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.
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.
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.
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.
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.
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.
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
|
|
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.
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.
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.
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
|
|
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.
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.
|
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.
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.
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.
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.
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.
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.
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 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.
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
|
%
|
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.
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.
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.
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.