Item 1. Financial Statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
91,000
|
|
|
$
|
108,000
|
|
Accounts receivable
|
|
|
-
|
|
|
|
541,000
|
|
Accounts receivable, related party
|
|
|
-
|
|
|
|
30,000
|
|
Inventories, net
|
|
|
-
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
122,000
|
|
|
|
-
|
|
Investment in trading securities
|
|
|
3,103,000
|
|
|
|
-
|
|
Assets of discontinued operations
|
|
|
351,000
|
|
|
|
879,000
|
|
Total Current Assets
|
|
|
3,667,000
|
|
|
|
1,558,000
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
798,000
|
|
|
|
769,000
|
|
Total Assets
|
|
$
|
4,465,000
|
|
|
$
|
2,327,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,000
|
|
|
$
|
47,000
|
|
Accrued expenses
|
|
|
5,000
|
|
|
|
10,000
|
|
Accrued payroll to a former officer
|
|
|
536,000
|
|
|
|
286,000
|
|
Convertible notes payable
|
|
|
59,000
|
|
|
|
55,000
|
|
Loan payable– current portion
|
|
|
36,000
|
|
|
|
-
|
|
Loans payable, related party – current portion
|
|
|
1,551,000
|
|
|
|
2,619,000
|
|
Liabilities of discontinued operations
|
|
|
348,000
|
|
|
|
1,174,000
|
|
Total Current Liabilities
|
|
|
2,552,000
|
|
|
|
4,191,000
|
|
|
|
|
|
|
|
|
|
|
Loans payable, net of current portion
|
|
|
265,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,817,000
|
|
|
|
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 September 30, 2021 and December 31, 2020, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 97,848,735 and 95,970,735 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
|
|
|
10,000
|
|
|
|
10,000
|
|
Additional paid-in-capital
|
|
|
17,791,000
|
|
|
|
17,435,000
|
|
Accumulated deficit
|
|
|
(16,153,000
|
)
|
|
|
(19,309,000
|
)
|
Total Shareholders’ Equity (Deficit)
|
|
|
1,648,000
|
|
|
|
(1,864,000
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
4,465,000
|
|
|
$
|
2,327,000
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Sales
|
|
$
|
21,000
|
|
|
$
|
1,000
|
|
|
$
|
23,000
|
|
|
$
|
2,000
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
1,000
|
|
|
|
3,000
|
|
|
|
1,000
|
|
Gross profit
|
|
|
21,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
224,000
|
|
|
|
163,000
|
|
|
|
799,000
|
|
|
|
494,000
|
|
Product development costs
|
|
|
2,000
|
|
|
|
31,000
|
|
|
|
41,000
|
|
|
|
119,000
|
|
Total operating expenses
|
|
|
226,000
|
|
|
|
194,000
|
|
|
|
840,000
|
|
|
|
613,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(205,000
|
)
|
|
|
(194,000
|
)
|
|
|
(820,000
|
)
|
|
|
(612,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
22,000
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
Lease income, related party
|
|
|
15,000
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
52,000
|
|
|
|
-
|
|
|
|
52,000
|
|
|
|
-
|
|
Gain on extinguishment of debt, related party
|
|
|
9,000
|
|
|
|
-
|
|
|
|
9,000
|
|
|
|
-
|
|
Unrealized (loss) gain
|
|
|
(9,000
|
)
|
|
|
-
|
|
|
|
195,000
|
|
|
|
-
|
|
Interest income, net
|
|
|
7,000
|
|
|
|
-
|
|
|
|
7,000
|
|
|
|
-
|
|
Interest expense
|
|
|
(8,000
|
)
|
|
|
-
|
|
|
|
(17,000
|
)
|
|
|
-
|
|
Interest expense, related party
|
|
|
(25,000
|
)
|
|
|
(40,000
|
)
|
|
|
(75,000
|
)
|
|
|
(116,000
|
)
|
Total other income (expense)
|
|
|
63,000
|
|
|
|
(40,000
|
)
|
|
|
219,000
|
|
|
|
(116,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss From Continuing operations
|
|
|
(142,000
|
)
|
|
|
(234,000
|
)
|
|
|
(601,000
|
)
|
|
|
(728,000
|
)
|
Net Income From Sale of Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
3,915,000
|
|
|
|
-
|
|
Net Income (Loss) From Discontinued operations
|
|
|
(7,000
|
)
|
|
|
87,000
|
|
|
|
(158,000
|
)
|
|
|
288,000
|
|
Net (Loss) Income
|
|
$
|
(149,000
|
)
|
|
$
|
(147,000
|
)
|
|
$
|
3,156,000
|
|
|
$
|
(440,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from continuing operations
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.08
|
)
|
Basic income per share from sale of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
0.04
|
|
|
|
-
|
|
Basic income (loss) per share from discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.03
|
|
Diluted income (loss) per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
