
in this report are unaudited and have been prepared by the Company and, in the opinion of management, include all adjustments (consisting
of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the
results of the interim periods shown. Management believes that its disclosures are sufficiently presented to prevent this information
from being misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative
of results for a full year. The Consolidated Balance Sheet information as of December 31, 2019, was derived from the Company’s
audited Consolidated Financial Statements as of and for the year ended December 31, 2019, included elsewhere. These financial statements
should be read in conjunction with that report.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Consolidation
The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary Intellitronix Corp. Intercompany transactions and balances
have been eliminated in consolidation.
Loss per Share Calculations
Basic earnings per share are computed by
dividing net income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed by dividing the net income applicable to common shareholders by the weighted average number of common
shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common
shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect
is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise
prices were lower than the average fair market value of common shares during the reporting period.
Warrants to acquire 170,000 shares of common
stock, and 1,278,393 shares of common stock issuable under convertible note agreements, have been excluded from the calculation
of weighted average common shares outstanding at June 30, 2020, as their effect would have been anti-dilutive. Warrants to acquire
15,351,354 shares of common stock, and 445,530 shares of common stock issuable, have been excluded from the calculation of weighted
average common shares outstanding at June 30, 2019, as their effect would have been anti-dilutive.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement
date, and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in valuing our allowances
for doubtful accounts, reserves for inventory obsolescence, valuing derivative liabilities, valuing equity instruments issued for
services, and valuation allowance for deferred tax assets, among others. Actual results could differ from these estimates.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standard Update (“ASU”) No. 2014-09. This standard provides authoritative guidance clarifying the principles
for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting principles. The core principle
of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services.
Under this guidance, revenue is recognized
when control of promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services. The Company reviews its sales transactions to identify
contractual rights, performance obligations, and transaction prices, including the allocation of prices to separate performance
obligations, if applicable. Revenue and costs of sales are recognized once products are delivered to the customer’s control
and performance obligations are satisfied.
In the following table, revenue is disaggregated by major product
line for the six months ended June 30, 2020:
Sales Channels
|
|
LED digital
gauges and
automotive
electronics
and
accessories
|
|
LED lighting
tubes and
bulbs
|
|
Total
|
Business to business
|
|
$
|
709,000
|
|
|
$
|
-
|
|
|
$
|
709,000
|
|
Direct to consumer/online
|
|
|
852,000
|
|
|
|
1,000
|
|
|
|
853,000
|
|
Total
|
|
$
|
1,561,000
|
|
|
$
|
1,000
|
|
|
$
|
1,562,000
|
|
In the following table, revenue is disaggregated
by major product line for the six months ended June 30, 2019:
Sales Channels
|
|
LED digital
gauges and
automotive
electronics
and
accessories
|
|
LED lighting
tubes and
bulbs
|
|
Total
|
Business to business
|
|
$
|
579,000
|
|
|
$
|
-
|
|
|
$
|
579,000
|
|
Direct to consumer/online
|
|
|
695,000
|
|
|
|
12,000
|
|
|
|
707,000
|
|
Total
|
|
$
|
1,274,000
|
|
|
$
|
12,000
|
|
|
$
|
1,286,000
|
|
Products sold by the Company are distinct individual products. The products are offered for sale as finished goods only, and there
are no performance obligations required post-shipment for customers to derive the expected value from them. Most of the Company’s
sales are received through several eBay web-commerce websites, which requires customer payment at time of order placement. Customer
advanced payments were $91,000 and $15,000 at June 30, 2020 and December 31, 2019, respectively, and are recorded as a liability
on the consolidated balance sheets.
The Company does offer a 30-day return
policy from the date of shipment. The Company also provides a limited lifetime warranty on its products. Due to a limited history
of returns, the Company does not maintain a warranty reserve.
Accounts Receivable
The Company evaluates the collectability
of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces
the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall
assessment of past due trade accounts receivable outstanding.
The allowance for doubtful accounts and
returns is established through a provision reducing the carrying value of receivables. At June 30, 2020, and December 31, 2019,
the Company determined that no allowance for doubtful accounts was necessary.
Product Development Costs
Product development costs are expensed
in the period incurred. The costs primarily consist of prototype and testing costs. Product development costs were $220,000 and
$111,000, for the six months ended June 30, 2020 and 2019, respectively.
Income Taxes
Income tax expense is based on pretax financial
accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred
tax assets to the amount that will more likely than not be realized. The Company has recorded a valuation allowance against its
deferred tax assets as of June 30, 2020 and December 31, 2019.
The Company accounts for uncertainty in
income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the
tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon settlement. The
Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or
receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for
income taxes.
Advertising Costs
Advertising costs are expensed as incurred
and are included in selling, general and administrative expenses. Advertising costs were $14,000 and $4,000 for the six months
ended June 30, 2020 and 2019, respectively.
Concentration Risks
The Company maintains the majority of its
cash balances with one financial institution, in the form of demand deposits. Periodically, the Company had cash deposits
that exceeded the federally insured limit of $250,000. The Company believes that no significant concentration of credit risk
exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of the financial
institution.
Sales. During the six months ended
June 30, 2020, the Company’s two largest customers accounted for 15% and $15% of sales. No other customers exceeded 10% of
sales in either period. During the six months ended June 30, 2019, the Company’s three largest customers accounted for 18%,
11%, and 10% of sales. No other customers exceeded 10% of sales in either period.
Accounts receivable. As of June
30, 2020, the Company had accounts receivable from two customers which comprised 34% and 24% of its gross accounts receivable.
As of December 31, 2019, the Company had accounts receivable from four customers which comprised 25%, 22%, 14%, and 11% of its
gross accounts receivable.
Purchases from vendors. During the
six months ended June 30, 2020, the Company’s largests vendor accounted for approximately 16% and 14% of all purchases. No
other vendor exceeded 10% of all purchases in either periods.
Fair Value Measurements
The Company determines the fair value of
its assets and liabilities based on the exchange price in U.S. dollars that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs
and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which the
first two are considered observable and the last unobservable, to measure fair value:
|
●
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
|
●
|
Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
●
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The carrying amounts of financial instruments
such as cash, accounts receivable, inventories, accounts payable and accrued liabilities, accrued payroll liabilities, and advanced
customer deposits, approximate the related fair values due to the short-term maturities of these instruments. The carrying values
of notes payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing
market interest rates.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on
current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including
trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company
beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance
and related codification improvements will be material to its financial position, results of operations and cash flows.
Other recent accounting pronouncements
issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future
financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following
at June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
December 31,
2019
|
Building and improvements
|
|
$
|
640,000
|
|
|
$
|
-
|
|
Land
|
|
|
96,000
|
|
|
|
-
|
|
Vehicles
|
|
|
345,000
|
|
|
|
345,000
|
|
Production equipment
|
|
|
247,000
|
|
|
|
224,000
|
|
Office equipment
|
|
|
31,000
|
|
|
|
28,000
|
|
Furniture and fixtures
|
|
|
32,000
|
|
|
|
25,000
|
|
|
|
|
1,391,000
|
|
|
|
622,000
|
|
Less: accumulated depreciation and amortization
|
|
|
(437,000
|
)
|
|
|
(406,000
|
)
|
Property and equipment, net
|
|
$
|
954,000
|
|
|
$
|
216,000
|
|
Depreciation expense for the six months
ended June 30, 2020 and 2019 was $31,000 and $29,000, respectively.
