UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-55689
US Lighting Group, Inc.
(Exact name of registrant as specified in its charter)
| Florida | 46-3556776 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1148 East 222nd Street Euclid, Ohio 44117
(Address of principal executive offices)(Zip Code)
(216) 896-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 101,609,825 shares of common stock outstanding on May 1, 2023.
EXPLANATORY NOTE
US Lighting Group, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment No. 1”) to amend its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Original Form 10-Q”) filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2023.
Background of Restatement
On November 15, 2023, the Company filed a Current Report on Form 8-K disclosing that the March 31, 2023 and June 30, 2023 financial statements included in the Company’s Quarterly Reports on Form 10-Q (the “Original Financial Statements”) should no longer be relied upon.
While preparing the financial statements as of and for the quarter ended September 30, 2023, the Company determined that it was necessary to reassess its revenue recognition policy with respect to the accounting treatment for $200,000 in fees the Company recognized as revenue in March 2023 related to Futuro Houses dealer territory agreements. In its reassessment, the Company concluded that such fees represent a symbolic intellectual license and pursuant to ASC 606, Revenue from Contracts with Customers, should be recognized over the expected term of the dealer agreements instead of at the time of receipt in the first quarter. As a result of the misapplication of ACS 606, our previously issued financial statements for the first quarter of 2023 contained an error, overstating revenue by $179,498 in the statement of operations and understating deferred revenue in the balance sheet by the same amount. Our previously issued financial statements as of and for the six months ended June 30, 2023 continued this error, overstating revenue by $129,498 in the statement of operations and understating deferred revenue in the balance sheet by the same amount. These dealer territory agreements were only first entered into by the Company in 2023 and as a result there is no effect on the Company’s financial statements in 2022 or earlier periods.
Internal Control Considerations
The Company has also concluded that because the controls surrounding the financial reporting process did not operate effectively and resulted in the failure to detect the misstatement, the deficiency is a material weakness in the Company’s internal control over financial reporting, resulting in a material error in the Original Financial Statements.
Items Amended in this Amended Quarterly Report
For the convenience of the reader, this Amendment No. 1 sets forth the information in the Original Form 10-Q in its entirety, as such information is modified and superseded where necessary to reflect the restatement and related revisions. The following sections in the Original Form 10-Q are revised in this Amendment No. 1 to reflect this restatement:
| ● | Part I, Item 1. Financial Information |
| ● | Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ● | Part I, Item 4. Controls and Procedures |
Additionally, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company is including with this Amendment No. 1 currently dated certifications from its Chief Executive Officer and its Chief Financial Officer.
Except as described above, this Amendment No. 1 does not amend, update or change any other disclosures in the Original Form 10-Q. In addition, the information contained in this Amendment No. 1 does not reflect events occurring after the Original Form 10-Q and does modify or update the disclosures therein, except to reflect matters related to the restatement noted above.
Table of Contents
i
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
US LIGHTING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2023 | December 31, 2022 | March 31, 2023 | December 31, 2022 | |||||||||||||
| (Unaudited) | As Restated (Unaudited) | |||||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Cash | $ | 45,843 | $ | 124,529 | $ | 45,843 | $ | 124,529 | ||||||||
| Accounts receivable | 162,657 | 5,950 | 162,657 | 5,950 | ||||||||||||
| Prepaid expenses and other current assets | 80,920 | 87,174 | 80,920 | 87,174 | ||||||||||||
| Inventory | $ | 188,666 | $ | 200,162 | 188,666 | 200,162 | ||||||||||
| Total Current Assets | 478,086 | 417,815 | 478,086 | 417,815 | ||||||||||||