97,834,996
|
|
|
|
92,122,171
|
|
|
|
97310,548
|
|
|
|
91,036,922
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
DEFICIT
(UNAUDITED)
Three and Nine Months ended September 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
|
|
Common stock issued
|
|
|
-
|
|
|
|
-
|
|
|
|
16,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,000
|
)
|
|
|
-
|
|
|
|
(7,000
|
)
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(149,000
|
)
|
|
|
(149,000
|
)
|
Balance, September 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
97,848,735
|
|
|
$
|
10,000
|
|
|
$
|
17,791,000
|
|
|
$
|
-
|
|
|
$
|
(16,153,000
|
)
|
|
$
|
1,648,000
|
|
Three and Nine Months ended September 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
|
)
|
Proceeds from sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
2,392,000
|
|
|
|
-
|
|
|
|
349,000
|
|
|
|
-
|
|
|
|
349,000
|
|
Common stock issued for convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
153,068
|
|
|
|
-
|
|
|
|
38,000
|
|
|
|
-
|
|
|
|
38,000
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,000
|
)
|
|
|
(147,000
|
)
|
Balance, September 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
93,241,594
|
|
|
$
|
10,000
|
|
|
$
|
16,920,000
|
|
|
$
|
(20,234,000
|
)
|
|
$
|
(3,304,000
|
)
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine
months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net Loss from Continuing Operations
|
|
$
|
(601,000
|
)
|
|
$
|
(728,000
|
)
|
Income from sale of Discontinued Operations
|
|
|
3,915,000
|
|
|
|
-
|
|
Net (Loss) Income from Discontinued Operations
|
|
|
(158,000
|
)
|
|
|
288,000
|
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
39,000
|
|
|
|
51,000
|
|
Amortization of right of use asset
|
|
|
-
|
|
|
|
26,000
|
|
Amortization of debt discount
|
|
|
8,000
|
|
|
|
14,000
|
|
Stock issued for services
|
|
|
55,000
|
|
|
|
31,000
|
|
Unrealized Gain
|
|
|
(195,000
|
)
|
|
|
-
|
|
Gain on extinguishment of debt
|
|
|
(52,000
|
)
|
|
|
-
|
|
Accrued interest on loans
|
|
|
4,000
|
|
|
|
19,000
|
|
Accrued interest on related party loans
|
|
|
91,000
|
|
|
|
94,000
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
40,000
|
|
|
|
40,000
|
|
Inventories
|
|
|
-
|
|
|
|
-
|
|
Prepaid expenses and other
|
|
|
(22,000
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(30,000
|
)
|
|
|
35,000
|
|
Accrued expenses
|
|
|
(13,000
|
)
|
|
|
(1,000
|
)
|
Accrued payroll to a former officer
|
|
|
250,000
|
|
|
|
(26,000
|
)
|
Operating cashflow from discontinued operations
|
|
|
(24,000
|
)
|
|
|
(232,000
|
)
|
Net cash provided by (used in) operating activities
|
|
|
3,307,000
|
|
|
|
(389,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(63,000
|
)
|
|
|
(769,000
|
)
|
Investment in trading securities
|
|
|
(3,800,000
|
)
|
|
|
-
|
|
Sale of fixed assets
|
|
|
400,000
|
|
|
|
-
|
|
Proceeds from trading securities
|
|
|
892,000
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(2,571,000
|
)
|
|
|
(769,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
308,000
|
|
|
|
399,000
|
|
Proceeds from secured convertible note payable
|
|
|
-
|
|
|
|
227,000
|
|
Proceeds from loans payable
|
|
|
177,000
|
|
|
|
730,000
|
|
Payment of loans payable
|
|
|
(161,000
|
)
|
|
|
(224,000
|
)
|
Payment of finance lease
|
|
|
-
|
|
|
|
(2,000
|
)
|
Proceeds from notes payable related party
|
|
|
-
|
|
|
|
408,000
|
|
Payments on notes payable related party
|
|
|
(1,077,000
|
)
|
|
|
(400,000
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(753,000
|
)
|
|
|
1,138,000
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(17,000
|
)
|
|
|
(20,000
|
)
|
Cash and cash equivalents beginning of period
|
|
|
108,000
|
|
|
|
107,000
|
|
Cash and cash equivalents end of period
|
|
$
|
91,000
|
|
|
$
|
87,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
60,000
|
|
|
$
|
50,000
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash Financing Activities
|
|
|
|
|
|
|
|
|
Offset lease receivable, related party with notes payable, related party
|
|
$
|
45,000
|
|
|
$
|
-
|
|
The accompanying notes are integral part of
these unaudited condensed consolidated financial statements.
