UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2021

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-55689

 

US LIGHTING GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Florida   46-3556776
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)

 

1148 East 222nd Street

Euclid, Ohio 44117

(Address of principal executive offices) (Zip code)

 

(216) 896-7000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth 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 ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
    Emerging growth company ☐

 

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

The number of shares of registrant’s common stock outstanding as of August 30, 2021 was 97,832,735. 

 

 

 

 

 

 

US LIGHTING GROUP, INC.

 

INDEX

 

PART I. FINANCIAL INFORMATION    
           
  ITEM 1.   Financial Statements   1
           
      Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020   1
           
      Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020   2
           
      Condensed Consolidated Statements of Shareholders’ Deficit for the three and six months ended June 30, 2021 and 2020   3
           
      Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020   4
           
      Notes to Condensed Consolidated Financial Statements   5-16
           
  ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
           
  ITEM 3.   Quantitative and Qualitative Disclosures about Market Risk   27
           
  ITEM 4.   Controls and Procedures   27
           
PART II. OTHER INFORMATION    
           
  ITEM 1.   Legal Proceedings   28
           
  ITEM 1A.   Risk Factors   28
           
  ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds   28
           
  ITEM 3.   Defaults Upon Senior Securities   28
           
  ITEM 4.   Mine Safety Disclosures   28
           
  ITEM 5.   Other Information   28
           
  ITEM 6.   Exhibits   29
           
  SIGNATURES   30

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

US LIGHTING GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 

 

 

    June 30,
2021 		    December 31,
2020 		 
ASSETS            
Current Assets                
Cash and cash equivalents   $ 86,000     $ 108,000  
Accounts receivable     27,000       541,000  
Accounts receivable, related party     -       30,000  
Inventories, net     -       -  
Prepaid expenses and other current assets     -       -  
Investment in trading securities     3,907,000       -  
Assets of discontinued operations     460,000       879,000  
Total Current Assets     4,480,000       1,558,000  
                 
Property and equipment, net     810,000       769,000  
Total Assets   $ 5,290,000     $ 2,327,000  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                
Current Liabilities                
Accounts payable   $ 39,000     $ 47,000  
Accrued expenses     7,000       10,000  
Accrued payroll to an officer     338,000       286,000  
Convertible notes payable     58,000       55,000  
Loans payable, related party – current portion     1,912,000       2,619,000  
Liabilities of discontinued operations     1,042,000       1,174,000  
Total Current Liabilities     3,396,000       4,191,000  
                 
Loans payable, net of current portion     90,000       -  
Total Liabilities     3,486,000       4,191,000  
                 
Commitments and Contingencies    
 
     
 
 
                 
Shareholders’ Equity (Deficit)                
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively    
-
     
-
 
Common stock, $0.0001 par value, 100,000,000 shares authorized; 97,832,735 and 95,970,735 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively     10,000       10,000  
Common stock to be issued     7,000       -  
Additional paid-in-capital     17,791,000       17,435,000  
Accumulated deficit     (16,004,000 )     (19,309,000 )
Total Shareholders’ Equity (Deficit)     1,804,000       (1,864,000 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 5,290,000     $ 2,327,000  

 

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

 

1

 

 

US LIGHTING GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

    Three months ended
June 30, 		    Six months ended
June 30, 		 
    2021        2020       2021      2020  
Sales   $ 1,000     $
-
    $ 2,000     $ 1,000  
Cost of goods sold     2,000      
-
      3,000      
-
 
Gross profit     (1,000 )    
-
      (1,000 )     1,000  
                                 
Operating expenses                                
Selling, general and administrative expenses     358,000       256,000       575,000       331,000  
Product development costs     6,000       42,000       39,000       88,000  
Total operating expenses     364,000       298,000       614,000       419,000  
                                 
Loss from operations     (365,000 )     (298,000 )     (615,000 )     (418,000 )
                                 
Other income (expense)                                
Lease income, related party     15,000      
-
      30,000      
-
 
Gain on sale of assets    
-
     
 
     
-
     
 
 
Gain on extinguishment of debt, related party     9,000      
-
      9,000      
-
 
Unrealized Gain     204,000               204,000          
Interest expense, related party     (24,000 )     (39,000 )     (56,000 )     (76,000 )
Total other income (expense)     204,000       (39,000 )     187,000       (76,000 )
                                 
Net Loss From Continuing operations     (161,000 )     (337,000 )     (428,000 )     (494,000 )
Net Income From Sale of Discontinued operations     3,915,000      
-
      3,915,000      
-
 
Net (Loss) Income From Discontinued operations     (301,000 )     142,000       (182,000 )     201,000  
Net Income (Loss)   $ 3,453,000     $ (195,000 )   $ 3,305,000     $ (293,000 )
                                 
BASIC LOSS PER SHARE FROM CONTINUING OPERATIONS   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
BASIC INCOME PER SHARE FROM SALE OF DISCONTINUED OPERATIONS     0.04      
-
      0.04      
-
 
BASIC (LOSS) INCOME PER SHARE FROM DISCONTINUED OPERATIONS   $ (0.00 )   $ 0.00     $ (0.00 )   $ 0.00  
DILUTED INCOME (LOSS) PER SHARE   $ 0.04     $ (0.00 )   $ 0.04     $ (0.00 )
                                 
WEIGHTED – AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED     97,634,035       90,569,748       97,043,978       90,501,117  

 

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

 

2

 

 

US LIGHTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(UNAUDITED)

 

Three and Six Months ended June 30, 2021

 

    Preferred Stock     Common Stock     Additional Paid-In     Common Stock to     Accumulated     Total
Stockholders’ 		 
    Shares     Amount     Shares     Amount     Capital     Be Issued     Deficit     Deficit  
Balance, December 31, 2020    
   -
    $
-
      95,970,735     $ 10,000     $ 17,435,000     $
-
    $ (19,309,000 )   $ (1,864,000 )
Net proceeds from sale of common stock     -       -       1,005,000       -       150,000       -       -       150,000  
Net Loss     -      
-
      -      
-
     
-
     
-
      (148,000 )     (148,000 )
Balance, March 31, 2021     -       -       96,975,735       10,000       17,585,000       -       (19,457,000 )     (1,862,000 )
Proceeds from sale of common stock     -       -       1,007,000               151,000       7,000       -       158,000  
Shares returned     -       -       (500,000 )     -       -       -       -       -  
Common stock issued for services     -       -       350,000       -       55,000       -       -       55,000  
Net Income     -      
-
      -      
-
     
-
              3,453,000       3,453,000  
Balance, June 30, 2021    
-
    $
-
      97,832,735     $ 10,000     $ 17,791,000     $ 7,000     $ (16,004,000 )   $ 1,804,000  

 

Three and 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 )
Proceeds from sale of common stock     -       -       200,000       1,000       49,000       -       50,000  
Net Loss     -      
-
      -      
-
     
-
      (129,000 )     (129,000 )
Balance, March 31, 2020     -       -       90,547,526       10,000       16,496,000     $ (19,923,000 )   $ (3,417,000 )
Common stock issued for convertible debt     -       -       24,000       -       6,000       -       6,000  
Common stock issued for services     -       -       125,000       -       31,000       -       31,000  
Net Loss     -      
-
      -      
-
     
-
      (164,000 )     (164,000 )
Balance, June 30, 2020    
-
    $
-
      90,696,526     $ 10,000     $ 16,533,000     $ (20,087,000 )   $ (3,544,000 )