| Property and equipment, net | 2,443,506 | 2,298,107 | 2,443,506 | 2,298,107 | ||||||||||||
| Total Assets | $ | 2,921,592 | $ | 2,715,922 | $ | 2,921,592 | $ | 2,715,922 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable | $ | 661,309 | $ | 607,647 | $ | 661,309 | $ | 607,647 | ||||||||
| Accrued expenses | 61,735 | 111,223 | 61,735 | 111,223 | ||||||||||||
| Accrued payroll to a former officer | 125,167 | 125,167 | 125,167 | 125,167 | ||||||||||||
| Convertible notes payable | — | — | ||||||||||||||
| Deferred revenue | 179,498 | — | ||||||||||||||
| Loan payable– current portion | 104,499 | 140,905 | 104,499 | 140,905 | ||||||||||||
| Loans payable, related party | 352,296 | 176,000 | 352,296 | 176,000 | ||||||||||||
| Total Current Liabilities | 1,305,006 | 1,160,942 | 1,484,504 | 1,160,942 | ||||||||||||
| Loans payable, net of current portion | 295,984 | 300,351 | 295,984 | 300,351 | ||||||||||||
| Loans Payable, related party | 6,878,333 | 7,004,629 | 6,878,333 | 7,004,629 | ||||||||||||
| Total Liabilities | $ | 8,479,323 | $ | 8,465,922 | $ | 8,658,821 | $ | 8,465,922 | ||||||||
| Commitments and Contingencies | ||||||||||||||||
| Shareholders’ Equity: | ||||||||||||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding | — | — | — | — | ||||||||||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized; 101,609,825 shares issued and outstanding | 10,376 | 10,209 | 10,376 | 10,209 | ||||||||||||
| Additional paid-in-capital | 19,938,444 | 19,771,111 | 19,938,444 | 19,771,111 | ||||||||||||
| Accumulated deficit | (25,506,551 | ) | (25,531,320 | ) | (25,686,049 | ) | (25,531,320 | ) | ||||||||
| Total Shareholders’ Equity | (5,557,731 | ) | (5,750,000 | ) | (5,737,229 | ) | (5,750,000 | ) | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,921,592 | $ | 2,715,922 | $ | 2,921,592 | $ | 2,715,922 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months ended March 31, | For the Three Months ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 Restated | 2022 | |||||||||||||
| Sales | $ | 1,205,235 | $ | 76,000 | $ | 1,025,737 | $ | 76,000 | ||||||||
| Cost of goods sold | 701,319 | 68,000 | 701,319 | 68,000 | ||||||||||||
| Gross profit | 503,916 | 8,000 | 324,418 | 8,000 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 472,349 | 266,000 | 472,349 | 266,000 | ||||||||||||
| Product development costs | — | — | — | — | ||||||||||||
| Total operating expenses | 472,349 | 266,000 | 472,349 | 266,000 | ||||||||||||
| Income (loss) from operations | 31,567 | (258,000 | ) | (147,931 | ) | (258,000 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Other income, net | — | 15,000 | — | 15,000 | ||||||||||||
| Unrealized loss | — | (157,000 | ) | — | (157,000 | ) | ||||||||||
| Realized gain | — | 31,000 | — | 31,000 | ||||||||||||
| Interest income | 249 | 2,000 | 249 | 2,000 | ||||||||||||
| Interest expense | (7,046 | ) | (5,000 | ) | (7,046 | ) | (5,000 | ) | ||||||||
| Interest expense, related party | — | (4,000 | ) | — | (4,000 | ) | ||||||||||
| Total other expense | (6,797 | ) | (118,000 | ) | (6,797 | ) | (118,000 | ) | ||||||||
| Net income (loss) from operations | 24,769 | (376,000 | ) | |||||||||||||
| Net income (loss) | $ | 24,769 | $ | (376,000 | ) | $ | (154,728 | ) | $ | (376,000 | ) | |||||
| Basic income (loss) per share | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
| Diluted income (loss) per share | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
| Weighted average common shares outstanding, basic | 98,947,384 | 97,848,735 | 98,947,384 | 97,848,735 | ||||||||||||
| Weighted average common shares outstanding, diluted | 98,947,384 | 97,848,735 | 98,947,384 | 97,848,735 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2023, AND 2022
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, December 31, 2022 | — | $ | — | 99,934,825 | $ | 10,209 | $ | 19,771,111 | $ | (25,531,320 | ) | $ | (5,750,000 | ) | ||||||||||||||
| Proceeds from sale of common stock | — | — | 1,675,000 | 167 | 167,332 | 167,500 | ||||||||||||||||||||||
| Net Profit | — | — | — | — | — | 24,769 | 24,769 | |||||||||||||||||||||