US
LIGHTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2021, the results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows
for the nine months ended September 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 nine months ended September 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.
During
the nine months ended September 30, 2021, the Company realized net income of $3,156,000 and cash provided by operating activities was
$3,307,000, compared to cash used in operating activities of $389,000 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
September 30, 2021, the Company had cash on hand in the amount of $91,000. 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 subsidiaries Intellitronix Corp. and Cortes
Campers, LLC. All 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. The division was in the early stage of revenue generation
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.
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 September 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 September 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.
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.
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 September
30, 2021 and December 31, 2020, the Company determined that no allowance for doubtful accounts was necessary.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is computed on a first-in, first-out basis. The Company’s inventories
as of September 30, 2021 and December 31, 2020 are included in discontinued operations.
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 September 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 nine months
ended September 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 nine months ended September 30, 2021 and 2020, were $41,000 and $119,000, 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 September 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.
Advertising
Costs
Advertising
costs are expensed as incurred and are included in selling, general and administrative expenses. Advertising costs from continuing operations
were $11,000 and $0 for the nine months ended September 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.
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.
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 September 30, 2021 and December 31, 2020, and consist of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Current Assets of Discontinued Operations:
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
73,000
|
|
|
$
|
17,000
|
|
Inventory
|
|
|
-
|
|
|
|
212,000
|
|
Property and equipment
|
|
|
278,000
|
|
|
|
650,000
|
|
Total Current Assets of Discontinued Operations:
|
|
$
|
351,000
|
|
|
$
|
879,000
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities of Discontinued Operations:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,000
|
|
|
$
|
316,000
|
|
Accrued expenses
|
|
|
75,000
|
|
|
|
94,000
|
|
Accrued payroll to an officer
|
|
|
-
|
|
|
|
156,000
|
|
Notes payable
|
|
|
263,000
|
|
|
|
608,000
|
|
Total Current Liabilities of Discontinued Operations:
|
|
$
|
348,000
|
|
|
$
|
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 nine months ended September 30, 2021 and 2020, have been reflected as discontinued operations in the consolidated statements
of operations for the three and nine months ended September 30, 2021 and 2020, and consist of the following.
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Sales from discontinued operations
|
|
$
|
-
|
|
|
$
|
961,000
|
|
|
$
|
1,484,000
|
|
|
$
|
2,522,000
|
|
Cost of goods sold of discontinued operations
|
|
|
-
|
|
|
|
525,000
|
|
|
|
593,000
|
|
|
|
1,129,000
|
|
Gross profit of discontinued operations
|
|
|
-
|
|
|
|
436,000
|
|
|
|
891,000
|
|
|
|
1,393,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
14,000
|
|
|
|
240,000
|
|
|
|
956,000
|
|
|
|
843,000
|
|
Product development costs
|
|
|
2,000
|
|
|
|
80,000
|
|
|
|
82,000
|
|
|
|
212,000
|
|
Total operating expenses of discontinued operations
|
|
|
16,000
|
|
|
|
320,000
|
|
|
|
1,038,000
|
|
|
|
1,055,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from discontinued operations
|
|
|
(16,000
|
)
|
|
|
116,000
|
|
|
|
(147,000
|
)
|
|
|
338,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
3,915,000
|
|
|
|
-
|
|
Other income - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
30,000
|
|
|
|
-
|
|
Other income
|
|
|
10,000
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Interest expense
|
|
|
(1,000
|
)
|
|
|
(29,000
|
)
|
|
|
(61,000
|
)
|
|
|
(50,000
|
)
|
Total other income (expense)
|
|
|
9,000
|
|
|
|
(29,000
|
)
|
|
|
3,904,000
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from discontinued operations
|
|
$
|
(7,000
|
)
|
|
$
|
87,000
|
|
|
$
|
3,757,000
|
|
|
$
|
288,000
|
|
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 September 30, 2021, the shares of Ameriprise have a reported market value of $3,103,000. The Company has adjusted the reported
amounts for these investments to market value resulting in an unrealized gain reported of $195,000.