On April 24, 2020, the Company purchased
land, building, and improvements for $736,000, and moved its operations to Euclid, Ohio, in June 2020 (see Note 6).
NOTE 4 – ACCRUED PAYROLL TO OFFICER
Beginning in January 2018, the Company’s
President voluntarily elected to defer a portion of his employment compensation. The balance of the compensation owed to the Company’s
President was $312,000 as of December 31, 2019. During the period, additional salary, net of payments, of $52,000 was accrued resulting
in a balance of accrued payroll to officer of $364,000 at June 30, 2020.
NOTE 5 – LINE OF CREDIT
On April 28, 2020, the Company obtained
a $50,000 line of credit from Keybank. The line of credit carries an interest rate of 3.25% per annum. No balance was outstanding
on the line of credit at June 30, 2020.
NOTE 6 – LOANS PAYABLE TO RELATED
PARTIES
Loans payable to related parties consist
of the following:
|
|
June 30,
2020
|
|
December 31, 2019
|
|
|
|
|
|
Loan payable to officers/shareholders (a)
|
|
$
|
2,620,000
|
|
|
$
|
2,738,000
|
|
Loan payable to related party (b)
|
|
|
125,000
|
|
|
|
125,000
|
|
Loan payable to related party – past due (c)
|
|
|
30,000
|
|
|
|
32,000
|
|
Loan payable to related party (d)
|
|
|
413,000
|
|
|
|
-
|
|
Total loans payable to related parties
|
|
|
3,188,000
|
|
|
|
2,895,000
|
|
Loans payable to related parties, current portion
|
|
|
(2,745,000
|
)
|
|
|
(1,662,000
|
)
|
Loans payable to related parties, net of current portion
|
|
$
|
443,000
|
|
|
$
|
1,233,000
|
|
a.
|
On December 1, 2016, the Company acquired Intellitronix Corporation from the Company’s President and shareholder. The Company agreed to pay $4,000,000 in exchange for all the shares of Intellitronix Corporation. The sixty-month loan matures in December 2021, requires monthly payments of $74,000, carries an interest rate of 6.25%, and is secured by the assets of Intellitronix Corporation. The loan balance on December 31, 2019, including accrued interest of $619,000, was $2,738,000. During the six months ended June 30, 2020, the Company accrued interest of $75,000, made principal and interest payments totalling $193,000, leaving a balance outstanding of $2,620,000 at June 30, 2020.
|
|
|
b.
|
During the year ended December 31, 2017, the Company’s President and shareholder, contributed $125,000 of working capital to the Company. The contributed working capital balance were converted into a loan with no interest rate, and due on demand. The loan balance was $125,000 on both June 30, 2020 and December 31, 2019.
|
|
|
c.
|
In July 2016, the
Company assumed an obligation of Solei Systems, Inc, an entity owned by the Company’s President and shareholder. The
Company agreed to enter into a note agreement with Huntington National Bank for $60,000. The loan has an interest rate
of 6.00% and requires a monthly payment of $1,000. The loan balance on December 31, 2019 was $32,000. During
the six months ended June 30, 2020, the Company made loan payments of $2,000, leaving a balance outstanding of $30,000 at June
30, 2020. The loan is currently past due.
|
|
d.
|
On April 24, 2020, the Company entered into a loan agreement
(the “Loan Agreement”) with the Company’s President and shareholder, Paul Spivak (the “Lender”),
pursuant to which the Company borrowed $408,000 from the Lender. The Loan has a term of twelve months and carries an interest
rate of 6.00%. The Company used the net proceeds from the Loan to acquire the facility described in Note 3. During
the period ended June 30, 2020, the Company accrued interest of $5,000, leaving a balance outstanding of $413,000 at June 30,
2020.
|
NOTE 7 – LOANS PAYABLE
Loan payable consisted of the following:
|
|
June
30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
SBA PPP Loan (a)
|
|
$
|
195,000
|
|
|
$
|
-
|
|
PayPal Working Capital Loan, net of discount (b)
|
|
|
89,000
|
|
|
|
152,000
|
|
PayPal Working Capital Loan, net of discount (c)
|
|
|
24,000
|
|
|
|
59,000
|
|
Secured promissory note (d)
|
|
|
133,000
|
|
|
|
-
|
|
Automobile loans (e)
|
|
|
69,000
|
|
|
|
85,000
|
|
Loans discount
|
|
|
(18,000
|
)
|
|
|
(27,000
|
)
|
Total loans payable
|
|
|
492,000
|
|
|
|
269,000
|
|
Loans payable, current portion
|
|
|
(227,000
|
)
|
|
|
(203,000
|
)
|
Loans payable, net of current portion
|
|
$
|
265,000
|
|
|
$
|
66,000
|
|
a.
|
On April 10, 2020, the Company was granted a loan (the “PPP loan”) from Key Bank in
the aggregate amount of $195,000 pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act.
|
The PPP loan agreement is dated
April 10, 2020, matures on April 10, 2022, bears interest at a rate of 1% per annum, with the first six months of interest deferred,
is payable monthly commencing on November 2020, and is unsecured and guaranteed by the U.S. Small Business Administration. The
loan term may be extended to April 20, 2025, if mutually agreed to by the Company and lender. We applied ASC 470, Debt, to account
for the PPP loan. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan
may only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health
care benefits, qualifying rent and debt obligations, and qualifying utilities. The Company intends to use the entire loan amount
for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying
expenses. The Company intends to apply for forgiveness of the PPP loan with respect to these qualifying expenses, however, we cannot
assure that such forgiveness of any portion of the PPP loan will occur. As for the potential loan forgiveness, once the PPP loan
is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain
on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things,
payment defaults, breach of representations and warranties, and insolvency events.
b.
|
On August 12, 2019, the Company entered into a PayPal Working Capital loan. The principal amount
of the loan was for $216,000. The Company received net proceeds of $200,000, net of loan fees of $16,000. The loan has a 20-month
term and requires monthly payments equal to 20% of monthly PayPal sales proceeds, but no less than $11,000 every 90-day period.
The PayPal Working Capital loan balance was $152,000 at December 31, 2019. During the six months ended June 30, 2020, the Company
made principal payments of $63,000, leaving a total of $89,000 owed at June 30, 2020.
|
c.
|
On November 25, 2019, the Company entered into a PayPal Working Capital loan. The principal amount
of the loan was for $66,000. The Company received net proceeds of $50,000, net of loan fees of $16,000. The loan has a 20-month
term and requires monthly payments equal to 20% of monthly PayPal sales proceeds, but no less than $3,300 every 90-day period.
The PayPal Working Capital loan balance was $59,000 at December 31, 2019. During the six months ended June 30, 2020, the Company
made principal payments of $35,000, leaving a total of $24,000 owed at June 30, 2020.
|
d.
|
On March 12, 2020, the Company entered into a loan agreement with Celtic Bank in the principal
amount of $150,000 with interest at 32.09% per annum and due on September 12, 2021. The loan requires minimum monthly payments
of $11,000 and is secured by the Company’s assets and future sales. During the six months ended June 30, 2020, the Company
made principal payments of $17,000, leaving a total of $133,000 owed at June 30, 2020.
|
e.
|
In April 2016 and September 2016, the Company purchased two automobiles for $54,000 and $61,000,
respectively, and entered into loans ranging from 60 to 72 months, with interest rates per annum of 4.11% to 4.14%. In November
2019, the Company purchased an additional automobile for $30,000, with loan terms of 72 months and an interest rate of 10.99% per
annum. The aggregate loan balance was $85,000 at December 31, 2019. During the six months ended June 30, 2020, the Company made
total payments of $16,000, leaving an aggregate balance on the loans of $69,000 at June 30, 2020.
|
The aggregate amount of the loan fees,
related to PayPal Working Capital Loans, was $32,000 and was recorded as a valuation discount to be amortized over the life of
the PayPal Working Capital Loans. At December 31, 2019, the remaining unamortized balance of the valuation discount was $27,000.