| Balance, March 31, 2023 | — | $ | — | 101,609,825 | $ | 10,376 | $ | 19,938,443 | $ | (25,506,551 | ) | $ | (5,557,731 | ) | ||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As Restated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | — | $ | — | 99,934,825 | $ | 10,209 | $ | 19,771,111 | $ | (25,531,321 | ) | $ | (5,750,000 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of common stock | — | — | 1,675,000 | 167 | 167,332 | 167,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Profit | — | — | — | — | — | (154,728 | ) | (154,728 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | — | $ | — | 101,609,825 | $ | 10,376 | $ | 19,938,443 | $ | (25,686,049 | ) | $ | (5,737,229 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | — | $ | — | 98,798,735 | $ | 10,000 | $ | 17,791,000 | $ | (16,256,000 | ) | $ | 1,545,000 | — | $ | — | 98,798,735 | $ | 10,000 | $ | 17,791,000 | $ | (16,256,000 | ) | $ | 1,545,000 | ||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | (376,000 | ) | (376,000 | ) | — | — | — | — | — | (376,000 | ) | (376,000 | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | — | $ | — | 97,848,735 | $ | 10,000 | $ | 17,791,000 | $ | (69,632,000 | ) | $ | 1,169,000 | — | $ | — | 97,848,735 | $ | 10,000 | $ | 17,791,000 | $ | (69,632,000 | ) | $ | 1,169,000 | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | For the Three Months Ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 As Restated | 2022 | |||||||||||||
| Cash Flows from Operating Activities | ||||||||||||||||
| Net Profit (Loss) | $ | 24,769 | $ | (376,000 | ) | |||||||||||
| Net Loss | $ | (154,728 | ) | $ | (376,000 | ) | ||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||
| Depreciation | 44,822 | 19,000 | 44,822 | 19,000 | ||||||||||||
| Realized Gain from investments | — | (31,000 | ) | — | (31,000 | ) | ||||||||||
| Unrealized Gain from investments | — | 157,5000 | — | 157,000 | ||||||||||||
| Changes in Assets and Liabilities: | ||||||||||||||||
| Accounts receivable | (156,706 | ) | — | (156,706 | ) | — | ||||||||||
| Inventory | 11,496 | — | 11,496 | — | ||||||||||||
| Prepaid expenses and other | 6,254 | 3,000 | 6,254 | 3,000 | ||||||||||||
| Accounts payable | 39,758 | (17,000 | ) | 38,660 | (17,000 | ) | ||||||||||
| Customer advanced payments | (5,000 | ) | — | (5,000 | ) | |||||||||||
| Deferred revenue | 179,498 | — | ||||||||||||||
| Accruals | — | (11,000 | ) | — | (11,000 | ) | ||||||||||
| Accrued interest on related party loans | (211,964 | ) | 4,000 | (211,964 | ) | 4,000 | ||||||||||
| Accrued interest on loans | (49,488 | ) | — | (49,488 | ) | — | ||||||||||
| Net cash (used in) provided by operating activities | (291,059 | ) | (257,000 | ) | ||||||||||||
| Net cash (used in) operating activities | (292,156 | ) | (257,000 | ) | ||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||
| Purchase of property and equipment | (190,221 | ) | (1,000 | ) | (190,221 | ) | (1,000 | ) | ||||||||
| Proceeds trading securities | — | 704,000 | — | 704,000 | ||||||||||||
| Net cash used in investing activities | (190,221 | ) | 703,000 | |||||||||||||
| Net cash (used in) provided by investing activities | (190,221 | ) | 703,000 | |||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||
| Proceeds from sale of common stock | 167,500 | — | 167,500 | — | ||||||||||||
| Proceeds from loans payable | — | — | 236,191 | — | ||||||||||||
| Payment of loans payable | 236,191 | (16,000 | ) | — | (16,000 | ) | ||||||||||
| Payments on notes payable related party | — | (312,000 | ) | — | (312,000 | ) | ||||||||||
| Net cash provided by (used in) financing activities | 403,691 | (328,000 | ) | 403,691 | (328,000 | ) | ||||||||||
| Net change in cash | (78,686 | ) | 118,000 | (78,686 | ) | 118,000 | ||||||||||
| Cash beginning of period | 124,529 | 286,000 | 124,529 | 286,000 | ||||||||||||
| Cash end of period | $ | 45,843 | $ | 404,000 | $ | 45,843 | $ | 404,000 | ||||||||
| Supplemental Cash Flow Information: | ||||||||||||||||
| Interest paid | $ | 6,300 | $ | 317,000 | $ | 17,071 | $ | 317,000 | ||||||||
| Taxes paid | $ | — | $ | — | ||||||||||||
| Non-cash Financing Activities: | ||||||||||||||||
| Offset accounts receivable, related party with notes payable, related party | $ | — | $ | — | $ | — | $ | — | ||||||||
The accompanying notes are integral part of these unaudited condensed consolidated financial statements.
US LIGHTING GROUP, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
NOTE 1 – ORGANIZATION
US Lighting Group, Inc. (the “Company”) is a parent company comprised of four subsidiaries — Cortes Campers, LLC, a brand of high-end molded fiberglass campers, Futuro Houses, LLC, which is focused on design and sales of molded fiberglass homes, Fusion X Marine, LLC, a high-performance boat designer, and MIG Marine Corporation, a composite manufacturing company that produces proprietary molded fiberglass products for our other business lines.