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”).
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 September 30,2021, the Company owned securities that comprised 33% of the value of the Company’s total assets on a consolidated
basis.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment for continuing operations consist of the following at September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Building and improvements
|
|
$
|
664,000
|
|
|
$
|
645,000
|
|
Land
|
|
|
96,000
|
|
|
|
96,000
|
|
Vehicles
|
|
|
163,000
|
|
|
|
113,000
|
|
Office equipment
|
|
|
5,000
|
|
|
|
5,000
|
|
Furniture and fixtures
|
|
|
22,000
|
|
|
|
22,000
|
|
Total property and equipment cost
|
|
|
950,000
|
|
|
|
881,000
|
|
Less: accumulated depreciation and amortization
|
|
|
(152,000
|
)
|
|
|
(112,000
|
)
|
Property and equipment, net
|
|
$
|
798,000
|
|
|
$
|
769,000
|
|
Depreciation
expense for the nine months ended September 30, 2021 and 2020 was $39,000 and $51,000, 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 $536,000 and $442,000 as of September 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 $48,000 and $49,000 at
September 30, 2021 and December 31, 2020, respectively. The line of credit is part of discontinued operations.
NOTE
8 – LOANS PAYABLE TO RELATED PARTIES
Loans
payable to related parties consists of the following at September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Loan payable to officers/shareholders (a)
|
|
$
|
1,080,000
|
|
|
$
|
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)
|
|
|
346,000
|
|
|
|
330,000
|
|
Total loans payable to related parties
|
|
|
1,551,000
|
|
|
|
2,619,000
|
|
Loans payable to related parties, current portion
|
|
|
(1,551,000
|
)
|
|
|
(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 nine months ended September 30, 2021, the Company accrued interest of $75,000 and made principal loan payments of $1,125,000, leaving a balance outstanding of $1,080,000 at September 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 September 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 September 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 nine months ended September 30, 2021, the Company accrued interest of $16,000, leaving a balance outstanding of $346,000 at September 30, 2021.
|
NOTE
9 – LOANS PAYABLE
Loan
payable for continuing operations consisted of the following as of September 30, 2021 and December 31, 2020:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Secured promissory note (c)
|
|
|
-
|
|
|
|
86,000
|
|
Secured promissory note (d)
|
|
|
263,000
|
|
|
|
265,000
|
|
Vehicle loans (e)
|
|
|
37,000
|
|
|
|
-
|
|
Equipment loan (g)
|
|
|
-
|
|
|
|
17,000
|
|
Equipment loan (h)
|
|
|
81,000
|
|
|
|
-
|
|
SBA PPP Loan (i)
|
|
|
-
|
|
|
|
|
|
Loan discount
|
|
|
-
|
|
|
|
(8,000
|
)
|
Total loans payable
|
|
|
300,000
|
|
|
|
559,000
|
|
Loans payable, current portion
|
|
|
(35,000
|
)
|
|
|
(163,000
|
)
|
Loans payable, net of current portion
|
|
$
|
265,000
|
|
|
$
|
396,000
|
|
a.
|
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 nine months ended September 30, 2021, the Company made principal payments of $2,000, leaving a total of $263,000 owed at September 30, 2021.
|
b.
|
The Company purchases 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. During the nine months ended September, 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 $3,000 on its vehicle loans, leaving a loan balance of $37,000 at September 30, 2021.
|
c.
|
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 nine months ended September 30, 2021, the Company made principal payments of $8,000, leaving a total of $78,000 owed at September 30, 2021.
|
d.
|
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 PPP loan was forgiven on September 24, 2021. Accordingly, a $52,000 gain was recorded.
|
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 nine months ended September 30, 2021, the Company accrued additional interest of
$4,000, leaving a total of $59,000 owed at September 30, 2021. As of September 30, 2021, the Convertible Notes were convertible into
236,000 shares of common stock.