During the six months ended June 30, 2020, the amortization of the valuation discount was $9,000, and was recorded as an interest
cost, leaving an $18,000 remaining unamortized balance of the valuation discount at June 30, 2020.
NOTE 8 – CONVERTIBLE SECURED NOTE
PAYABLE
The Company issued convertible secured
debentures (“Convertible Notes”) to accredited investors with interest at 10% per annum, a term of eighteen months,
and secured by all of the assets of the Company and its subsidiaries. The Convertible Notes provide a conversion right, in which
the principal amount of the Note, together with any accrued but unpaid interest, could be converted into the Company’s common
stock at a conversion price at $0.25 per share. At December 31, 2019, the balance owed on the Convertible Notes was $113,000. During
the six months ended June 30, 2020, the Company received proceeds of $227,000 on the issuance of convertible secured notes, accrued
additional interest of $11,000, and converted $31,000 of principal into shares of the Company’s common stock leaving a total
of $320,000 owed at June 30, 2020, of which $113,000 was recorded as a short term liability.
NOTE 9 – SHAREHOLDERS’ EQUITY
Common shares issued for cash
During the six months ended June 30, 2020,
the Company received proceeds of $58,000 from the sale of 316,667 shares of common stock, at $0.18 per share, as part of a Regulation
D offering. During the six months ended June 30, 2019, the Company received proceeds
of $493,000 from the sale of 1,970,000 shares of common stock, at $0.25 per share, as part of a Regulation D offering.
Shares issued on conversion of convertible
note payable
During the six months ended June 30, 2020,
the Company issued 124,000 shares of the Company’s common stock, for the conversion of $31,000 of a convertible note payable.
Common shares issued for services
During the six months ended June 30, 2020,
the Company issued its employees common shares to reward performance. The Company issued 125,000 shares of common stock, with a
fair value of $31,000 at the date of grant, which was recognized as compensation cost. During the six months ended June 30, 2019,
the Company issued its employees and consultants common shares. The Company issued 883,000 shares of common stock, with a fair
value of $225,000 at the date of grant, which was recognized as compensation cost.
Summary of Warrants
A summary of warrants for the period ended
June 30, 2020, is as follows:
|
|
|
|
Weighted
|
|
|
Number
|
|
Average
|
|
|
of
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
Balance outstanding, December 31, 2019
|
|
|
5,814,000
|
|
|
|
0.50
|
|
Warrants granted
|
|
|
20,000
|
|
|
|
0.25
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants expired or forfeited
|
|
|
(5,664,000
|
)
|
|
|
0.50
|
|
Balance outstanding, June 30, 2020
|
|
|
170,000
|
|
|
$
|
0.47
|
|
Balance exercisable, June 30, 2020
|
|
|
170,000
|
|
|
$
|
0.47
|
|
Information relating to outstanding warrants
at June 30, 2020, summarized by exercise price, is as follows:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise Price
Per Share
|
|
|
Shares
|
|
|
Life
(Years)
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
$
|
0.25
|
|
|
|
20,000
|
|
|
|
0.04
|
|
|
$
|
1.19
|
|
|
|
20,000
|
|
|
$
|
0.25
|
|
$
|
0.50
|
|
|
|
150,000
|
|
|
|
0.04
|
|
|
$
|
0.50
|
|
|
|
150,000
|
|
|
$
|
0.50
|
|
The weighted-average remaining contractual
life of warrants outstanding and exercisable at June 30, 2020 was $0.04 years. At June 30, 2020, the outstanding warrants had an
intrinsic value of $4,000.
NOTE 10 – LEGAL PROCEEDINGS
We are engaged from time to time in the
defense of lawsuits arising out of the ordinary course and conduct of our business. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our Company or our subsidiary, threatened against our Company, our common stock, our subsidiary
or of our Company or our subsidiary’s officers or directors in their capacities as such.
NOTE 11 – SUBSEQUENT EVENTS
Subsequent to June 30, 2020, the Company
received proceeds of $450,000 from the issuance of 3,000,667 shares of common stock, at $0.15 per share, as part of a Regulation
D offering.
Subsequent to June 30, 2020, the Company
issued 955,516 shares of the Company’s common stock, for the conversion of $239,000 of convertible notes payable including
accrued interest.
On August 26, 2020, the Company entered
into a loan agreement with Apex Commercial Capital Corp. in the principal amount of $266,000 with interest at 9.49% per annum
and due on September 10, 2030. The loan requires one hundred nineteen (119) monthly payments of $2,322, with a final balloon payment
on the one hundred twentieth (120) month, or September 10, 2030, of $224,835. The loan is guaranteed by the Company and the Company’s
Chief Executive Officer and secured by the Company’s real estate.
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders
US Lighting Group, Inc.
Eastlake, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of US Lighting Group, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated
statements of operations, shareholders’ deficit, and cash flows for the years then ended and the related notes (collectively
referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of
America.
Going Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company experienced a net
loss and utilized cash from operations during the year ended December 31, 2019, and has a shareholders’ deficit as of that
date. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1 to the financial statements. These financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement, whether due to error, fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Weinberg & Company, P.A.
Los Angeles, California
August 14, 2020
We have served as the Company’s auditor since 2019
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
2019
|
|
December 31,
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
107,000
|
|
|
$
|
224,000
|
|
Accounts receivable
|
|
|
94,000
|
|
|
|
57,000
|
|
Inventories, net
|
|
|
108,000
|
|
|
|
91,000
|
|
Prepaid expenses and other current assets
|
|
|
5,000
|
|
|
|
1,000
|
|
Total Current Assets
|
|
|
314,000
|
|
|
|
373,000
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
216,000
|
|
|
|
186,000
|
|
Right of use asset, net
|
|
|
25,000
|
|
|
|
-
|
|
Other assets
|
|
|
3,000
|
|
|
|
3,000
|
|
Total Assets
|
|
$
|
558,000
|
|
|
$
|
562,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
194,000
|
|
|
$
|
149,000
|
|
Accrued expenses
|
|
|
69,000
|
|
|
|
38,000
|
|
Accrued payroll to an officer
|
|
|
312,000
|
|
|
|
156,000
|
|
Customer advance payments
|
|
|
15,000
|
|
|
|
28,000
|
|
Lease payable, current portion
|
|
|
29,000
|
|
|
|
-
|
|
Loans payable, current portion, net of discount of $27,000
|
|
|
203,000
|
|
|
|
108,000
|
|
Loans payable, related party – current portion
|
|
|
1,662,000
|
|
|
|
1,469,000
|
|
Total Current Liabilities
|
|
|
2,484,000
|
|
|
|
1,948,000
|
|
|
|
|
|
|
|
|
|
|
Loans payable, net of current portion
|
|
|
66,000
|
|
|
|
60,000
|
|
Convertible notes payable
|
|
|
113,000
|
|
|
|
-
|
|
Loans payable, related party, net of current portion
|
|
|
1,233,000
|
|
|
|
1,788,000
|
|
Total Liabilities
|
|
|
3,896,000
|
|
|
|
3,796,000
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 90,347,526 and 55,508,998 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively
|
|
|
9,000
|
|
|
|
6,000
|
|
Additional paid-in-capital
|
|
|
16,447,000
|
|
|
|
7,741,000
|
|
Common stock issuable
|
|
|
-
|
|
|
|
111,000
|
|
Accumulated deficit
|
|
|
(19,794,000
|
)
|
|
|
(11,092,000
|
)
|
Total Shareholders’ Deficit
|
|
|
(3,338,000
|
)
|
|
|
(3,234,000
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
$
|
558,000
|
|
|
$
|
562,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Years ended December 31,
|
|
|
2019
|
|
2018
|
Sales
|
|
$
|
2,647,000
|
|
|
$
|
2,422,000
|
|
Cost of goods sold
|
|
|
1,041,000
|
|
|
|
1,602,000
|
|
Gross profit
|
|
|
1,606,000
|
|
|
|
820,000
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses (a)
|
|
|
9,878,000
|
|
|
|
4,069,000
|
|
Product development costs
|
|
|
230,000
|
|
|
|
465,000
|
|
Loss on disposal of property and equipment
|
|
|
-
|
|
|
|
149,000
|
|
Total operating expenses
|
|
|
10,108,000
|
|
|
|
4,683,000
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,502,000
|
)
|
|
|
(3,863,000
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Interest (including $172,000 and $211,000 from a related party, respectively)
|
|
|
(200,000
|
)
|
|
|
(222,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,702,000
|
)
|
|
$
|
(4,085,000
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
|
$
|
(0.15
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED – AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
|
|
58,740,672
|
|
|
|
46,477,528
|
|
|
(a)
|
Includes $6,772,000 of stock-based compensation costs related
to the fair value of shares issued to an officer in 2019.