On January 11, 2021, we formed Cortes Campers to operate our new brand of innovative travel trailers. During the second part of 2021, we invested heavily in research and development as well as production planning for the 17-foot camper and began selling campers in early 2022.
On January 12, 2022, we formed Futuro Houses, LLC, a Wyoming company, to design, market and distribute molded fiberglass homes. Throughout 2022, Futuro Houses engaged in engineering and development of our first “UFO” themed home model inspired by the original Futuro house designed by Finnish architect Matti Suuronen.
On August 5, 2022, we acquired MIG Marine Corporation, a fiberglass manufacturing company founded in 2003. With the acquisition of Mig Marine, we were able to streamline our manufacturing processes, improve production cycles and scale to meet the demand of Cortes Campers generated order back-log.
We plan to expand our manufacturing footprint, enhance production techniques, and develop more products in the RV, marine, and composite housing sectors. Current R&D efforts are directed towards future tow-behind camper models under the Cortes Campers brand as well as prefabricated housing segment.
As of March 31, 2023, our revenue was driven by shipments of fiberglass campers marketed under the Cortes Campers brand and to a lesser extent from dealerships for the Futuro Housing brand.
The Company is a Florida corporation founded in 2003. We are located in Euclid, Ohio.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the three month period ending March 31, 2023 and are not necessarily indicative of the results to be expected for the full year ending December 31, 2023. These unaudited financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The Company’s previously issued financial statements as of and for the three months ended March 31, 2023, contained an error in the Balance Sheet and Statement of Operations related to the revenue recognition for Dealer Territory arrangements. In the previously issued financial statements, $200,000 of fees from Dealer Territory arrangements were recognized as revenue at a point in time for the three months ended March 31, 2023. Pursuant to ASC 606, Revenue from Contracts with Customers, those fees should have been recognized over the expected term of the arrangement. As a result, revenue was overstated by $179,498 in the Statement of Operations and deferred revenue understated by a corresponding amount in the Balance Sheet as of March 31, 2023. The effects of the correction of the prior period misstatement to the specific line items previously presented in the condensed consolidated financial statement are reflected in the tables below:
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Balance Sheet: | ||||||||||||
| Deferred revenue | $ | — | $ | 179,498 | $ | 179,498 | ||||||
| Current liabilities | 1,305,006 | 179,498 | 1,484,504 | |||||||||
| Total liabilities | 8,479,323 | 179,498 | 8,658,821 | |||||||||
| Accumulated deficit | (25,506,551 | ) | (179,498 | ) | (25,686,049 | ) | ||||||
| Total Shareholders’ Equity (Deficit) | (5,557,731 | ) | (179,498 | ) | (5,737,229 | ) | ||||||
| Statement of Operations | ||||||||||||
| Sales | $ | 1,205,235 | $ | (179,498 | ) | $ | 1,025,737 | |||||
| Gross profit | 503,916 | (179,498 | ) | 324,418 | ||||||||
| Income (loss) from operations | 31,567 | (179,498 | ) | (147,931 | ) | |||||||
| Net income (loss) | 24,769 | (179,498 | ) | (154,728 | ) | |||||||
| Statement of Cash Flows | ||||||||||||
| Net Income (Loss) | $ | 24,769 | $ | (179,498 | ) | $ | (154,728 | ) | ||||
| Deferred revenue | — | 179,498 | 179,498 | |||||||||
| Net cash used in operating activities | (292,156 | ) | — | (292,156 | ) | |||||||
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There was $45,843 and $124,529 of cash equivalents as of the three months ended March 31, 2023 and the year ended December 31, 2022, respectively, held in the Company’s investment account.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Cortes Campers, LLC, Futuro Houses, LLC, Fusion X Marine, LLC, and Mig Marine, LLC. All intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied.
Revenue Recognition
Unit Sales
The Company recognizesCompany’s primary source of revenue in accordance with Accounting Standard Update (“ASU”) No. 2014-09. This standard provides authoritative guidance clarifyingis generated through the principles for recognizing revenuesale of molded fiberglass campers and developinghomes (units). Unit sales are recognized at a common revenue standard for U.S. GAAP. The core principlepoint- in-time when the performance obligation is satisfied and control 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,customer, which generally occurs when the unit is shipped to or picked-up from our facility by the customer. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits from the goods or services. Unit payment terms include deposits payable prior to delivery or on terms of 60 days or less post-delivery.
Net sales include shipping and handling charges billed directly to customers. Any shipping and handling costs that occur after the transfer of control are treated as fulfillment cost that are accrued when control is transferred. We also have made an accounting policy election to exclude from revenue sales and usage-based taxes collected.