 

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

 

3

 

 

US LIGHTING GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   

Six months ended

June 30,

 
    2021     2020  
Cash Flows from Operating Activities            
Net Loss from Continuing Operations   $ (428,000 )   $ (494,000 )
Income from sale of Discontinued Operations     3,915,000      
-
 
Net (Loss) Income from Discontinued Operations     (182,000 )     201,000  
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation     40,000      
-
 
Amortization of right of use asset    
-
     
-
 
Amortization of debt discount     8,000       9,000  
Stock issued for services     55,000       31,000  
Unrealized Gain     (204,000 )    
-
 
Gain on extinguishment of debt     (9,000 )    
-
 
Accrued interest on loans     3,000       10,000  
Accrued interest on related party loans     66,000       53,000  
Changes in Assets and Liabilities                
Accounts receivable     514,000       (27,000 )
Inventories    
-
     
-
 
Prepaid expenses and other    
-
     
-
 
Accounts payable     (8,000 )     60,000  
Accrued expenses     (3,000 )     (5,000 )
Accrued payroll to an officer     52,000       52,000
Change in lease liability    
-
         
Customer advanced payments    
-
     
 
 
Operating cashflow from discontinued operations     26,000      

98,000

 
Net cash provided by (used in) operating activities     3,845,000       (12,000 )
                 
Cash Flows from Investing Activities                
Purchase of property and equipment     (159,000 )     (769,000 )
Investment in trading securities     (3,800,000 )    
-
 
Sale of fixed assets     400,000      
-
 
Proceeds from trading securities     100,000      
-
 
Net cash used in investing activities     (3,459,000 )     (769,000 )
                 
Cash Flows from Financing Activities                
Proceeds from sale of common stock     308,000       50,000  
Proceeds from secured convertible note payable    
-
      235,000  
Proceeds from loans payable     177,000       345,000  
Payment of loans payable     (159,000 )     (131,000 )
Payment of finance lease    
-
      (2,000 )
Proceeds from notes payable related party    
-
      408,000  
Payments on notes payable related party     (734,000 )     (168,000 )
Net cash (used in) provided by financing activities     (408,000 )     737,000  
                 
Net decrease in cash and cash equivalents     (22,000 )     (44,000 )
Cash and cash equivalents beginning of period     108,000       107,000  
Cash and cash equivalents end of period   $ 86,000     $ 63,000  
                 
Supplemental Cash Flow Information                
Interest paid   $ 49,000     $ 20,000  
Taxes paid   $
-
    $
-
 
                 
Non-cash Financing Activities                
Offset accounts receivable, related party with notes payable, related party   $ 30,000     $
-
 

 

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

 

4

 

 

US LIGHTING GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(UNAUDITED)

 

NOTE 1 – BASIS OF PRESENTATION AND LIQUIDITY

 

The accompanying interim condensed financial statements of the US Lighting Group, Inc. (the “Company”) are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position at June 30, 2021, the results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020. The balance sheet as of December 31, 2020 is derived from the Company’s audited financial statements.

 

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 24, 2021.

 

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021.

 

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 generated cash flows during the reporting period 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.

 

Liquidity

 

The accompanying unaudited 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.

 

5

 

 

During the six months ended June 30, 2021, the Company realized net income of $3,305,000, and cash provided by operating activities was $3,845,000, compared to cash used in operating activities of $12,000 in the prior year period. Based on current projections, we believe our available cash on-hand, our current efforts to market and sell our products, and our ability to significantly reduce expenses, will provide sufficient cash resources to satisfy our operational needs, for at least one year from the date these financial statements are issued.

  

At June 30, 2021, the Company had cash on hand in the amount of $86,000. Management estimates that the current cash funds and liquid investments on hand will be sufficient to continue operations through December 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.

 

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.

 

On January 11, 2021, the Company created a new subsidiary called Cortes Campers, LLC, domiciled in Wyoming. Cortes Campers, LLC was created to market tow behind travel trailers for the recreational vehicle market and has had no sales as of the date of this report. Cortes Campers, LLC is 99% owned by the Company and 1% owned by Paul Spivak, the Company’s former CEO.

 

US Lighting Group, Inc created a new subsidiary called Fusion X Marine, LLC on April 12, 2021, domiciled in Wyoming, to sell boats and other related products to the recreational marine market. Fusion X Marine is 99% owned by the Company and 1% owned by Paul Spivak, the Company’s former CEO. The subsidiary has had no sales as of the date of this report.

 

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.

 

6

 

 

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 20,000 shares of common stock, and 226,356 shares of common stock issuable under convertible note agreements, have been excluded from the calculation of weighted average common shares outstanding at June 30, 2021, as their effect would have been anti-dilutive. Warrants to acquire 4,104,000 shares of common stock have been excluded from the calculation of weighted average common shares outstanding at June 30, 2020, as their effect would have been anti-dilutive.

 

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 three months ended June 30, 2021:

 

Sales Channels   LED digital
gauges and
automotive
electronics and
accessories 		    LED
lighting
tubes and
bulbs 		    Total  
Business to business   $ 316,000     $
-
    $ 316,000  
Direct to consumer     226,000      
-
      226,000  
Total   $ 542,000     $     -     $ 542,000  

 

In the following table, revenue is disaggregated by major product line for the six months ended June 30, 2021:

 

Sales Channels   LED digital
gauges and
automotive
electronics and
accessories 		    LED
lighting
tubes and
bulbs 		    Total  
Business to business   $ 899,000     $ 2,000     $ 901,000  
Direct to consumer     585,000      
-
      585,000  
Total   $ 1,484,000     $ 2,000     $ 1,486,000  

 

7

 

 

In the following table, revenue is disaggregated by major product line for the three months ended June 30, 2020:

 

Sales Channels   LED digital
gauges and
automotive
electronics and
accessories 		    LED
lighting
tubes and
bulbs 		    Total  
Business to business   $ 405,000     $      -     $ 405,000  
Direct to consumer     411,000       -       411,000  
Total   $ 816,000     $ -     $ 816,000  

 

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   $ 730,000     $ 1,000     $ 731,000  
Direct to consumer     841,000       -       841,000  
Total   $ 1,571,000     $ 1,000     $ 1,572,000  

 

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 $74,000 and $29,000 at June 30, 2021 and December 31, 2020, 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 a PayPal account that was closed effective May 14, 2021.

 

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, 2021 and December 31, 2020, the Company determined that no allowance for doubtful accounts was necessary.

 

8

 

 

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 June 30, 2021 and December 31, 2020.

 

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 June 30, 2021 and December 31, 2020, the Company determined that no reserve for excess and obsolete inventory was necessary.

 

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:

 

Building   40 years
Building and land improvements   7-15 years
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 six months ended June 30, 2021 and 2020.

  

Product Development Costs

 

Product development costs are expensed in the period incurred. The costs primarily consist of prototype and testing costs. Product development costs for the six months ended June 30, 2021 and 2020, were $120,000 and $220,000, respectively.

 

Shipping and Handling Costs

 

The Company’s shipping and handling costs relating to inbound and outbound freight are reported as cost of goods sold 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 June 30, 2021 and December 31, 2020.

 

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.

 

9

 

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Advertising costs were $24,000 and $14,000 for the six months ended June 30, 2021 and 2020, respectively.