NOTE
11 – SHAREHOLDERS’ EQUITY
Common
shares issued for cash
During
the nine months ended September 30, 2021 and 2020, the Company received proceeds of $301,000 and $50,000 on the private placement of
2,012,000 and 200,000 shares of common stock, at an average price of $0.15 and $0.25 per share, respectively.
During
the nine months ended September 30, 2021, the Company issued 350,000 shares of common stock for services for total non-cash expense of
$55,000.
During
the nine months ended September 30, 2021, 500,000 shares of common stock were returned to the treasury.
During
the nine months ended September 30, 2021, 16,000 shares of common stock were issued to correct for an issuance of shares in 2020.
Summary
of Warrants
A
summary of warrants for the period ended September 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
|
|
|
(20,000
|
)
|
|
|
-
|
|
Warrants expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding, September 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
Balance exercisable, September 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
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.
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. The Company has been
advised that Mr. Spivak has pleaded not guilty to the charges.
NOTE
13 – SUBSEQUENT EVENTS
On
October 8, 2021, a superseding indictment was unsealed in the United States District Court for the Northern District of Ohio (Case No.
1:21CR491) that included charges against several individuals, including Mr. Spivak and Ms. Smirnova. The charges in the superseding indictment
included the following:
|
●
|
That
from in or around 2016, through in or around 2019, Mr. Spivak, Ms. Smirnova and others knowingly and intentionally conspired to commit
securities fraud in that they knowingly and willfully, by the use of the means and instrumentalities of interstate commerce and of
the mails, used and employed manipulative and deceptive devices and contrivances in connection with the purchase and sale of securities
by (a) employing devices, schemes and artifices to defraud; (b) making and causing to be made false statements of material fact and
omitting material facts that were necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading; and (c) engaging in acts, practices and courses of business which operated and would operate as a fraud
and deceit upon any persons, including members of the investing public and sellers and purchasers of US Lighting Group, Inc.’s
(the “Company”) securities, in violation of Title 15, United States Code, Sections 78j(b) and 78ff, and Title 17, Code
of Federal Regulations, Section 10b-5.
|
|
●
|
That
from on or around February 15, 2021, through on or about June 7, 2021, Mr. Spivak, Ms. Smirnova and others knowingly and intentionally
conspired to commit securities fraud in that they knowingly and willfully, by the use of the means and instrumentalities of interstate
commerce and of the mails, used and employed manipulative and deceptive devices and contrivances in connection with the purchase
and sale of securities by (a) employing devices, schemes and artifices to defraud; (b) making and causing to be made false statements
of material fact and omitting material facts that were necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and (c) engaging in acts, practices and courses of business which operated and would
operate as a fraud and deceit upon any persons, including members of the investing public and sellers and purchasers of the Company’s
securities, in violation of Title 15, United States Code, Sections 78j(b) and 78ff, and Title 17, Code of Federal Regulations, Section
10b-5.
|
|
●
|
That
on certain dates from 2016 to 2021, Mr. Spivak, among others, knowingly and willfully committed securities fraud in that he knowingly
and willfully, by the use of the means and instrumentalities of interstate commerce and of the mails, used and employed manipulative
and deceptive devices and contrivances in connection with the purchase and sale of securities by (a) employing devices, schemes and
artifices to defraud; (b) making and causing to be made false statements of material fact and omitting material facts that were necessary
in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaging
in acts, practices and courses of business which operated and would operate as a fraud and deceit upon any persons, including members
of the investing public and sellers and purchasers of the Company’s securities, in violation of Title 15, United States Code,
Sections 78j(b) and 78ff, Title 17, Code of Federal Regulations, Section 10b-5, and United States Code, Section 2.
|
|
●
|
That
from in or around 2016, through in or around 2019, Mr. Spivak, among others, knowingly committed wire fraud in violation of Title
18, United States Code, Sections 1343 and 2.
|
|
●
|
That
from on or about February 15, 2021, through on or about June 7, 2021, Mr. Spivak, among others, knowingly committed wire fraud in
violation of Title 18, United States Code, Sections 1343 and 2.
|
The
Company has been advised that Mr. Spivak has pleaded not guilty to the charges, and Ms. Smirnova intends to plead not guilty to the charges.
Both have advised that they intend to deny the charges and intend to vehemently defend themselves against these charges. The Company
has not been named in the superseding indictment and is unable to know the eventual outcome, timing and course of actions of this matter.