Warranty obligations associated with the sale of a unit are assurance-type warranties that are a guarantee of the unit’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract.
Dealer Arrangement Fees
Beginning in an amount that reflects the consideration2023, the Company expectsbegan to be entitled toenter into certain arrangements with dealers providing exclusive selling rights for Futuro Houses geographic territories. The arrangements typically include provisions that in exchange for those goodsthe territory rights, dealers pay an initial up-front one-time only fee. Subject to meeting minimum unit sale levels on an annual basis, the arrangement automatically renews for an additional year with no additional fee.
The intellectual property subject to the exclusive territory rights is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or services. ongoing activities. The dealer arrangements are highly interrelated with the Company’s performance obligations to produce future units, further develop the brand and provide training and support to dealers and as such are considered to represent a single performance obligation.
The Company reviews its sales transactions to identify contractual rights, performance obligations, and transaction prices, includingrecognizes dealer territory fees over the allocationexpected term of prices to separate performance obligations, if applicable. Revenue and coststhe arrangement which includes estimated annual renewal periods. Changes in the estimate of salesrenewal periods are accounted for prospectively from the period of the change in estimate by adjusting the remaining unrecognized revenue over the remaining estimated term. As these fees are typically received in cash at or near the execution of the arrangement, the cash received is initially recorded as a contract liability in deferred revenue until recognized once product titles are transferred to the customer’s control and performance obligations are satisfied.as revenue over time.
Other
The table below provides the break-out of net sales from unit sales and dealer territory fees recognized in the respective periods:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Unit sale (point in time) | $ | 1,005,235 | $ | 76,000 | ||||
| Dealer Territory fees (over time) | 20,502 | — | ||||||
| Net sales | $ | 1,025,737 | $ | 76,000 | ||||
Recent Accounting Pronouncements
The Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – LIQUIDITY
The accompanying 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 three months ended March 31, 2023, the Company realized a net incomeloss of $24,769$154,728 and cash used for operating activities was $291,059,$292,156, compared to cash used for operating activities of $1,2537,657$257,000 in the prior 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 March 31, 2023, the Company had cash on hand in the amount of $45,843. Management estimates that the current cash funds and liquid investments of $432,243 and the continued increase in revenues, will be sufficient to continue operations through March 31, 2024.
NOTE 4 – INVESTMENT IN TRADING SECURITIES
On May 17, 2020, the Company purchased $3,800,000 of various mutual fund assets from a broker. This investment meets the criteria of level one inputs for which quoted market prices are available in active markets for identical assets or liabilities as of the reporting date. As of September 30, 2022, these assets had all been sold. The Company has adjusted the reported amounts for these investments to market value resulting in a realized loss and unrealized loss of $288,281 and $18,000, respectively, as of the year ended December 31, 2022.
As a result of the Company’s purchase of mutual fund assets, the Company could have been deemed to be an “investment company” under the Investment Company Act of 1940 (the “Investment Company Act”). However, the Company did not intend to be an investment company and never intended to be engaged in the business of investing, reinvesting, owning, holding or trading in securities. Based on these facts, the Company relied 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 endeavored to ensure that it was compliant with the conditions for relying on this rule within the time period permitted by Rule 3a-2. To comply with this exclusion, the Company has liquidated all of the mutual fund assets and no longer owns securities having a value exceeding 40% of the value of the Company’s total assets on an unconsolidated basis. This course of action was approved and authorized by the Company’s board of directors by unanimous written consent on August 17, 2021. As of December 31, 2022 and March 31, 2023, the Company did not own any securities.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment for continuing operations consist of the following aton March 31, 2023 and December 31, 2022:
| March 31, 2023 | December 31, 2022 | |||||||
| Building and improvements | $ | 664,183 | $ | 664,183 | ||||
| Land | 96,000 | 96,000 | ||||||
| Vehicles | 146,893 | 146,893 | ||||||
| Office equipment | 18,421 | 18,421 | ||||||
| Production molds and fixtures | 1,095,758 | 1,095,758 | ||||||
| Tooling and fixtures | 651,909 | 462,570 | ||||||
| Other equipment | 72,059 | 72,059 | ||||||
| Furniture and fixtures | 5,628 | 4,746 | ||||||
| Total property and equipment cost | 2,750,851 | 2,560,630 | ||||||
| Less: accumulated depreciation and amortization | (307,345 | ) | (262,523 | ) | ||||
| Property and equipment, net | $ | 2,443,506 | $ | 2,298,107 | ||||
Depreciation expense for the three months ended March 31, 2023, and 2022 was $44,822 and $19,000, respectively.