 

Concentrations

 

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 three months ended June 30, 2021, the Company’s three largest customers accounted for 20%, 16% and 16% of sales. During the three months ended June 30, 2020, three customers accounted for 36%, 18% and 14% of sales. No other customers exceeded 10% of sales in either period.

 

During the six months ended June 30, 2021, the Company’s three largest customers accounted for 23%, 20% and 14% of sales. During the six months ended June 30, 2020, three customers accounted for 38%, 15% and 15% of sales. No other customers exceeded 10% of sales in either period

 

Accounts receivable. As of June 30, 2021, the Company had accounts receivable from two customers which comprised 50% and 15% of its gross accounts receivable. As of December 31, 2020, the Company had accounts receivable from two customers which comprised 30%, and 26% of its gross accounts receivable, respectively.

 

Purchases from vendors. During the three months ended June 30, 2021, the Company’s two largest vendors accounted for approximately 14% and 13% of all purchases. During the six months ended June 30, 2021, the Company’s two largest vendors accounted for approximately 16% and 12% of all purchases. The Company sourced 58% of its raw materials from its vendors in China. During the three months ended June 30, 2020, the Company’s two largest vendors accounted for approximately 19%, 12% and 12% of all purchases. During the six months ended June 30, 2020, the Company’s two largest vendors accounted for approximately 16% and 14% of all purchases. The Company sourced 37% of its raw materials from its vendors in China. No other vendor exceeded 10% of all purchases in either period.

 

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 the line of credit and 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 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.

 

10

 

 

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 – SALE OF ASSETS / DISCONTINUED OPERATIONS

 

On May 14, 2021, US Lighting Group, Inc. and Intellitronix Corporation entered into an Asset Purchase Agreement with Ohio INTX Cooperative, a State of Ohio cooperative association, to sell certain assets of Intellitronix Corporation. The Asset Purchase Agreement and related sale was finalized on May 14, 2021 with a sale price of $4,520,000.00. Intellitronix Corporation remains a wholly-owned subsidiary of US Lighting Group, Inc.

 

US Lighting Group, Inc. provided a parental guarantee for a period up to statutory limitations on the performance of Intellitronix Corporation’s duties and obligations under the Asset Purchase Agreement. After the sale of Intellitronix Corporation’s assets to Ohio INTX Cooperative, the Company redirected its operational activity towards the Recreational Vehicle (RV) market, and has since created a new subsidiary called Cortes Campers, LLC to market tow behind travel trailers for the recreational vehicle market. Cortes Campers, LLC is 99% owned by the Company and 1% owned by Paul Spivak, the Company’s former CEO.

 

In accordance with the provisions of ASC 205-20, Presentation of Financial Statements, we have separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of June 30, 2021 and December 31, 2020, and consist of the following:

 

    June 30,
2021 		    December 31,
2020 		 
Current Assets of Discontinued Operations:            
Prepaid expenses and other current assets   $ 182,000     $ 17,000  
Inventory     -       212,000  
Property and equipment     278,000       650,000  
Total Current Assets of Discontinued Operations:   $ 460,000     $ 879,000  
                 
Current Liabilities of Discontinued Operations:                
Accounts payable   $ 237,000     $ 316,000  
Accrued expenses     78,000       94,000  
Accrued payroll to an officer     182,000       156,000  
Notes payable     545,000       608,000  
Total Current Liabilities of Discontinued Operations:   $ 1,042,000     $ 1,174,000  

 

In accordance with the provisions of ASC 205-20, we have not included the results of operations from discontinued operations in the results of continuing operations in the consolidated statements of operations. The results of operations from discontinued operations for the three months and six months ended June 30, 2021 and 2020, have been reflected as discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2021 and 2020, and consist of the following.

 

    Three months ended June 30,     Six months ended June 30,  
     2021        2020       2021      2020  
Sales from discontinued operations   $ 541,000     $ 755,000     $ 1,484,000     $ 1,561,000  
Cost of goods sold of discontinued operations     188,000       226,000       594,000       604,000  
Gross profit of discontinued operations     353,000       529,000       890,000       957,000  
                                 
Operating expenses of discontinued operations:                                
Selling, general and administrative expenses     597,000       332,000       942,000       603,000  
Product development costs     30,000      
4,9000
      80,000       132,000  
Total operating expenses of discontinued operations     627,000       381,000       1,022,000       735,000  
                                 
Operating loss from discontinued operations     (274,000 )     148,000       (132,000 )     222,000  
                                 
Other income (expense) of discontinued operations:                                
Gain on sale of assets     3,915,000      
-
      3,915,000      
-
 
Gain on extinguishment of debt, related party    
-
     
-
      9,000      
-
 
Interest expense     (27,000 )     (6,000 )     (59,000 )     (21,000 )
Total other income (expense)     3,888,000       (6,000 )     3,865,000       (21,000 )
                                 
Net Income from discontinued operations   $ 3,614,000     $ 142,000     $ 3,733,000     $ 201,000  

 

11

 

 

NOTE 4 – INVESTMENT IN TRADING SECURITIES

 

On May 17, 2020, the Company purchased $3,800,000 of various mutual fund assets from Ameriprise Investments. This investment meets the criteria of level one inputs for which quoted market prices are available in active markets for identical assets or liabilities as of the reporting date. As of June 30, 2021, the shares of Ameriprise have a reported market value of $3,907,000. The Company has adjusted the reported amounts for these investments to market value resulting in an unrealized gain reported of $204,000.

 

The source of the $3,800,000 that the Company used to purchase various mutual fund assets from Ameriprise Investments was the sale of certain assets of Intellitronix Corporation that was consummated on May 14, 2021. The Company purchased the shares of Ameriprise Investments in order to provide shareholders of the Company with a reasonable rate of return while deciding how to deploy these funds towards its planned business operations. However, as a result of this purchase by the Company of mutual fund assets from Ameriprise Investments, the Company may be deemed to be an “investment company” under the Investment Company Act of 1 Investment Company Act of 1940 (the “Investment Company Act”), by virtue of the fact that, as of June 30, 2021, the Company owned securities having a value exceeding 40% of the value of such the Company’s total assets on an unconsolidated basis.

 

The Company does not intend to be an investment company, and does not intend to be engaged in the business of investing, reinvesting, owning, holding or trading in securities. As such, the Company intends to rely on Rule 3a-2 under the Investment Company Act, which provides an exclusion from the definition of “investment company” for issuers meeting certain criteria. The Company will endeavor to ensure that it is compliant with the conditions for relying on this rule, within the time period permitted by Rule 3a-2. In an effort to comply with this exclusion, the Company intends to liquidate securities in Ameriprise Investments soon as is reasonably possible until the Company no longer owns securities having a value exceeding 40% of the value of such the Company’s total assets on an unconsolidated basis. Such course of action has been approved and authorized by the Company’s Board of Directors by unanimous written consent on August 17, 2021.

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at June 30, 2021 and December 31, 2020:

 

   

June 30,

2021

    December 31,
2020 		 
Building and improvements   $ 664,000     $ 645,000  
Land     96,000       96,000  
Vehicles     431,000       411,000  
Production equipment     115,000       630,000  
Office equipment     35,000       35,000  
Furniture and fixtures     22,000       48,000  
Total property and equipment cost     1,363,000       1,865,000  
Less: accumulated depreciation and amortization     (275,000 )     (446,000 )
Property and equipment, net   $ 1,088,000     $ 1,419,000  

 

Depreciation expense for the six months ended June 30, 2021 and 2020 was $87,000 and $31,000, respectively.