|
The accompanying notes are an integral part
of these consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
DEFICIT
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Common Stock
Issuable
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance, December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
37,295,100
|
|
|
$
|
4,000
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
3,129,000
|
|
|
$
|
(7,007,000
|
)
|
|
$
|
(3,874,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
14,854,868
|
|
|
|
2,000
|
|
|
|
445,530
|
|
|
|
111,000
|
|
|
|
3,740,000
|
|
|
|
|
|
|
|
3,853,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
3,209,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
812,000
|
|
|
|
|
|
|
|
812,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received on exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,085,000
|
)
|
|
|
(4,085,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
55,508,998
|
|
|
|
6,000
|
|
|
|
445,530
|
|
|
|
111,000
|
|
|
|
7,741,000
|
|
|
|
(11,092,000
|
)
|
|
|
(3,234,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
2,933,528
|
|
|
|
-
|
|
|
|
(445,530
|
)
|
|
|
(111,000
|
)
|
|
|
733,000
|
|
|
|
|
|
|
|
622,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
4,814,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,204,000
|
|
|
|
|
|
|
|
1,204,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common shares issued to officer
|
|
|
|
|
|
|
|
|
|
|
27,091,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
6,769,000
|
|
|
|
|
|
|
|
6,772,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,702,000
|
)
|
|
|
(8,702,000
|
)
|
Balance, December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
90,347,526
|
|
|
$
|
9,000
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
16,447,000
|
|
|
$
|
(19,794,000
|
)
|
|
$
|
(3,338,000
|
)
|
The accompanying
notes are an integral part of these consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Years ended December 31
|
|
|
2019
|
|
2018
|
Cash Flows from Operating Activities
|
|
|
|
|
Net Loss
|
|
$
|
(8,702,000
|
)
|
|
$
|
(4,085,000
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
57,000
|
|
|
|
48,000
|
|
Amortization of right of use asset
|
|
|
54,000
|
|
|
|
-
|
|
Change in lease liability
|
|
|
(52,000
|
)
|
|
|
-
|
|
Amortization of debt discount
|
|
|
5,000
|
|
|
|
-
|
|
Stock issued for services
|
|
|
1,204,000
|
|
|
|
812,000
|
|
Stock issued to officer
|
|
|
6,772,000
|
|
|
|
-
|
|
Provision for inventory reserves
|
|
|
12,000
|
|
|
|
-
|
|
Accrued interest on related party loans
|
|
|
172,000
|
|
|
|
211,000
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
(Increase) Decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(37,000
|
)
|
|
|
40,000
|
|
Inventories
|
|
|
(29,000
|
)
|
|
|
139,000
|
|
Prepaid expenses and other
|
|
|
(4,000
|
)
|
|
|
(1,000
|
)
|
Other assets
|
|
|
-
|
|
|
|
(3,000
|
)
|
(Decrease) Increase in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
59,000
|
|
|
|
(28,000
|
)
|
Accrued expenses
|
|
|
31,000
|
|
|
|
17,000
|
|
Accrued payroll to an officer
|
|
|
156,000
|
|
|
|
156,000
|
|
Customer advanced payments
|
|
|
(13,000
|
)
|
|
|
(44,000
|
)
|
Net cash used in operating activities
|
|
|
(315,000
|
)
|
|
|
(2,738,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(101,000
|
)
|
|
|
(70,000
|
)
|
Net cash used in investing activities
|
|
|
(101,000
|
)
|
|
|
(70,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
622,000
|
|
|
|
3,853,000
|
|
Proceeds from exercise of warrants
|
|
|
-
|
|
|
|
60,000
|
|
Proceeds from secured convertible note payable
|
|
|
113,000
|
|
|
|
-
|
|
Proceeds from loans payable
|
|
|
280,000
|
|
|
|
-
|
|
Payment of finance lease
|
|
|
(8,000
|
)
|
|
|
-
|
|
Payment of loans payable
|
|
|
(174,000
|
)
|
|
|
(182,000
|
)
|
Payments on notes payable related party
|
|
|
(534,000
|
)
|
|
|
(743,000
|
)
|
Net cash provided by financing activities
|
|
|
299,000
|
|
|
|
2,988,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(117,000
|
)
|
|
|
180,000
|
|
Cash and cash equivalents beginning of period
|
|
|
224,000
|
|
|
|
44,000
|
|
Cash and cash equivalents end of period
|
|
$
|
107,000
|
|
|
$
|
224,000
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
15,000
|
|
|
$
|
11,000
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing Activities
|
|
|
|
|
|
|
|
|
Recording of right of use asset and lease liability upon adoption of new lease accounting rule on January 1, 2019
|
|
$
|
79,000
|
|
|
$
|
-
|
|
Property and equipment transferred to right of use assets
|
|
$
|
14,000
|
|
|
$
|
-
|
|
The accompanying notes are integral part
of these consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
NOTE 1 – BASIS OF PRESENTATION
History and Organization
US Lighting Group, Inc. (the Company) was
founded in 2013 in accordance with the laws of Wyoming and is located in Eastlake, Ohio. On July 13, 2016 (“Closing”),
the Luxurious Travel Corp. acquired all of the issued and outstanding capital stock of the Company and changed its name to US Lighting
Group, Inc.
Overview of Business
The Company is engaged in the business
of manufacturing and distributing LED digital gauges, automotive electronics, and accessories for commercial and industrial customers,
as well as LED lighting tubes and bulbs. The Company sells its products primarily in the United States, with international sales
totaling less than 10% of revenue.
COVID-19
Considerations
Through the date
these financial statements were issued, the COVID-19 pandemic did not have a net material impact on our operating results. In the
future, the pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary economic
environment, which negatively effects the consumers who purchase our products.