NOTE 6 – ACCRUED PAYROLL TO OFFICER
Beginning in January 2018, the Company’s former CEO voluntarily elected to defer payment of his employment compensation. The balance of the compensation owed to the Company’s former CEO was $125,167 as of March 31, 2023 and December 31, 2022. Deferral of wages ended on August 9, 2021, when the Company’s former CEO resigned from that position.
NOTE 7 – LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consists of the following aton March 31, 2023 and December 31, 2022:
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Loan payable to officers/shareholders (a) | $ | 7,230,629 | $ | 7,054,333 | $ | 7,230,629 | $ | 7,054,333 | ||||||||
| Loan Payable to related party - past due (b) | — | 126,296 | — | — | ||||||||||||
| Total loans payable to related parties | 7,230,629 | 7,180,629 | 7,230,629 | 7,180,629 | ||||||||||||
| Loan payable to related party, current portion | (352,296 | ) | (302,296 | ) | (352,296 | ) | (302,296 | ) | ||||||||
| Total loans payable to related parties | 6,788,333 | 6,878,333 | 6,878,333 | 6,878,333 | ||||||||||||
| a. | On August 5, 2022, the Company acquired MIG Marine and issued a 6.25% interest bearing note in the amount of $6,878,333; the note is payable to its majority shareholder, Paul Spivak. During the fourth quarter of 2022, there was a loan for $100,000 from Mr. Spivak and another for $76,000 from the Company’s current President & CEO; both these loans are non-interest-bearing loans. |
| b. | On August 5, 2022, we acquired Mig Marine from Paul Spivak, our former CEO and a significant shareholder. We paid for Mig Marine with a deferred deposit and a $6,195,000 promissory note. We failed to make required payments under the note in 2022 and the first quarter of 2023, and as a result were in default. However, Mr. Spivak waived the default, waived all interest due on the note for 2022 and 2023, and agreed to defer all payments of the deposit and under the note to January 2024. For more information, please see Note 12 — Subsequent Events. |
Loan payments to related parties were made through a combination of direct payments to the noteholder and instructions from the noteholder to pay obligations to others on their behalf.
NOTE 8 – LOANS PAYABLE
Loans payable for continuing operations consisted of the following as of March 31, 2023 and December 31, 2022:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Real Estate loan (a) | $ | 258,657 | $ | 259,450 | ||||
| Vehicle loans (b) | 56,097 | 59,671 | ||||||
| Working capital (c) | 85,728 | 122,135 | ||||||
| Total loans payable | 400,483 | 426,000 | ||||||
| Loans payable, current portion | (104,499 | ) | (140,905 | ) | ||||
| Loans payable, net of current portion | $ | 295,984 | $ | 280,000 | ||||
| a. | On August 26, 2020, the Company entered into a loan agreement with Apex Commercial Capital Corp. in the principal amount of $265,339 with interest at 9.49% per annum and due on September 10, |
| b. | The Company purchases vehicles for employees and 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 two vehicles was $59,671 at December 31, 2022, with an original loan period of 72 to 144 months, and interest rates of zero percent to 10.99%. The loan balance on March 31, 2023, was $56,097. |
| c. | On November 7, 2022, the Company entered into a $150,000 term loan with Fresh Funding related to the working capital for the production of campers. The loan requires weekly payments of $3,981 over the term of 12 months, has an interest rate of 38% per annum, and is guaranteed by both the Company’s former CEO and the current CEO. The loan balance on December 31, 2022, was $122,135. During the year ended December 31,2022, the Company made principal payments of $23,369, and interest payments of $61,497. During the three months ended March 31, 2023, the Company made principal payments of $26,381, and interest payments of $10,025 leaving a total of $85,728 owed at March 31, 2023. |
NOTE 9 – SHAREHOLDERS’ EQUITY
Common Shares Issued for Cash
During the quarter ended March 31, 2023, the Company received proceeds of $167,500 on the private placement of 1,675,000 shares of common stock, at an average price of $0.10.
Summary of Warrants
There were no warrants granted or exercised during the quarter ended March 31, 2023. Warrants for the period ended March 31, 2023, are $0.
NOTE 10 – INCOME TAXES
At December 31, 2021, the Company had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately$1,500,000 for Federal and state purposes. The carryforwards expire in various amounts through 2041. Given the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax assets for this benefit. Section 382 generally limits the use of NOLs and credits following an ownership change, which occurs when one or more 5 percent shareholders increase their ownership, in aggregate, by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time during the “testing period” (generally three years).
Effective January 1, 2007, the Company adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of March 31, 2023, and 2022, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.