 

NOTE 6 – ACCRUED PAYROLL TO OFFICER

 

Beginning in January 2018, the Company’s President and CEO (Paul Spivak) voluntarily elected to defer payment of his employment compensation. The balance of the compensation owed to the Company’s President and CEO was $520,000 and $442,000 as of June 30, 2021 and December 31, 2020, respectively.

 

As of the date of this report, Paul Spivak is no longer an executive officer or director of the Company.

 

NOTE 7 – LINE OF CREDIT

 

On April 28, 2020, the Company obtained a $50,000 unsecured line of credit from KeyBank. The line of credit currently carries an interest rate the prime rate plus 3.86% , currently 7.11   % per annum. The balance outstanding on the line of credit was $49,000 and $49,000 at June 30, 2021 and December 31, 2020, respectively.

 

12

 

 

NOTE 8 – LOANS PAYABLE TO RELATED PARTIES

 

Loans payable to related parties consists of the following at June 30, 2021 and December 31, 2020:

 

    June 30,
2021 		    December 31,
2020 		 
Loan payable to officers/shareholders (a)   $ 1,447,000     $ 2,130,000  
Loan payable to related party (b)     125,000       125,000  
Loan payable to related party – past due (c)    
-
      34,000  
Loan payable to related party – (d)     340,000       330,000  
Total loans payable to related parties     1,912,000       2,619,000  
Loans payable to related parties, current portion     (1,912,000 )     (2,619,000 )
Loans payable to related parties, net of current portion   $
-
    $
-
 

 

a. On December 1, 2016, the Company acquired Intellitronix Corporation from the Company’s President and majority 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, 2020, including accrued interest, was $2,130,000. During the six months ended June 30, 2021, the Company accrued interest of $56,000 and made principal loan payments of $739,000, leaving a balance outstanding of $1,447,000 at June 30, 2021.     

 

b. During the year ended December 31, 2017, the Company’s President and majority 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, 2021 and December 31, 2020.    
   
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, 2020 was $34,000. During the six months ended June 30, 2021, the Company and Huntington National Bank agreed to settle the past due loan and interest balance for a total of $25,000, and the Company recorded a gain on extinguishment of debt for $9,000, leaving no balance remaining at June 30, 2021.

 

d. On April 24, 2020, the Company entered into a loan agreement (the “Loan Agreement”) with the Company’s President and majority 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 loan balance on December 31, 2020 was $330,000. During the six months ended June 30, 2021, the Company accrued interest of $10,000, leaving a balance outstanding of $340,000 at June 30, 2021.

   

NOTE 9 – LOANS PAYABLE

 

Loan payable consisted of the following as of June 30, 2021 and December 31, 2020:

 

   

June 30,

2021

    December 31,
2020 		 
PayPal Working Capital Loan, net of discount (a)   $ 28,000     $ 38,000  
PayPal Working Capital Loan, net of discount (b)     10,000       14,000  
Secured promissory note (c)    
-
      86,000  
Secured promissory note (d)     264,000       265,000  
Vehicle loans (e)     136,000       131,000  
Equipment loan (f)     14,000       16,000  
Equipment loan (g)    
-
      17,000  
Equipment loan (h)     81,000      
-
 
SBA PPP Loan (i)     52,000      
 
 
Loan discount    
-
      (8,000 )
Total loans payable     585,000       559,000  
Loans payable, current portion     (99,000 )     (163,000 )
Loans payable, net of current portion   $ 486,000     $ 396,000  

 

a. 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. Current repayment schedule pre-agreed with the lender is $1600 monthly.  The loan balance on December 31, 2020 was $38,000. During the six months ended June 30, 2021, the Company made principal payments of $10,000, leaving a total of $28,000 owed at June 30, 2021.

 

13

 

 

b. 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. . Current repayment schedule pre-agreed with the lender is $600 monthly The loan balance on December 31, 2020 was $14,000. During the six months ended June 30, 2021, the Company made principal payments of $4,000, leaving a total of $10,000 owed at June 30, 2021.
   
c. 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 principal and interest payments of $11,000 and is secured by the Company’s assets and future sales and is personally guaranteed by the Company’s CEO. The loan balance on December 31, 2020 was $86,000. During the six months ended June 30, 2021, the Company made principal payments of $86,000, leaving a total of $0 owed at June 30, 2021.
   
d. 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. The loan balance on December 31, 2020 was $265,000. During the six months ended June 30, 2021, the Company made principal payments of $1,000, leaving a total of $264,000 owed at June 30, 2021.

 

e. The Company purchases vehicles for its Chief Executive Officer and for research and development activities. Generally, vehicles are sold or traded in at the end of the vehicle loan period. The aggregate vehicle loan balance on three vehicles was $131,000 at December 31, 2020, with an original loan period of 72 to 144 months, and interest rates of zero percent to 10.99%. During the six months ended June 30, 2021, the Company purchased a vehicle for $40,000, with a 72 month loan term, and an interest rate of 4.15%, and made total principal payments of $35,000 on its vehicle loans, leaving an aggregate loan balance on three vehicles of $136,000 at June 30, 2021.

 

f. On August 3, 2020, the Company entered into a $18,000 term loan with Leaf Capital related to the purchase of production equipment. The loan requires monthly payments over the term of 36 months, has an interest rate of 8.48% per annum, and is secured by the production equipment. The loan balance on December 31, 2020 was $16,000. During the six months ended June 30, 2021, the Company made principal payments of $2,000, leaving a total of $14,000 owed at June 30, 2021.

 

g. On November 29, 2020, the Company entered into a $17,000 term loan with CIT Bank related to the purchase of software for its production equipment. The loan requires monthly payments over the term of 36 months, has an interest rate of 13.18% per annum, and is personally guaranteed by the Company’s CEO. The loan balance was $17,000 at December 31, 2020. During the six months ended June 30, 2021, the Company made principal payments of $17,000, leaving a total of $0 owed at June 30, 2021.

 

h. On February 22, 2021, the Company entered into a $86,000 term loan with CIT Bank related to the purchase of production equipment. The loan requires monthly payments over the term of 36 months, has an interest rate of 9.96% per annum, and is personally guaranteed by the Company’s CEO. During the six months ended June 30, 2021, the Company made principal payments of $5,000, leaving a total of $81,000 owed at June 30, 2021.

 

i. On April 27, 2021, the Company was granted a loan (the “PPP loan”) from Huntington Bank in the aggregate amount of $52,000 pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. The PPP loan agreement is dated April 27, 2021, matures on April 27, 2022, bears interest at a rate of 1% per annum, is unsecured and guaranteed by the U.S. Small Business Administration (SBA). Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses.

 

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. The unamortized valuation discount was $8,000 at December 31, 2020. During the six months ended June 30, 2021, amortization of valuation discount of $8,000 was recorded as an interest cost, leaving a $0 remaining unamortized balance of the valuation discount at June 30, 2021.

 

14

 

 

NOTE 10 – CONVERTIBLE SECURED NOTES 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 Convertible Notes, 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. The Convertible Notes balance on December 31, 2020, including accrued interest of $5,000, was $55,000. During the six months ended June 30, 2021, the Company accrued additional interest of $3,000, leaving a total of $58,000 owed at June 30, 2021. As of June 30, 2021, the Convertible Notes were convertible into 232,000 shares of common stock.