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.
The
Company 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. Most operating assets of Intellitronix Corp. were
sold on May 14th, 2021 to Ohio INTX Cooperative. US Lighting Group continues to explore and develop electronic microprocessor
controlled products for the RV industry.
|
|
●
|
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 started to generate 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.
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 RV electronics, but the products 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.
Distribution
During
the nine months ended September 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, 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, and the Company has started developing it’s distribution
network.. 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
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.
COVID-19
Considerations
Through
the date these financial statements were issued, the COVID-19 pandemic did not have a net material impact on our operating results. In
the future, the pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary economic environment,
which negatively effects the consumers who purchase our products.
Our
ability to operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect
our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities
to protect our employees. Through the date that these financial statements were issued, we maintained the consistency of our operations
during the onset of the COVID-19 pandemic. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption
to our workforce and supply chain (for example, an inability of a key supplier or transportation supplier to source and transport materials)
that could negatively impact our operations.
Through
the date that these financial statements were issued, the COVID-19 pandemic has not negatively impacted the Company’s liquidity
position as of such date, and the Company continues to generate cash flows to meet its short-term liquidity needs, and it expects to
maintain access to the capital markets. The Company has not observed any material impairments of its assets or a significant change in
the fair value of its assets due to the COVID-19 pandemic.
Critical
Accounting Policies
This
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section is based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”). The preparation of consolidated financial statements requires that we make estimates and judgments that affect
the reported amounts of assets, liabilities, net sales and expenses and related disclosures. On an ongoing basis, we evaluate our estimates,
including, but not limited to, those related to inventories, income taxes, accounts receivable allowance, fair value derivatives, and
reserve for warranty claims. We base our estimates on historical experience, performance metrics and on various other assumptions that
we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results will differ from these estimates under different
assumptions or conditions. We apply the following critical accounting policies in the preparation of our consolidated financial statements:
Use
of Estimates
Financial
statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Among other things, management estimates include the estimated collectability of
its accounts receivable, the valuation of long lived assets, warranty reserves, the assumptions used to calculate derivative liabilities,
assumptions used to value equity instruments issued for financing and compensation, and the valuation of deferred tax assets. Actual
results could differ from those estimates.
Revenue
recognition
We
recognize revenue in accordance with Accounting Standard Update (“ASU”) No. 2014-09. This standard provides authoritative
guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting
principles. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those
goods or services.
Under
this guidance, revenue is recognized when control of promised goods or services is transferred to the Company’s customers, in an
amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company reviews
its sales transactions to identify contractual rights, performance obligations, and transaction prices, including the allocation of prices
to separate performance obligations, if applicable. Revenue and costs of sales are recognized once products are delivered to the customer’s
control and performance obligations are satisfied.
Products
sold by the Company are distinct individual products. The products are offered for sale as finished goods only, and there are no performance
obligations required post-shipment for customers to derive the expected value from them. Most of the Company’s sales are received
through several eBay web-commerce websites, which requires customer payment at time of order placement.
The
Company does offer a 30-day return policy from the date of shipment. The Company also provides a limited lifetime warranty on its products.
Due to a limited history of returns, the Company does not maintain a warranty reserve.
Recent
Accounting Pronouncements
See
Note 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 September 30, 2021 Compared to the Three Months Ended September 30, 2020
Our
revenue, operating expenses, and net loss from continuing operations for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020, were as follows:
|
|
For the three months
ended September 30,
|
|
|
|
|
|
Percentage
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
Inc. (Dec.)
|
|
Total Sales, net
|
|
|
21,000
|
|
|
|
1,000
|
|
|
|
20,000
|
|
|
|
(2,000
|
)%
|
Total Cost of goods sold
|
|
|
-
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
(100
|
)%
|
Gross profit
|
|
|
21,000
|
|
|
|
-
|
|
|
|
21,000
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
224,000
|
|
|
|
163,000
|
|
|
|
61,000
|
|
|
|
37
|
%
|
Product development costs
|
|
|
2,000
|
|
|
|
31,000
|
|
|
|
(29,000
|
)
|
|
|
(94
|
)%
|
Total operating expenses
|
|
|
226,000
|
|
|
|
194,000
|
|
|
|
32,000
|
|
|
|
16
|
%
|
Loss from operations
|
|
|
(205,000
|
)
|
|
|
(194,000
|
)
|
|
|
(11,000
|
)
|
|
|
6
|
%
|
Other income (expense)
|
|
|
63,000
|
|
|
|
(40,000
|
)
|
|
|
103,000
|
|
|
|
(258
|
)%
|
Net Loss
|
|
$
|
(142,000
|
)
|
|
$
|
(234,000
|
)
|
|
$
|
92,000
|
|
|
|
(39
|
)%
|
Sales
Total
Sales from continuing operations increased by $20,000 to $21,000 for the three months ended September 30, 2021, compared to $1,000 for
the three months ended September 30, 2020. The increase in sales is attributed to new sales through its Cortes Campers subsidiary.