The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of March 31, 2023, and 2022, the Company has not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2018 through 2022 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize the appropriate deferred tax asset at that time.
NOTE 11 – LEGAL PROCEEDINGS
There were no reportable legal proceedings initiated, or material developments in previously reported legal proceedings for the quarter ended March 31, 2023.
NOTE 12 – SUBSEQUENT EVENTS
On August 5, 2022, the Company acquired Mig Marine from Paul Spivak, our former CEO and a significant shareholder, for $6,833,333 pursuant to a stock purchase agreement between Mr. Spivak and USLG. The Mig Marine purchase price was completely financed by Mr. Spivak: pursuant to the purchase agreement a 10% deposit of $638,333 was deferred for one year interest free and was due August 5, 2023; and USLG issued Mr. Spivak a promissory note in the amount of $6,195,000 for the remainder. The note bears interest at the rate of 6.25% per year and had a five-year term with monthly installments of principal and interest due beginning on September 5, 2022, with the final payment on August 5, 2027. As we ramped up our camper business and reinvested revenues in the company, we failed to make any payments under the note, and as a result were in default. Reflecting his faith in USLG and in order to support the operations and continued growth of the company, Mr. Spivak waived the default, waived all interest due on the note for 2022 and 2023, and agreed to defer all payments of the deposit and under the note to January 2024, with the final note payment due December 1, 2028. Mr. Spivak provided the waiver and payment deferral on May 1, 2023, effective retroactively.
On April 18, 2023, the Company secured a $30,000 loan from Lending Point to use for inventory purchasing. The loan bears an interest rate of 13.49% and requires monthly payments of $690 with no pre-payment penalty.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This quarterly report contains statements that are forward-looking within the meaning of Section 21E of the Exchange Act. Forward-looking statements are statements other than historical facts, including, without limitation, statements that are identified by words like “may,” “could,” “would,” “should,” “will,” “believe,” “expect,” “anticipate,” “plan,” “predict,” “estimate,” “target,” “project,” “intend,” or similar expressions. These statements include, among others, statements regarding our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. These statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. You should not rely solely on these forward-looking statements and should consider all uncertainties and risks throughout this document. Forward-looking statements are only predictions and not guarantees of performance and speak only as of the date they are made. We do not undertake to update any forward-looking statement in light of new information or future events.
Although we believe that the expectations, estimates and projections reflected in the forward-looking statements in this report are based on reasonable assumptions when they were made, we cannot assure you that these expectations, estimates and projections will be achieved. We believe the forward-looking statements in this report are reasonable; however, you should not place undue reliance on any forward-looking statement,statements, as they are based on current expectations. Future events and actual results may differ materially from those discussed in the forward-looking statements. Some of the factors that could cause actual results to differ materially from our expectations are discussed Risk Factors beginning on page 6 of our Annual Report on Form 10-K for the year ended December 31, 2022.
Restatement of Previously Issued Financial Statements
As discussed in the Explanatory Note to this Amendment No. 1, included in the interim condensed consolidated financial statements, the Company has restated certain information contained in its previously issued unaudited interim condensed financial statements as of and for the period ended March 31, 2023, related to an error in the recognition of revenue related to Futuro Houses dealer territory agreements.
In this Amendment No. 1, the Company has restated the related financial statement line items impacted. In addition, for further information regarding the matters leading to the restatement and related findings with respect to the Company’s disclosure controls and procedures and internal control over financial reporting, refer to Item 4. Controls and Procedures in Part I of this Amendment No. 1.
General Overview
US Lighting Group, Inc. is a holding company with four operating subsidiaries — Cortes Campers, LLC, a brand of high-end molded fiberglass recreational campers, Futuro Houses, LLC, focused on design and sales of molded fiberglass homes, Fusion X Marine, LLC, a high-performance boat designer, and MIG Marine Corporation, a composite manufacturing company that produces proprietary molded fiberglass products for our other business lines.
We derive expertise and inspiration from the marine industry, where the harshest conditions are expected and must be met with superior engineering and the latest in composite technology. We apply these standards to the products we manufacture and supply to the recreational vehicle (RV) market and, more recently, to the prefabricated housing segment.
Molded fiberglass products are exceptionally strong, lightweight and durable. Composite materials are corrosion resistant and provide efficient insulation, making them attractive for both outdoor enthusiasts and residential housing needs. Molded construction also allows for creation of irregular, unusual or circular objects, which permits the innovative shapes and features of our products.
Our vision is to promote innovation and challenge manufacturing practices in industries that rely on labor-intensive, outdated and wasteful processes, while providing consumers with superior products designed to last for generations.