Our ability to
operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect
our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities
to protect our employees. Through the date that these financial statements were issued, we maintained the consistency of our operations
during the onset of the COVID-19 pandemic. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption
to our workforce and supply chain (for example an inability of a key supplier or transportation supplier to source and transport
materials) that could negatively impact our operations.
Through the date
that these financial statements were issued, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position
as of such date, and the Company continues to generate cash flows to meet its short-term liquidity needs, and it expects to maintain
access to the capital markets. The Company has not observed any material impairments of its assets or a significant change in the
fair value of its assets due to the COVID-19 pandemic.
Going Concern
The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the
year ended December 31, 2019, the Company incurred a net loss of $8,702,000 and used cash in operations of $315,000 and had a shareholders’
deficit of $3,338,000 as of December 31, 2019. These factors raise substantial doubt about the Company’s ability to continue
as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
At December 31, 2019, the Company had cash
on hand in the amount of $107,000. Subsequent to December 31, 2019, the Company received aggregate proceeds of $1,034,000 from
the sale of common stock, issuance of notes payable, and a loan from a related party (see Note 12). Management estimates that the
current funds on hand will be sufficient to continue operations through March 31, 2021. No assurance can be given that any future
financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company
can obtain additional financing, it may contain undue restrictions on our operations in the case of debt financing, or cause substantial
dilution for our stockholders, in the case or equity financing.
In conjunction with the Company’s
capital raising efforts, management is working to improve its cash flows by increasing its private label manufacturing opportunities
for high volume and low overhead production orders, and managing its operating expenses to support planned revenue growth. However,
no assurance can be given that these efforts will be successful.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary Intellitronix Corp. Intercompany transactions and balances have been
eliminated in consolidation.
Leases
Prior to January 1, 2019, the Company accounted
for leases under ASC 840, Accounting for Leases. Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases
(“ASC 842”), which requires an entity to recognize a Right of Use (ROU) asset and a lease liability for virtually all
leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information
has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported
under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition
of operating and finance lease ROU assets and lease liabilities aggregating $79,000. There was no cumulative-effect adjustment
to accumulated deficit.
Loss per Share Calculations
Basic earnings per share are computed by
dividing net income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed by dividing the net income applicable to common shareholders by the weighted average number of common
shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common
shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect
is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise
prices were lower than the average fair market value of common shares during the reporting period.
Warrants to acquire 5,814,000 shares of
common stock, and 473,808 shares of common stock issuable under convertible note agreements, have been excluded from the calculation
of weighted average common shares outstanding at December 31, 2019, as their effect would have been anti-dilutive. Warrants to
acquire 15,301,354 shares of common stock, and 445,530 shares of common stock issuable have been excluded from the calculation
of weighted average common shares outstanding at December 31, 2018, as their effect would have been anti-dilutive.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement
date, and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in valuing our allowances
for doubtful accounts, reserves for inventory obsolescence, valuing derivative liabilities, valuing equity instruments issued for
services, and valuation allowance for deferred tax assets, among others. Actual results could differ from these estimates.
Segment
Reporting
The
Company operates in one segment for the manufacture and distribution of our products. In accordance with the “Segment Reporting”
Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,
who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing
guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which
the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment
Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services;
and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information
required by “Segment Reporting” can be found in the accompanying consolidated financial statements.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standard Update (“ASU”) No. 2014-09. This standard provides authoritative guidance clarifying the principles
for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting principles. The core principle
of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services.
Under this guidance, revenue is recognized
when control of promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services. The Company reviews its sales transactions to identify
contractual rights, performance obligations, and transaction prices, including the allocation of prices to separate performance
obligations, if applicable. Revenue and costs of sales are recognized once products are delivered to the customer’s control
and performance obligations are satisfied.
In the following table, revenue is disaggregated
by major product line for the year ended 2019:
Sales Channels
|
|
LED digital gauges and automotive electronics and accessories
|
|
LED lighting
tubes and
bulbs
|
|
Total
|
Resellers/retail
|
|
$
|
-
|
|
|
$
|
13,000
|
|
|
$
|
13,000
|
|
Business to business
|
|
|
1,469,000
|
|
|
|
|
|
|
|
1,469,000
|
|
Direct to consumer/online
|
|
|
1,165,000
|
|
|
|
-
|
|
|
|
1,165,000
|
|
Total
|
|
$
|
2,634,000
|
|
|
$
|
13,000
|
|
|
$
|
2,647,000
|
|
In the following table, revenue is disaggregated by major product line for the year ended 2018:
Sales Channels
|
|
LED digital
gauges and
automotive
electronics
and
accessories
|
|
LED lighting
tubes and
bulbs
|
|
Total
|
Resellers/retail
|
|
$
|
-
|
|
|
$
|
68,000
|
|
|
$
|
68,000
|
|
Business to business
|
|
|
1,316,000
|
|
|
|
|
|
|
|
1,316,000
|
|
Direct to consumer/online
|
|
|
1,038,000
|
|
|
|
-
|
|
|
|
1,038,000
|
|
Total
|
|
$
|
2,354,000
|
|
|
$
|
68,000
|
|
|
$
|
2,422,000
|
|
Products sold by the Company are distinct
individual products. The products are offered for sale as finished goods only, and there are no performance obligations required
post-shipment for customers to derive the expected value from them. Most of the Company’s sales are received through several
eBay web-commerce websites, which requires customer payment at time of order placement. Customer advanced payments were $15,000
and $28,000 at December 31, 2019 and 2018, respectively, and are recorded as a liability on the consolidated balance sheets.
The Company does offer a 30-day return
policy from the date of shipment. The Company also provides a limited lifetime warranty on its products. Due to a limited history
of returns, the Company does not maintain a warranty reserve.
Cash and Cash Equivalents
Cash and cash equivalents include all highly
liquid investments with remaining maturities of three months or less at the date of purchase. Cash equivalents include funds held
in PayPal accounts.
Accounts Receivable
The Company evaluates the collectability
of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces
the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall
assessment of past due trade accounts receivable outstanding.
The allowance for doubtful accounts and
returns is established through a provision reducing the carrying value of receivables. At December 31, 2019, and December 31, 2018,
the Company determined that no allowance for doubtful accounts was necessary.
Inventories
Inventories are stated at the lower of
cost or net realizable value. Cost is computed on a first-in, first-out basis. The Company’s inventories consist almost entirely
of finished goods as of December 31, 2019 and 2018.
The Company provides inventory reserves
based on excess and obsolete inventories determined primarily by future demand forecasts. The write down amount is measured as
the difference between the cost of the inventory and market based upon assumptions about future demand and charged to the provision
for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory
is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established
cost basis. At December 31, 2019 and December 31, 2018, the reserve for excess and obsolete inventory was $12,000 and $0, respectively.
Property and Equipment
Property and equipment are carried at cost
less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful
lives of the assets. The Company has determined the estimated useful lives of its property and equipment, as follows:
Vehicles
|
|
|
5 years
|
|
Production equipment
|
|
|
5 years
|
|
Office equipment
|
|
|
3 years
|
|
Furniture and fixtures
|
|
|
7 years
|
|
Maintenance and repairs are charged to
expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the related
accounts and the resulting gain or loss is reflected in the statements of operations.
Management assesses the carrying value
of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from the use of
the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss
is recognized to write down the asset to its estimated fair value. The Company did not record an impairment loss for the years
ended December 31, 2019 and 2018.
Product Development Costs
Product development costs are expensed
in the period incurred. The costs primarily consist of prototype and testing costs. Product development costs were $230,000 and
$445,000 for the year ended December 31, 2019 and 2018, respectively.