Cost
of Goods Sold
Cost
of goods sold from continuing operations decreased by $1,000 (100%) to $0 for the three months ended September 30, 2021, compared to
$1,000 for the three months ended September 30, 2020.
Operating
Expenses
Operating
expenses include selling, general and administrative expenses, and product development costs.
Selling,
general and administrative expenses from continuing operations increased by $61,000 (37%) to $224,000 for the three months ended September
30, 2021, compared to $163,000 for the three months ended September 30, 2020. The increase in selling, general and administrative expenses
is primarily attributable to increased personnel costs.
Product
development costs decreased by $29,000 (94%) to $2,000 for the three months ended September 30, 2021, compared to $31,000 for the three
months ended September 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 continuing operations increased to approximately $205,000 during the three months ended September 30, 2021, compared to a loss from
continuing operations of $194,000 during the three months ended September 30, 2020. The increase in loss from operations was primarily
attributable to increased personnel costs, offset by lower product development costs.
Other
Expense
Other
income from continuing operations for the three months ended September 30, 2021 was $63,000, as compared to other expense of $40,000
for the three months ended September 30, 2020. During the three months ended September 30, 2021, we recorded a gain on PPP loan forgiveness
of $52,000 an unrealized loss of $9,000 and dividend and interest income of $7,000. Total interest expense for the three months ended
September 30, 2021 was $33,000, as compared to $40,000 for the three months ended September 30, 2020.
Net
Loss
Net
loss from continuing operations was $149,000 during the three months ended September 30, 2020, compared to a net loss of $234,000 for
the three months ended September 30, 2020.
Results
of Operations for the Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
Our
revenue, operating expenses, and net loss from operations for the nine months ended September 30, 2021 as compared to the nine months
ended September 30, 2020, were as follows:
|
|
For the nine months
ended September 30,
|
|
|
|
|
|
Percentage
Change
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
Inc. (Dec.)
|
|
Total Sales, net
|
|
|
23,000
|
|
|
|
2,000
|
|
|
|
21,000
|
|
|
|
(1,050
|
)%
|
Total Cost of goods sold
|
|
|
3,000
|
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
(200
|
)%
|
Gross profit
|
|
|
20,000
|
|
|
|
1,000
|
|
|
|
19,000
|
|
|
|
(1,900
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
799,000
|
|
|
|
494,000
|
|
|
|
305,000
|
|
|
|
62
|
%
|
Product development costs
|
|
|
41,000
|
|
|
|
119,000
|
|
|
|
(78,000
|
)
|
|
|
(66
|
)%
|
Total operating expenses
|
|
|
840,000
|
|
|
|
613,000
|
|
|
|
227,000
|
|
|
|
37
|
%
|
Loss from operations
|
|
|
(820,000
|
)
|
|
|
(612,000
|
)
|
|
|
(208,000
|
)
|
|
|
34
|
%
|
Other income (expense)
|
|
|
219,000
|
|
|
|
(116,000
|
)
|
|
|
335,000
|
|
|
|
(289
|
)%
|
Net Loss
|
|
$
|
(601,000
|
)
|
|
$
|
(728,000
|
)
|
|
$
|
127,000
|
|
|
|
(17
|
)%
|
Sales
Total
Sales from continuing operations increased by $21,000 to $23,000 for the nine months ended September 30, 2021, compared to $2,000 for
the nine months ended September 30, 2020. The increase in sales is attributed to new sales through its Cortes Campers subsidiary.
Cost
of Goods Sold
Cost
of goods sold from continuing operations increased by $2,000 (200%) to $3,000 for the nine months ended September 30, 2021, compared
to $1,000 for the nine months ended September 30, 2020.
Operating
Expenses
Operating
expenses include selling, general and administrative expenses, and product development costs.