 

NOTE 11 – SHAREHOLDERS’ EQUITY

 

Common shares issued for cash

 

During the six months ended June 30, 2021 and 2020, the Company received proceeds of $258,000 and $50,000 on the private placement of 2,010,000 and 200,000 shares of common stock, at an average price of $0.15 and $0.25 per share, respectively.

 

During the six months ended June 30, 2021, the Company issued 350,000 shares of common stock for services for total non-cash expense of $55,000.

 

During the six months ended June 30, 2021, 500,000 shares of common stock were returned to the treasury.

 

Summary of Warrants

 

A summary of warrants for the period ended June 30, 2021, is as follows:

 

    Number
of 		    Weighted
Average
Exercise 		 
    Warrants     Price  
Balance outstanding, December 31, 2020     20,000       0.25  
Warrants granted    
-
     
-
 
Warrants exercised    
-
     
-
 
Warrants expired or forfeited    
-
     
-
 
Balance outstanding, June 30, 2021     20,000     $ 0.25  
Balance exercisable, June 30, 2021     20,000     $ 0.25  

 

Information relating to outstanding warrants at June 30, 2021, 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       0.19     $ 0.25       20,000     $ 0.25  

 

In conjunction with the sale of a portion of the common shares issued as part of its private placement offering discussed above, the Company issued eighteen-month warrants to purchase shares of common stock at an exercise price of $0.25.

 

The weighted-average remaining contractual life of warrants outstanding and exercisable at June 30, 2021 was 0.19 years. The outstanding and exercisable warrants at an intrinsic value of $0 at June 30, 2021.

 

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NOTE 12 – LEGAL PROCEEDINGS

 

On June 8, 2021, Paul Spivak, former Chief Executive Officer of the Company was arrested for conspiracy to commit securities fraud. Upon his arrest, the Company learned that on June 7, 2021, a Criminal Complaint was filed against Mr. Spivak in the United States District Court for the Northern District of Ohio, Case No. 1:21MJ4128-JDG. The charges in the Criminal Complaint specified that from in and around February 2021 through current, within the Northern District of Ohio and elsewhere, the defendants PAUL SPIVAK, together with others, conspired to commit an offense, that is securities fraud in that he knowingly and intentionally attempted to execute a scheme and artifice to defraud investors and potential investors in connection with US Lighting Group, Inc. to obtain money and property from investors and potential investors by means of materially false and fraudulent pretenses, representations, and promises in connection with purchases and sales of securities of issuers, specifically US Lighting Group, Inc. in violation of Title 15, United States Code, Sections 78j(b), 78ff, Title 17; Code of Federal Regulations, Sections 240.10b-5, and Title 18, United States Code, Section 371.

 

On June 29, 2021 Intellitronix Corporation entered into a settlement agreement in a lawsuit filed by Michael A. Kunzman & Associates, Inc. for alleged nonpayment of manufacturer’s representation commissions. The lawsuit was filed on August 24, 2020 in the Circuit Court for Oakland County, Michigan. Intellitronix Corporation settled the case for $150,000 at which time the lawsuit was dismissed with prejudice

 

NOTE 13 – SUBSEQUENT EVENTS

 

On August 9, 2021, Anthony Corpora was elected as Director, CEO, President and Treasurer and Olga Smirnova was elected as Director and Secretary. Also on August 9, 2021, Paul Spivak CEO, resigned from both his positions of Director, Chief Executive Officer, President, Treasurer and Secretary for US Lighting Group, Inc.

 

As noted in Note 4, on August 17, 2021, the Company’s Board of Directors approved and authorized the Company to liquidate certain of its securities assets by the unanimous written consent. As of June 30, 2021, the Company owned mutual fund assets from Ameriprise Investments which may be considered securities, and such securities had a value exceeding 40% of the value of such the Company’s total assets on an unconsolidated basis. The Company does not intend to be an investment company, and does not intend to be engaged in the business of investing, reinvesting, owning, holding or trading in securities. As such, the Company intends to rely on Rule 3a-2 under the Investment Company Act, which provides an exclusion from the definition of “investment company” for issuers meeting certain criteria. The Company will endeavor to ensure that it is compliant with the conditions for relying on this rule, within the time period permitted by Rule 3a-2. In an effort to comply with this exclusion, the Company intends to liquidate securities in Ameriprise Investments soon as is reasonably possible until the Company no longer owns securities having a value exceeding 40% of the value of such the Company’s total assets on an unconsolidated basis. Such course of action has been approved and authorized by the Company’s Board of Directors by unanimous written consent on August 17, 2021. As of the date of this report, the Company is in the process of liquidating these aforementioned investments.  

 

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

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for materials, and competition.

 

General Overview

 

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 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.

 

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.

 

The Company also has several operating subsidiaries that engage in various lines of business, as follows:

 

● Intellitronix Corp. was acquired by the Company on December 1, 2016. Intellitronix Corp. is a designer and a US-based manufacturer of automotive electronic products such as digital and analog gauges, energy management systems and ignition boxes. The products are sold through aftermarket distributors, as well consumer direct and through some OEM channels.

 

● On January 11, 2021, the Company created a new subsidiary called Cortes Campers, LLC, domiciled in Wyoming. Cortes Campers, LLC was created to market tow behind travel trailers for the recreational vehicle market and has had no sales as of the date of this report.

 

● US Lighting Group, Inc created a new subsidiary called Fusion X Marine, LLC on April 12, 2021, domiciled in Wyoming, to sell boats and other related products to the recreational marine market.

 

US Lighting Group, Inc.

 

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.

 

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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 Corporation (“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 - Intellitronix’ 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 Intellitronix’ 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.

 

Intellitronix’ 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 Intellitronix’ products are manufactured at Intellitronix’ facility in Euclid, Ohio.

 

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Distribution

 

During the six months ended June 30, 2021, Intellitronix had 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, Intellitronix provides 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. Intellitronix’ 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. W Intellitronix’ products are also sold through eBay, Amazon, and other e-commerce platforms.

 

Cortes Campers, LLC.

 

Subsequent to May 14th, the Company has largely focused its efforts on Cortes Campers, LLC (“Cortes Campers”), a subsidiary formed by the Company on January 11th, 2021. Cortes Campers was created to market tow behind fiberglass travel trailers for the recreational vehicle market that utilize unique composite construction techniques and offer durability, light weight and upscale aesthetic to the end user. Cortes Campers is 99% owned by US Lighting Group and 1% owned by Paul Spivak, the Company’s former CEO.

 

Products

 

Cortes Campers currently focuses on its 17’ fiberglass travel camper which competes with several molded travel campers, such as those manufactured by Casita Travel Trailers and Oliver Travel Trailers. The main advantage of a molded fiberglass construction compared to a typical travel camper is strength, optimized insulation and virtually four-seasons use. US Lighting Group, through a former subsidiary Intellitronix Corp., has been a supplier to the Recreational Vehicle industry and has identified this niche through market research and experience.

 

By utilizing the latest in lightweight aerospace materials, such as carbon fiber, etc., and incorporating the recently new process of vacuum infusion, Cortes Campers aims to offer a camper that is immune to corrosion, rust and rot, extremely lightweight all at a price that competes with traditional campers on the market.

 

The development of the first molded fiberglass trailer has been completed, but there have been no sales as of date of this report. Cortes Campers is currently set up to purchase units from Mig Marine Corp., a related party which is 100% owned by Paul Spivak, former US Lighting Group CEO, however no formal supply agreement is currently in place. Mig Marine Corp. is also a tenant of US Lighting Group and has been renting about 13,000 sq ft of its manufacturing facility.