Shipping and Handling Costs
The Company’s shipping and handling
costs relating to inbound freight are reported as cost of goods sold in the consolidated Statements of Operations, while shipping
and handling costs relating to outbound freight are reported as selling, general and administrative expenses in the consolidated
statements of operations. The Company classifies amounts billed to customers for shipping fees as revenues.
Income Taxes
Income tax expense is based on pretax financial
accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred
tax assets to the amount that will more likely than not be realized. The Company has recorded a valuation allowance against its
deferred tax assets as of December 31, 2019 and 2018.
The Company accounts for uncertainty in
income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the
tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon settlement. The
Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or
receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for
income taxes.
Advertising Costs
Advertising costs are expensed as incurred
and are included in selling, general and administrative expenses. Advertising costs were $29,000 and $39,000 for the year ended
December 31, 2019 and 2018, respectively.
Concentration Risks
The Company maintains the majority of its
cash balances with one financial institution, in the form of demand deposits. During the years ended December 31, 2019 and
2018, the Company had cash deposits that exceeded the federally insured limit of $250,000. The Company believes that no significant
concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial
viability of the financial institution.
Sales. During the year ended December
31, 2019, the Company’s largest customer accounted for 15% of sales. During the year ended December 31, 2018, the Company’s
largest customer accounted for 17% of sales. No other customers exceeded 10% of sales in either period.
Accounts receivable. As of December
31, 2019, the Company had accounts receivable from four customers which comprised 25%, 22%, 14%, and 11% of its gross accounts
receivable, respectively. As of December 31, 2018, the Company had accounts receivable from three customers which comprised 36%,
18%, and 13% of its gross accounts receivable.
Purchases from vendors. During the
year ended December 31, 2019, the Company’s largest vendor accounted for approximately 19% of all purchases. During the year
ended December 31, 2018, the Company’s two largest vendors accounted for approximately 17% and 14% of all purchases, respectively.
No other vendor exceeded 10% of all purchases in either periods.
Fair Value Measurements
The Company determines the fair value of
its assets and liabilities based on the exchange price in U.S. dollars that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs
and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which the
first two are considered observable and the last unobservable, to measure fair value:
|
●
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
|
●
|
Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
●
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The carrying amounts of financial instruments
such as cash, accounts receivable, inventories, accounts payable and accrued liabilities, accrued payroll liabilities, and advanced
customer deposits, approximate the related fair values due to the short-term maturities of these instruments. The carrying values
of notes payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing
market interest rates.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on
current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including
trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company
beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance
and related codification improvements will be material to its financial position, results of operations and cash flows.
Other recent accounting pronouncements
issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future
financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following
at December 31, 2019 and 2018:
|
|
2019
|
|
2018
|
Vehicles
|
|
$
|
345,000
|
|
|
$
|
257,000
|
|
Production equipment
|
|
|
224,000
|
|
|
|
249,000
|
|
Office equipment
|
|
|
28,000
|
|
|
|
24,000
|
|
Furniture and fixtures
|
|
|
25,000
|
|
|
|
19,000
|
|
|
|
|
622,000
|
|
|
|
549,000
|
|
Less: accumulated depreciation and amortization
|
|
|
(406,000
|
)
|
|
|
(363,000
|
)
|
Property and equipment, net
|
|
$
|
216,000
|
|
|
$
|
186,000
|
|
Depreciation expense for the years ended
December 31, 2019 and 2018 was $57,000 and $48,000, respectively. During the year ended December 31, 2019, property and equipment
with a net book value of $14,000 were reclassified to ROU assets. During the year ended December 31, 2018, the Company disposed
of property and equipment with a net book value of $149,000.
NOTE 4 – ACCRUED PAYROLL TO OFFICER
Beginning in January 2018, the Company’s
President voluntarily elected to defer payment of his employment compensation. The balance of the compensation owed to the Company’s
President was $312,000 and $156,000 as of December 31, 2019 and 2018, respectively.
NOTE 5 – LEASE PAYABLE
The Company adopted ASU 2016-02, Leases,
effective January 1, 2019. The standard requires a lessee to record a Right of Use (ROU) asset and a corresponding lease liability
at the inception of the lease, initially measured at the present value of the lease payments. As a result, we recorded ROU assets
aggregating $79,000 as of January 1, 2019. That amount consists of a lease on the Company’s Eastlake, Ohio office, and existing
capitalized leases reclassified to ROU assets of $14,000.
ASU 2016-02 requires recognition in the
statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally
on a straight-line basis. During the year ended December 31, 2019, the Company reflected amortization of ROU asset of $54,000 related
to these leases, resulting in a net asset balance of $25,000 as of December 31, 2019. In accordance with ASU 2016-02, the ROU assets
are being amortized over the life of the underlying leases.
On January 1, 2019, liabilities recorded
under finance leases and operating leases were $10,000 and $78,000, respectively. During the year ended December 31, 2019, the
Company made payments of $8,000 towards finance lease liability and $52,000 towards operating lease liability. As of December 31,
2020, liability under finance lease amounted to $2,000 and liability under operating lease amounted to $27,000, which were reflected
as current due, under finance leases and operating leases.
As of December 31, 2020, the weighted average
remaining lease terms for operating lease and finance lease are 0.5 years and 0.3 years, respectively. The weighted average discount
rate for operating lease is 4.0% and 10.10% for finance lease.
NOTE 6 – LOANS PAYABLE TO RELATED
PARTIES
Loans payable to related parties consists
of the following at December 31, 2019 and 2018:
|
|
2019
|
|
2018
|
Loan payable to officers/shareholders (a)
|
|
$
|
2,738,000
|
|
|
$
|
3,095,000
|
|
Loan payable to related party (b)
|
|
|
125,000
|
|
|
|
125,000
|
|
Loan payable to related party – past due (c)
|
|
|
32,000
|
|
|
|
37,000
|
|
Total loans payable to related parties
|
|
|
2,895,000
|
|
|
|
3,257,000
|
|
Loans payable to related parties, current portion
|
|
|
(1,662,000
|
)
|
|
|
(1,469,000
|
)
|
Loans payable to related parties, net of current portion
|
|
$
|
1,233,000
|
|
|
$
|
1,788,000
|
|
a.
|
On December 1, 2016, the Company acquired Intellitronix Corporation from the Company’s President and shareholder. The Company agreed to pay $4,000,000 in exchange for all the shares of Intellitronix Corporation. The sixty-month loan matures in December 2021, requires monthly payments of $74,000, carries an interest rate of 6.25%, and is secured by the assets of Intellitronix Corporation. The loan balance on December 31, 2017, including accrued interest of $235,000, was $3,616,000. During the year ended December 31, 2018, the Company accrued interest of $211,000 and made principal loan payments of $732,000, leaving a balance outstanding of $3,095,000 at December 31, 2018. During the year ended December 31, 2019, the Company accrued interest of $172,000 and made principal loan payments of $529,000, leaving a balance outstanding of $2,738,000 at December 31, 2019.
|
|
|
b.
|
During the year ended December 31, 2017, the Company’s President and shareholder, contributed $125,000 of working capital to the Company. The contributed working capital balance were converted into a loan with no interest rate, and due on demand. The loan balance was $125,000 on both December 31, 2019 and 2018.
|
|
|
c.