Selling,
general and administrative expenses from continuing operations increased by $305,000 (62%) to $799,000 for the nine months ended September
30, 2021, compared to $494,000 for the nine months ended September 30, 2020. The increase in selling, general and administrative expenses
is primarily attributable to a $212,000 sales commission on the sale of Intellitronix, a $150,000 legal settlement on the Kunzman lawsuit,
increased legal fees and personnel costs.
Product
development costs decreased by $78,000 (66%) to $41,000 for the nine months ended September 30, 2021, compared to $119,000 for the nine
months ended September 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 continuing operations increased to approximately $820,000 during the nine months ended September 30, 2021, compared to a loss from
operations of $612,000 during the nine months ended September 30, 2020. The increase in loss from operations was due to increased operating
expenses, as discussed above.
Other
Income / Expense
Other
income from continuing operations for the nine months ended September 30, 2021 was $219,000, as compared to other expense of $116,000
for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we recorded a gain on forgiveness of PPP
debt of $52,000 an unrealized gain of $195,000 and dividend and interest income of $7,000 related to investments. Total interest expense
for the nine months ended September 30, 2021 was $92,000, as compared to $116,000 for the nine months ended September 30, 2020.
Net
Loss
Net
loss from continuing operations was $601,000 during the nine months ended September 30, 2020, compared to a net loss of $728,000 for
the nine months ended September 30, 2020. The change from a net loss to net income is primarily due to the recognition of other income
as discussed above.
Liquidity
and Capital Resources
The
following summarizes our cash flow activity for the nine months ended September 30, 2021 and 2020:
Cash
Flows
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net cash provided by (used in) Operating Activities
|
|
$
|
3,307,000
|
|
|
$
|
(389,000
|
)
|
Net cash used in Investing Activities
|
|
|
(2,571,000
|
)
|
|
|
(769,000
|
)
|
Net cash (used in) provided by Financing Activities
|
|
|
(753,000
|
)
|
|
|
1,138,000
|
|
Decrease in cash during the period
|
|
|
(17,000
|
)
|
|
|
(20,000
|
)
|
Cash, Beginning of Period
|
|
|
108,000
|
|
|
|
107,000
|
|
Cash, End of Period
|
|
$
|
91,000
|
|
|
$
|
87,000
|
|
Net
cash provided by operating activities for the nine months ended September 30, 2021 totaled 3,307,000, compared to net cash used in operating
activities for the nine months ended September 30, 2020 of $389,000. The improvement in net cash provided by operating activities for
the nine months ended September 30, 2021 was primarily due to the sale of selected Intellitronix assets.
Net
cash used in investing activities was approximately $2,571,000 for the nine months ended September 30, 2021, compared to $769,000 for
the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the Company purchased production equipment
for $63,000, a vehicle for $40,000, and other property and equipment for $23,000. 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 nine months
ended September 30, 2020 and relates to the purchase of real property and equipment.
Net
cash used in financing activities for the nine months ended September 30, 2021 was $753,000 and included proceeds of $308,000 received
in the private placement of common stock, and $177,000 from proceeds from the issuance of loans payable. These proceeds were offset by
the repayment of $161,000 of loans payable, and repayment of $1,077,000 of notes payable to a related party. Net cash provided by financing
activities for the nine months ended September 30, 2020 was $1,138,000 and included $399,000 of proceeds from the private placement of
common stock, $227,000 from the issuance of secured convertible promissory notes, $730,000 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 $224,000 of notes payable, and repayment of $400,000 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.
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 September 30, 2021 and December 31, 2020, including accrued interest, was $1,080,000 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 September 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 September 30, 2021 and December 31, 2020, including accrued interest,
was $346,000 and $330,000.
Loans
Payable
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 September 30, 2021
and December 31, 2020, was $263,000 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. During the nine 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 $3,000 on its vehicle loan. The aggregate
loan balance on September 30, 2021 and December 31, 2020, was $37,000 and $0, respectively.
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 nine months ended September 30, 2021, the Company made principal payments of $8,000, leaving a total of $78,000 owed
at September 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. On September 24, 2021 the
PPP loan was forgiven in full, leaving a total of $0 owed at September 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 September 30, 2021 and December
31, 2020, was $59,000 and $55,000, respectively. As of September 30, 2021, the Convertible Notes were convertible into 236,000 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.