 

There are two patents pending on the technology related to Cortes Campers products - however no formal licensing agreement currently exists between the inventor, Paul Spivak, and US Lighting Group.

 

Distribution

 

Cortes Campers is in the early stages of developing a national distribution network for the sales of its travel campers.

 

Fusion X Marine, LLC

 

Fusion X Marine, LLC (“Fusion”) was formed by the Company on April 12, 2021. The Company intends for Fusion to sell boats and other related products to the recreational marine market.

 

Planned Products

 

As of the date of this report, Fusion has not sold any products. Fusion is in the process of developing fiberglass boats – however, Fusion has not yet completed development of any products. As of the date of this report, the Company is focusing its efforts on Cortes Campers, and does not expect Fusion to have any material operations in the near future.

 

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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.

 

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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 2 of Notes to the Condensed Consolidated Financial Statements for management’s discussion of recent accounting pronouncements.

 

Results of Operations for the Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

 

Our revenue, operating expenses, and net loss from operations for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, were as follows:

 

    For the three months ended June 30,           Percentage
Change 		 
    2021     2020     Change     Inc. (Dec.)  
Total Sales, net     542,000       831,000       (289,000 )     (35 )%
Total Cost of goods sold     190,000       371,000       (181,000 )     (49 )%
Gross profit     352,000       460,000       (108,000 )     (23 )%
                                 
Operating expenses                                
Selling, general and administrative expenses     955,000       453,000       502,000       111 %
Product development costs     36,000       142,000       (106,000 )     (75 )%
Total operating expenses     991,000       595,000       396,000       67 %
Loss from operations     (639,000 )     (135,000 )     (504,000 )     373 %
Other income (expense)     4,092,000       (60,000 )     4,152,000       6,920 %
Net Loss   $ 3,453,000     $ (195,000 )   $ 3,648,000       1,871 %

 

Sales

 

Total Sales decreased by $289,000 (35%) to $542,000 for the three months ended June 30, 2021, compared to $831,000 for the three months ended June 30, 2020. The decrease in sales is attributed to the sale of operational assets of Intellitronix Corp. on May 14, 2021, which resulted in the loss of revenue generated from Intellitronix Corp. after May 14, 2021 during the three months ended June 30, 2021. The Company does not expect to receive any further revenues from the operations of Intellitronix Corp. after the sale of its assets on May 14, 2021, and expects that its revenues will be lower going forward until the Company can begin generating sales through its Cortes Campers subsidiary, which it anticipates will occur before the end of 2021.

 

Cost of Goods Sold

 

Cost of goods sold decreased by $181,000 (49%) to $190,000 for the three months ended June 30, 2021, compared to $371,000 for the three months ended June 30, 2020. The decrease in costs of goods sold was primarily attributable to decreased sales. Gross profit as a percentage of sales increased to 65% for three months ended June 30, 2021 from 55% for the three months ended June 30, 2020. The increase in gross margin is attributed to optimized logistics and improved labor factor compared to previous year impacted by early COVID-19 pandemic disruptions.

 

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Operating Expenses

 

Operating expenses include selling, general and administrative expenses, and product development costs.

 

Selling, general and administrative expenses increased by $502,000 (111%) to $955,000 for the three months ended June 30, 2021, compared to $453,000 for the three months ended June 30, 2020. The increase in selling, general and administrative expenses is primarily attributable to an increase in sales commissions expenses, including a legal settlement of $150,000 related to a lawsuit against Intellitronix Corporation for alleged nonpayment of manufacturer’s representation commissions (which was accrued on June 30, 2021 and paid on July 29, 2021) and a commission of $212,000 to a business broker on the sale of the assets of Intellitronix Corporation and increased legal expenses.  

 

Product development costs decreased by $106,000 (75%) to $36,000 for the three months ended June 30, 2021, compared to $142,000 for the three months ended June 30, 2020. The decrease in product development costs is primarily attributable a focus on fewer new products with higher margins.

 

Loss from Operations

 

Loss from operations increased to approximately $639,000 during the three months ended June 30, 2021, compared to a loss from operations of $135,000 during the three months ended June 30, 2020. The increase in loss from operations was due to a loss of revenue resulting from the sale of the assets of Intellitronix, which at the time of the sale was a significant source of revenue generation, along with increased operating expenses, as discussed above.

 

Other Expense

 

Other income for the three months ended June 30, 2021 was $4,092,000, as compared to other expense of $60,000 for the three months ended June 30, 2020. The large increase in other income for the three months ended June 30, 2021 compared to the same period in the prior year was the sale of assets of Intellitronix Corporation to Ohio INTX Cooperative on May 14, 2021 with a sale price of $4,520,000.00. As a result of this transaction, we recognized a gain on disposal of assets of $3,915,000. During the three months ended June 30, 2021, we recorded lease income of $24,000, including sublease income from a related party of $15,000, an unrealized gain of $204,000 and dividend and interest income of $2,000. Interest expense for the three months ended June 30, 2021 was $53,000, as compared to $60,000 for the three months ended June 30, 2020.

 

Net Loss

 

Net income was $3,453,000 during the three months ended June 30, 2020, compared to a net loss of $195,000 for the three months ended June 30, 2020. The change from a net loss to net income is primarily due to the recognition of other income as discussed above.

 

Results of Operations for the Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

 

Our revenue, operating expenses, and net loss from operations for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, were as follows:

 

    For the six months ended June 30,           Percentage
Change 		 
    2021     2020     Change     Inc. (Dec.)  
Total Sales, net     1,486,000       1,562,000       (76,000 )     (5 )%
Total Cost of goods sold     596,000       610,000       (14,000 )     (2 )%
Gross profit     890,000       952,000       (62,000 )     (7 )%
                                 
Operating expenses                                
Selling, general and administrative expenses     1,517,000       927,000       590,000       64 %
Product development costs     120,000       220,000       (100,000 )     (45 )%
Total operating expenses     1,637,000       1,147,000       490,000       43 %
Loss from operations     (747,000 )     (195,000 )     (552,000 )     283 %
Other income (expense)     4,052,000       (98,000 )     4,150,000       4,235 %
Net Loss   $ 3,305,000     $ (293,000 )   $ 3,598,000       1,228 %

 

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Sales

 

Sales decreased by $76,000 (5%) to $1,486,000 for the six months ended June 30, 2021, compared to $1,562,000 for the six months ended June 30, 2020. This decrease in sales is attributed to the sale of operational assets of Intellitronix Corp. on May 14, 2021, which resulted in the loss of revenue generated from Intellitronix Corp. after May 14, 2021 during the three months ended June 30, 2021.

 

Cost of Goods Sold

 

Cost of goods sold decreased by $14,000 (2%) to $596,000 for the six months ended June 30, 2021, compared to $610,000 for the six months ended June 30, 2020. The decrease in costs of goods sold was primarily attributable to decreased sales. Gross profit as a percentage of sales remained the same at 60% for six months ended June 30, 2021 and 2020.

 

Operating Expenses

 

Operating expenses include selling, general and administrative expenses, and product development costs.