|
In July 2016, the Company assumed an obligation of Solei Systems, Inc, an entity owned by the Company’s President and shareholder. The Company agreed to enter into a note agreement with Huntington National Bank for $60,000. The loan has an interest rate of 6.00% and requires a monthly payment of $1,000. The loan balance on December 31, 2017 was $48,000. During the year ended December 31, 2018, the Company made loan payments of $11,000, leaving a balance outstanding of $37,000 at December 31, 2018. During the year ended December 31, 2019, the Company made loan payments of $5,000, leaving a balance outstanding of $32,000 at December 31, 2019. The loan is currently past due.
|
NOTE 7 – LOANS PAYABLE
Loan payable consisted of the following
as of December 31, 2019 and 2018:
|
|
2019
|
|
2018
|
PayPal Working Capital Loan (a)
|
|
$
|
-
|
|
|
$
|
16,000
|
|
PayPal Working Capital Loan, net of discount (b)
|
|
|
152,000
|
|
|
|
-
|
|
PayPal Working Capital Loan, net of discount (c)
|
|
|
59,000
|
|
|
|
-
|
|
Secured promissory note (d)
|
|
|
-
|
|
|
|
67,000
|
|
Automobile loans (e)
|
|
|
85,000
|
|
|
|
74,000
|
|
Equipment lease (f)
|
|
|
-
|
|
|
|
11,000
|
|
Loans discount
|
|
|
(27,000
|
)
|
|
|
-
|
|
Total loans payable
|
|
|
269,000
|
|
|
|
168,000
|
|
Loans payable, current portion
|
|
|
(203,000
|
)
|
|
|
(108,000
|
)
|
Loans payable, net of current portion
|
|
$
|
66,000
|
|
|
$
|
60,000
|
|
f.
|
On July 26, 2017, the Company entered into a PayPal Working Capital loan. PayPal Working Capital
is a business loan offered by WebBank, for qualified business applicants who maintain eligible PayPal accounts through which Business
PayPal Sales Proceeds are processed through PayPal. The principal amount of the loan was for $75,000, with loan fees of $4,000.
The loan has a 20-month term and requires monthly payments equal to 15% of monthly PayPal sales proceeds. At December 31, 2017,
the loan balance was $27,000. During the year ended December 31, 2018, the Company made principal payments of $11,000, leaving
a total of $16,000 owed at December 31, 2018. During the year ended December 31, 2019, the Company made remaining principal payments
of $16,000, and the working capital loan was paid-in-full and retired.
|
g.
|
On August 12, 2019, the Company entered into a PayPal Working Capital loan. The principal amount
of the loan was for $216,000. The Company received net proceeds of $200,000, net of loan fees of $16,000. The loan has a 20-month
term and requires monthly payments equal to 20% of monthly PayPal sales proceeds, but no less than $11,000 every 90-day period.
During the year ended December 31, 2019, the Company made principal payments of $64,000, leaving a total of $152,000 owed at December
31, 2019.
|
h.
|
On November 25, 2019, the Company entered into a PayPal Working Capital loan. The principal amount
of the loan was for $66,000. The Company received net proceeds of $50,000, net of loan fees of $16,000. The loan has a 20-month
term and requires monthly payments equal to 20% of monthly PayPal sales proceeds, but no less than $3,300 every 90-day period.
During the year ended December 31, 2019, the Company made principal payments of $7,000, leaving a total of $59,000 owed at December
31, 2019.
|
i.
|
On November 15, 2013, the Company entered into a secured promissory note (“secured note”)
with a private party in the principal amount of $250,000, with interest at 0.25% per annum, secured by transfer to D&Y Financial,
LLC, of a ten percent (10%) undiluted membership interest post first private offering in the Company, and by a mortgage and private
vehicles of the Company’s President and shareholder. The secured note was due on May 15, 2014. At December 31, 2017, the
loan balance of $191,000 was past due. During the year ended December 31, 2018, the Company made principal payments of $125,000,
leaving a total of $67,000 owed at December 31, 2018. During the year ended December 31, 2019, the Company made remaining principal
payments of $67,000, and the secured loan was paid-in-full and retired.
|
j.
|
In April 2016 and September 2016, the Company purchased two automobiles for $54,000 and $61,000,
respectively, and entered into loans ranging from 60 to 72 months, with interest rates per annum of 4.11% to 4.14%. The aggregate
loan balance was $115,000 at December 31, 2017. During the year ended December 31, 2018, the Company made payments of $41,000,
leaving an aggregate loan balance of $74,000 at December 31, 2018. In November 2019, the Company purchased an additional automobile
for $30,000, with loan terms of 72 months and an interest rate of 10.99% per annum. During the year ended December 31, 2019, the
Company made aggregate payments of $19,000, leaving an aggregate balance on the loans of $85,000 at December 31, 2019.
|
k.
|
On May 1, 2015, the Company entered into a capital equipment lease for $36,000. The lease term
is for 60 months, has an interest rate of 10.10% and a $1.00 buyout at the end of the lease term, or May 2020. The monthly lease
payment it $603. At December 31, 2017, the lease balance was $16,000. During the year ended December 31, 2018, the Company made
lease payments of $5,000, leaving a lease balance of $11,000 at December 31, 2018. On January 1, 2019, the lease balance was reclassified
to leases payable (see Note 5).
|
The aggregate amount of the loan fees recorded
in 2019, related to PayPal Working Capital Loans, was $32,000 and was recorded as a valuation discount to be amortized over the
life of the PayPal Working Capital Loans. During the year ended December 31, 2019, amortization of valuation discount of $5,000
was recorded as an interest cost, leaving a $27,000 remaining unamortized balance of the valuation discount at December 31, 2019.
NOTE 8 – CONVERTIBLE SECURED NOTE
PAYABLE
In December 2019, the Company issued convertible
secured debentures (the “2019 Note”) to three investors in the aggregate principal amount of $113,000, with interest
at 10% per annum and due in eighteen months, or June 2021. The Company received net proceeds of $113,000. The 2019 Note is secured
by all the assets of the Company and its subsidiaries. The 2019 Note provides a conversion right, in which the principal amount
of the Note, together with any accrued but unpaid interest, could be converted into the Company’s common stock at a conversion
price at $0.25 per share.
NOTE 9 – SHAREHOLDERS’ EQUITY
Common shares issued for cash
During the years ended December 31, 2019
and 2018, the Company received proceeds of $622,000 and $3,853,000 from the sale of 2,487,998 and 15,300,398 shares of common stock,
at $0.25 per share, as part of a Regulation D offering.
Common shares issued for services
The Company entered into various consulting
agreements with third parties (“Consultants”) pursuant to which these Consultants provided business development, sales
promotion, introduction to new business opportunities, strategic analysis and, sales and marketing activities. In addition, the
Company issues its employees common shares to reward performance. During the year ended December 31, 2019 and 2018, the Company
issued 4,814,000 and 3,209,030 shares of common stock to these consultants and employees, with a fair value of $1,204,000 and $812,000
at the date of grant, respectively, which was recognized as compensation cost.
Common shares issued to an officer
On December 23, 2019, the Company issued
Paul Spivak, the Company’s President and a shareholder, 27,091,000 shares of Company common stock, with a fair value of $6,772,000,
or $0.25 per shares, which was recognized as compensation cost.
Shares issued on exercise of warrants
During the year ended December 31, 2018,
the Company issued 150,000 shares of the Company’s common stock, on the receipt of $60,000 in proceeds from the exercise
of warrants.
Summary of Warrants
A summary of warrants for the years ended
December 31, 2019 and 2018, is as follows:
|
|
|
|
Weighted
|
|
|
Number
|
|
Average
|
|
|
of
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
Balance outstanding, December 31, 2017
|
|
|
250,000
|
|
|
|
0.50
|
|
Warrants granted
|
|
|
15,351,354
|
|
|
|
0.50
|
|
Warrants exercised
|
|
|
(150,000
|
)
|
|
|
0.40
|
|
Warrants expired or forfeited
|
|
|
(150,000
|
)
|
|
|
0.50
|
|
Balance outstanding, December 31, 2018
|
|
|
15,301,354
|
|
|
|
0.50
|
|
Warrants granted
|
|
|
150,000
|
|
|
|
0.50
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants expired or forfeited
|
|
|
(9,637,354
|
)
|
|
|
0.50
|
|
Balance outstanding, December 31, 2019
|
|
|
5,814,000
|
|
|
$
|
0.50
|
|
Balance exercisable, December 31, 2019
|
|
|
5,814,000
|
|
|
$
|
0.50
|
|
Information relating to outstanding warrants
at December 31, 2019, summarized by exercise price, is as follows:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise Price
Per Share
|
|
|
Shares
|
|
|
Life
(Years)
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
$
|
0.50
|
|
|
|
5,814,000
|
|
|
|
0.30
|
|
|
$
|
0.50
|
|
|
|
5,814,000
|
|
|
$
|
0.50
|
|
In conjunction with the sale of a portion
of the common shares issued as part of its Regulation D offering discussed above, the Company issued eighteen-month warrants to
purchase shares of common stock at an exercise price of $0.50. During the years ended December 31, 2019 and 2018, the Company issued
warrants to purchase 150,000 and 15,351,354 shares of common stock at an exercise price of $0.50.
The weighted-average
remaining contractual life of warrants outstanding and exercisable at December 31, 2019 was 0.44 years. The intrinsic value of
both outstanding and exercisable warrants at December 31, 2019 was $1,020,000.
NOTE 10 – INCOME TAXES
At December 31, 2019, the Company had available
Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $7,119,000
for Federal and state purposes. The carryforwards expire in various amounts through 2039. Given the Company’s history of
net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the
tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit. Section 382
generally limits the use of NOLs and credits following an ownership change, which occurs when one or more 5 percent shareholders
increase their ownership, in aggregate, by more than 50 percentage points over the lowest percentage of stock owned by such shareholders
at any time during the “testing period” (generally three years).
Effective
January 1, 2007, the Company adopted FASB guidelines that address the determination of whether tax benefits claimed or expected
to be claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from
such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized
upon ultimate settlement. This guidance also provides guidance on de-recognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2019 and
2018, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.
The
Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31,
2019, and 2018, the Company has not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2016
through 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Upon
the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated
with the use of the carryforwards and will recognize the appropriate deferred tax asset at that time.
The Company’s effective income tax
rate differs from the amount computed by applying the federal statutory income tax rate to loss before income taxes as follows:
|
|
December 31,
2019
|
|
December 31,
2018
|
Income tax benefit at federal statutory rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
State income tax benefit, net of federal benefit
|
|
|
(6.0
|
)%
|
|
|
(6.0
|
)%
|
Change in valuation allowance
|
|
|
27.00
|
%
|
|
|
27.00
|
%
|
|
|
|
|
|
|
|
|
|
Income taxes at effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The components of deferred taxes consist
of the following at December 31, 2019 and 2018:
|
|
December 31,
2019
|
|
December 31,
2018
|
Net operating loss carryforwards
|
|
$
|
1,922,000
|
|
|
$
|
1,443,000
|
|
Less: Valuation allowance
|
|
|
(1,922,000
|
)
|
|
|
(1,443,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 11– LEGAL PROCEEDINGS
We are engaged from time to time in the
defense of lawsuits arising out of the ordinary course and conduct of our business. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our Company or our subsidiary, threatened against our Company, our common stock, our subsidiary
or of our Company or our subsidiary’s officers or directors in their capacities as such.
NOTE 12– SUBSEQUENT EVENTS
Common shares issued for cash
Subsequent to December 31, 2019, the Company
received proceeds of $50,000 from the issuance of 200,000 shares of common stock, at $0.25 per share, as part of a Regulation D
offering.
Common shares issued for services
Subsequent to December 31, 2019, the Company
issued 125,000 shares of common stock for services received, with a fair value of $31,000 at the date of grant.
Common shares issued on conversion of
a convertible note payable
Subsequent to December 31, 2019, the Company
issued 24,000 shares of common stock, for the conversion of $6,000 of a convertible note payable.
Convertible Secured Notes Payable
Subsequent to December 31, 2019, the Company
issued convertible secured debentures in the aggregate principal amount of $234,000, with similar terms disclosed in Note 6.
Notes Payable
On March 12, 2020, the Company entered
into a loan agreement with Celtic Bank in the principal amount of $150,000 with interest at 32.09% per annum and due on September
12, 2021. The loan requires minimum monthly payments of $10,958, and is secured by the Company’s assets and future sales.
On April 10, 2020, the Company was granted
a loan (the “PPP loan”) from Key Bank in the aggregate amount of $195,000 pursuant to the Paycheck Protection Program
(the “PPP”) under the CARES Act.
The PPP loan agreement is dated April 10, 2020,
matures on April 10, 2022, bears interest at a rate of 1% per annum, with the first six months of interest deferred, is payable
monthly commencing on November 2020, and is unsecured and guaranteed by the U.S. Small Business Administration. The loan term may
be extended to April 20, 2025, if mutually agreed to by the Company and lender. We applied ASC 470, Debt, to account for
the PPP loan. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan may
only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health
care benefits, qualifying rent and debt obligations, and qualifying utilities. The Company intends to use the entire loan amount
for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying
expenses. The Company intends to apply for forgiveness of the PPP loan with respect to these qualifying expenses; however, we cannot
assure that such forgiveness of any portion of the PPP loan will occur. As for the potential loan forgiveness, once the PPP loan
is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain
on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things,
payment defaults, breach of representations and warranties, and insolvency events.
Line of Credit
On April 28, 2020, the Company’s subsidiary,
Intellitronix Corporation, obtained a $50,000 line of credit from Keybank. The line of credit carries an interest rate of 3.25%.
Acquisition of Facility
On April 24, 2020, the Company, through
its wholly-owned subsidiary Intellitronix Corporation, entered into an agreement to purchase real property located at 1148 East
222nd Street and V/L East 222nd Street in Euclid, Ohio (the “Property”) for $675,000, including
fees and expenses. The Company paid for the building with cash utilizing its cash reserves and proceeds received from a related
party loan discussed below.
Loan Agreement related to Acquisition
of Facility
On April 24, 2020, the Company entered
into a loan agreement (the “Loan Agreement”) with the Company’s President and shareholder, Paul Spivak (the “Lender”),
pursuant to which Intellitronix Corporation borrowed $408,000 from the Lender (the “Loan”). The Loan has a term is
for twelve months and carries an interest rate of 6.00%. Intellitronix Corporation used the net proceeds from the Loan to acquire
the Facility described above.
ITEM 14. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
|
(a)
|
Financial Statements:
|
All financial
statements as set forth under Item 13 of this Form 10.
†
|
Management
contract or compensatory plan
|
*
|
Filed herewith
|
**
|
Previously
Filed
|
SIGNATURES
Pursuant to the requirements
of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
US Lighting Group
a Florida Corporation
|
|
|
Date: November 5, 2020
|
By:
|
/S/ PAUL
SPIVAK
|
|
|
Paul Spivak
|
|
|
Chief Executive Officer
(principal executive, financial and
accounting officer)
|
23
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