 

Selling, general and administrative expenses increased by $590,000 (64%) to $1,517,000 for the six months ended June 30, 2021, compared to $927,000 for the six months ended June 30, 2020. The increase in selling, general and administrative expenses is primarily attributable to an increase in sales commissions expenses, including a legal settlement of $150,000 related to a lawsuit against Intellitronix Corporation for alleged nonpayment of manufacturer’s representation commissions (which was accrued on June 30, 2021 and paid on July 29, 2021) and a commission of $212,000 to a business broker on the sale of the assets of Intellitronix Corporation and increased legal expenses.

 

Product development costs decreased by $100,000 (45%) to $120,000 for the six months ended June 30, 2021, compared to $220,000 for the six months ended June 30, 2020. The decrease in product development costs is primarily attributable to a shift in the focus of the Company to develop a smaller number of new products with higher margins.

 

Loss from Operations

 

Loss from operations increased to approximately $747,000 during the six months ended June 30, 2021, compared to a loss from operations of $195,000 during the six months ended June 30, 2020. The increase in loss from operations was due to increased operating expenses, as discussed above.

 

Other Income / Expense

 

Other income for the six months ended June 30, 2021 was $4,052,000, as compared to other expense of $98,000 for the six months ended June 30, 2020. During the six months ended June 30, 2021, we recorded a gain on extinguishment of debt of $9,000, sublease income of $39,000, $30,000 of which was from a related party, an unrealized gain of $204,000, and dividend and interest income of $2,000. Interest expense for the six months ended June 30, 2021 was $117,000, as compared to $98,000 for the six months ended June 30, 2020. In addition, during the six months ended June 30, 2021, we recognized a gain on disposal of selected Intellitronix assets of $3,915,000.

 

Net Loss

 

Net income was $3,305,000 during the six months ended June 30, 2020, compared to a net loss of $293,000 for the six months ended June 30, 2020. The change from a net loss to net income is primarily due to the recognition of other income as discussed above.

 

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Liquidity and Capital Resources

 

Our working capital deficiency as of June 30, 2020 and December 31, 2020 was as follows:

 

    As of     As of  
    June 30,
2021 		    December 31,
2020 		 
Current Assets   $ 4,202,000     $ 908,000  
Current Liabilities     3,060,000       3,795,000  
Net Working Capital Surplus / (Deficiency)   $ 1,142,000     $ (2,887,000 )

 

The following summarizes our cash flow activity for the six months ended June 30, 2021 and 2020:

 

Cash Flows

 

    Six months     Six months  
    ended     ended  
    June 30,
2021 		    June 30,
2020 		 
Net cash provided by (used in) Operating Activities   $ 3,845,000     $ (12,000 )
Net cash used in Investing Activities     (3,459,000 )     (769,000 )
Net cash provided by (used in) Financing Activities     (408,000 )     737,000  
Decrease in cash during the period     (22,000 )     (44,000 )
Cash, Beginning of Period     108,000       107,000  
Cash, End of Period   $ 86,000     $ 63,000  

 

At June 30, 2021, we had a working capital deficit of approximately $1.1 million compared to a working capital deficit of $2.9 million at December 31, 2020.

 

Net cash provided by operating activities for the six months ended June 30, 2021 totaled $3,845,000, compared to net cash used in operating activities for the six months ended June 30, 2020 of $12,000. The improvement in net cash provided by operating activities for the six months ended June 30, 2021 was primarily due to the sale of selected Intellitronix assets and the decrease in our accounts receivable balance of $514,000.

 

Net cash used in investing activities was approximately $3,459,000 for the six months ended June 30, 2021, compared to $769,000 for the six months ended June 30, 2020. During the six months ended June 30, 2021, the Company purchased production equipment for $86,000, a vehicle for $40,000, and other property and equipment for $15,000. We also received $400,000 from the sale of fixed assets and used $3,800,000 for the purchase of securities. Net cash used in investing activities was approximately $769,000 for six months ended June 30, 2020 and relates to the purchase of real property and equipment.

 

Net cash used in financing activities for the six months ended June 30, 2021 was $408,000 and included proceeds of $308,000 received in the private placement of common stock, and $177,000 from proceeds from the issuance of notes payable. These proceeds were offset by the repayment of $159,000 of notes payable, and repayment of $739,000 of notes payable to a related party. Net cash provided by financing activities for the six months ended June 30, 2020 was $737,000 and included $50,000 of proceeds from the private placement of common stock, $235,000 from the issuance of secured convertible promissory notes, $345,000 in proceeds from loans payable, and $408,000 in proceeds from notes 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 $168,000 of notes payable to a related party.

 

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-K filing without additional financing.

 

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Loans Payable to Related Parties

 

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 June 30, 2021 and December 31, 2020, including accrued interest, was $1,447,000 and $2,130,000.

 

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, 2021 and December 31, 2020.

 

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 loan balance on June 30, 2021 and December 31, 2020, including accrued interest, was $340,000 and $330,000.

 

Loans Payable

 

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. Current repayment schedule pre-agreed with the lender is $1,600 monthly. The loan balance on June 30, 2021 and December 31, 2020, was $28,000 and $38,000, respectively.

 

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. Current repayment schedule pre-agreed with the lender is $600 monthly. The loan balance on June 30, 2021 and December 31, 2020, was $10,000 and $14,000, respectively.

 

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 principal and interest payments of $11,000 and is secured by the Company’s assets and future sales and is personally guaranteed by the Company’s CEO. The loan balance on June 30, 2021 and December 31, 2020, was $0 and $86,000, respectively.

 

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. The loan balance on June 30, 2021 and December 31, 2020, was $264,000 and $265,000, respectively.

 

The Company purchases vehicles for its Chief Executive Officer and for research and development activities. Generally, vehicles are sold or traded in at the end of the vehicle loan period. The aggregate vehicle loan balance on three vehicles was $131,000 at December 31, 2020, with an original loan period of 72 to 144 months, and interest rates of zero percent to 10.99%. During the six months ended June 30, 2021, the Company purchased a vehicle for $40,000, with a 72 month loan term, and an interest rate of 4.15%, and made total principal payments of $4,000 on its vehicle loans. The aggregate loan balance on June 30, 2021 and December 31, 2020, was $136,000 and $131,000, respectively.

 

On August 3, 2020, the Company entered into a $18,000 term loan with Leaf Capital related to the purchase of production equipment. The loan requires monthly payments over the term of 36 months, has an interest rate of 8.48% per annum, and is secured by the production equipment. The loan balance on June 30, 2021 and December 31, 2020, was $14,000 and $16,000, respectively.

 

On November 29, 2020, the Company entered into a $17,000 term loan with CIT Bank related to the purchase of software for its production equipment. The loan requires monthly payments over the term of 36 months, has an interest rate of 13.18% per annum, and is personally guaranteed by the Company’s CEO. The loan balance on June 30, 2021 and December 31, 2020, was $0 and $17,000, respectively.

 

25

 

 

On February 22, 2021, the Company entered into a $86,000 term loan with CIT Bank related to the purchase of production equipment. The loan requires monthly payments over the term of 36 months, has an interest rate of 9.96% per annum, and is personally guaranteed by the Company’s CEO. During the six months ended June 30, 2021, the Company made principal payments of $6,000, leaving a total of $85,000 owed at June 30, 2021.

 

On April 27, 2021, the Company was granted a loan (the “PPP loan”) from Huntington Bank in the aggregate amount of $52,000 pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. The PPP loan agreement is dated April 27, 2021, matures on April 27, 2022, bears interest at a rate of 1% per annum, is unsecured and guaranteed by the U.S. Small Business Administration (SBA). Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses. During the six months ended June 30, 2021, the Company has made principal payment of $0, leaving a total of $52,000 owed at June 30, 2021.

 

Convertible Secured Notes 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 Convertible Notes, 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. The Convertible Notes balance on March 31, 2021 and December 31, 2020, was $57,000 and $55,000, respectively. As of March 31, 2021, the Convertible Notes were convertible into 226,356 shares of common stock.

 

Critical Accounting Policies and Estimates

 

The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.

 

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 2 of the condensed consolidated financial statements for management’s discussion of recent accounting pronouncements.

 

Off-Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

 

26

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

Item 4. Controls and Procedures.

 

Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, we concluded that, as of the date of this report, our remediation efforts continue related to each of the material weaknesses that we have identified in our internal control over financial reporting, and additional time and resources will be required in order to fully address these material weaknesses. We have not been able to complete all actions necessary and test the remediated controls in a manner that would enable us to conclude that such controls are effective. We are committed to implementing the necessary controls to remediate the material weaknesses described below as our resources permit. These material weaknesses will not be considered remediated until (1) the new processes are designed, appropriately controlled and implemented for a sufficient period of time and (2) we have sufficient evidence that the new processes and related controls are operating effectively. The following material weaknesses in our internal control over financial reporting were identified by management as of March 31, 2021:

 

Ineffective Control Environment. The Company did not maintain an effective control environment, which is the foundation necessary for effective internal control over financial reporting. Specifically, the Company (i) did not maintain a functioning independent audit committee; (ii) did not have its Board of Directors review and approve significant transactions; (iii) had an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (iv) had an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP and SEC disclosure requirements commensurate with the Company’s financial reporting requirements; (v) had inadequate segregation of duties consistent with control objectives; and (vi) lack of written documentation of the Company’s key internal control policies and procedures over financial reporting. The Company is required under Section 404 of the Sarbanes-Oxley Act to have written documentation of key internal controls over financial reporting. The Company did not formally document policies and controls to enable management and other personnel to understand and carry out their internal control responsibilities including the lack of budget-to-actual analyses, balance sheet variation analysis, and pro-forma financial statements. Additionally, the Company did not have an adequate process in place to complete its testing and assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner;

 

Ineffective controls over financial statement close and reporting process. The Company did not maintain effective controls over its financial statement close and reporting process. Specifically, the Company: (i) had insufficient preparation and review procedures for disclosures accompanying the Company’s financial statements; and (ii) did not provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved; and

 

Insufficient segregation of duties in our finance and accounting functions due to limited personnel. We do not have sufficient segregation of duties within accounting functions. During the quarter ended March 31, 2021, we had limited personnel that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact that these duties were often performed by the same person, this creates a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.

 

Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

27

 

 

PART II

 

Item 1. Legal Proceedings.

 

On June 8, 2021, Paul Spivak, former Chief Executive Officer of the Company was arrested for conspiracy to commit securities fraud. Upon his arrest, the Company learned that on June 7, 2021, a Criminal Complaint was filed against Mr. Spivak in the United States District Court for the Northern District of Ohio, Case No. 1:21MJ4128-JDG. The charges in the Criminal Complaint specified that from in and around February 2021 through current, within the Northern District of Ohio and elsewhere, the defendants PAUL SPIVAK, together with others, conspired to commit an offense, that is securities fraud in that he knowingly and intentionally attempted to execute a scheme and artifice to defraud investors and potential investors in connection with US Lighting Group, Inc. to obtain money and property from investors and potential investors by means of materially false and fraudulent pretenses, representations, and promises in connection with purchases and sales of securities of issuers, specifically US Lighting Group, Inc. in violation of Title 15, United States Code, Sections 78j(b), 78ff, Title 17; Code of Federal Regulations, Sections 240.10b-5, and Title 18, United States Code, Section 371.

 

On June 29, 2021 Intellitronix Corporation entered into a settlement agreement in a lawsuit filed by Michael A. Kunzman & Associates, Inc. for alleged nonpayment of manufacturer’s representation commissions. The lawsuit was filed on August 24, 2020 in the Circuit Court for Oakland County, Michigan. Intellitronix Corporation settled the case for $150,000 at which time the lawsuit was dismissed with prejudice

 

Item 1A. Risk Factors.

 

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the six months ended June 30, 2021 and 2020, the Company received proceeds of $258,000 and $50,000 on the private placement of 2,010,000 and 200,000 shares of common stock, at an average price of $0.15 and $0.25 per share, respectively. The Company has not yet deployed the proceeds from this offering, but intends to use the proceeds to pay for ongoing public company obligations (auditors, legal, etc.) as well as other operational costs, such as transfer agents and investor relations services.

 

During the six months ended June 30, 2021, the Company issued 350,000 shares of common stock, 300,000 of which were issued to a third-party service provider as non-cash compensation for consulting services provided to the Company, and 50,0000 of which were issued to settle a sales commission invoice from a third-party service provider, for total non-cash expense of $55,000.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

On July 9, 2021, Paul Spivak, the Company’s CEO, and a majority shareholder as of July 9, 2021, executed a Durable General Power of Attorney (the “POA”) in favor of Olga Smirnova, the Company’s Secretary and a member of the Company’s Board of Directors. The POA authorizes Mrs. Smirnova to take possession, sell, or lease Mr. Spivak’s property, borrow funds on in Mr. Spivak’s name, as well as sign and endorse documents on Mr. Spivak’s behalf. Further, it also provides that Mrs. Smirnova has the right to vote any shares of stock owned by Mr. Spivak in any corporation, including the Company. As of the date of this report, Mrs. Smirnova has not exercised any right to vote the shares held by Mr. Spivak.

 

28

 

 

Item 6. Exhibits.

 

Exhibit Number   Description of Exhibit
2.1   Asset Purchase Agreement between Intellitronix Corporation, US Lighting Group, Inc., and Ohio INTX Cooperative dated May 14, 2021 (incorporated by reference to Exhibit 2.3 of the Company’s Current Report on Form 8-K filed May 19, 2021)
     
31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101   The following materials from US Lighting Group, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Shareholders’ Deficit, (iv) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

29

 

 

SIGNATURES

 

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

 

  US LIGHTING GROUP, INC.
     
Date: August 30, 2021 By: /s/ ANTHONY CORPORA
    Anthony Corpora
   

Chief Executive Officer

(Principal executive officer)

     
Date: August 30, 2021 By: /s/ STEVEN E. EISENBERG
    Steven E. Eisenberg
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

 

 

30

 

 

49000 On December 1, 2016, the Company acquired Intellitronix Corporation from the Company’s President and majority 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, 2020, including accrued interest, was $2,130,000. During the six months ended June 30, 2021, the Company accrued interest of $56,000 and made principal loan payments of $739,000, leaving a balance outstanding of $1,447,000 at June 30, 2021. 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, 2020 was $34,000. During the six months ended June 30, 2021, the Company and Huntington National Bank agreed to settle the past due loan and interest balance for a total of $25,000, and the Company recorded a gain on extinguishment of debt for $9,000, leaving no balance remaining at June 30, 2021. On April 24, 2020, the Company entered into a loan agreement (the “Loan Agreement”) with the Company’s President and majority 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 loan balance on December 31, 2020 was $330,000. During the six months ended June 30, 2021, the Company accrued interest of $10,000, leaving a balance outstanding of $340,000 at June 30, 2021. During the year ended December 31, 2017, the Company’s President and majority 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. 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