On January 11, 2021, we formed Cortes Campers to operate our new brand of innovative travel trailers. During the second part of 2021, we invested heavily in research and development as well as production planning for the 17-foot camper and began selling campers in early 2022. As of March 31, 2023, our revenue was driven by shipments of fiberglass campers marketed under Cortes Campers brand and financial results for the first quarter of 2023 reflect revenue of $905,235 generated by Cortes Campers.
Cortes Campers currently builds one molded fiberglass 17-foot travel trailer model, which is unique to the industry due to innovative construction techniques such as an axle-less suspension, floor plan that allows for an eight cubic foot refrigerator and full-size wet bath, marine grade materials, and rugged construction unmatched in the industry. We use marine grade exterior gel coats, which provide our campers with bright and fade-resistant colors, also unmatched in the industry.
Our campers are distributed through a chain of regional distributors and are currently available for purchase in US and Canada. Other molded fiberglass RV manufacturers don’t have a dealer network, which provides Cortes Campers with competitive advantage when approaching dealers.
On January 12, 2022, we formed Futuro Houses, LLC to design, marketing and distribute prefabricated molded fiberglass homes. Throughout 2022, Futuro Houses engaged in engineering and development of our first “UFO” themed home model inspired by the original Futuro house designed by Finnish architect Matti Suuronen. The prototype was finished in January of 2023, and as of March 31, 2023 Futuro had reported revenues of $300,000.$120,502.
We plan to expand our manufacturing footprint, enhance production techniques, and develop more products in the RV, marine, and composite housing sectors. Current R&D efforts are directed towards future tow-behind camper models under Cortes Campers brand as well as prefabricated housing segment.
In 2022 Cortes Campers obtained RVIA industry certification (RVIA is a voluntary association of recreational vehicle manufacturers which promulgates recreational vehicle safety standards in the U.S.) and was listed on J.D. Power registry, which allowed end-consumers simplified access to financing as well as provided dealers with confidence in our manufacturing techniques and product values. Throughout 2022, and continuing in 2023, we developed relationships with several financial institutions to provide credit to our dealers under floor planning programs. Those arrangements significantly improved dealer acceptance of Cortes Campers as a new manufacturer, which has resulted in increased sales and revenue.
On August 5, 2022, we acquired MIG Marine Corporation (“Mig Marine”) from Paul Spivak, our former CEO and a significant shareholder. The Mig Marine acquisition has been determined to be a combination of entities under common control that resulted in a change in the reporting entity. Accordingly, our financial results have been recast to include the financial results of Mig Marine in the current and prior periods as if Mig Marine had always been consolidated with USLG. The assets and liabilities of Mig Marine have been recorded in our consolidated statements of financial condition at the seller’s historical carrying value.
Subsequent Events
On August 5, 2022, we acquired Mig Marine from Paul Spivak, our former CEO and a significant shareholder, for $6,833,333 pursuant to a stock purchase agreement between Mr. Spivak and USLG. The Mig Marine purchase price was completely financed by Mr. Spivak: pursuant to the purchase agreement a 10% deposit of $638,333 was deferred for one year interest free and was due August 5, 2023; and USLG issued Mr. Spivak a promissory note in the amount of $6,195,000 for the remainder. The note bears interest at the rate of 6.25% per year and had a five-year term with monthly installments of principal and interest due beginning on September 5, 2022, with the final payment on August 5, 2027. As we ramped up our camper business and reinvested revenues in the company, we failed to make any payments under the note, and as a result were in default. Reflecting his faith in USLG and in order to support the operations and continued growth of the company, Mr. Spivak waived the default, waived all interest due on the note for 2022 and 2023, and agreed to defer all payments of the deposit and under the note to January 2024, with the final note payment due December 1, 2028. Mr. Spivak provided the waiver and payment deferral on May 1, 2023, effective retroactively.
Results of Operations for the Three Months Ended March 31, 2023, Compared to the Three Months Ended March 31, 2022
Sales
TotalNet total sales from continuing operations for the quarter ended March 31, 2023 were $1,205,235,$1,025,737, compared to $76,000 the first quarter of 2022, an increase of $1,129,235,000.$949,737. The increase in sales is attributed to $905,235$1,005,235 of recreational vehicles (RV) and related components sales through our Cortes Campers subsidiary and $300,000$20,502 of revenue from the sale of a Futuro Houses dealership.dealership fees.
Cost of Goods Sold
Cost of goods sold from continuing operations for the quarter ended March 31, 2023 were $701,319, compared to $68,00$68,000 for the first quarter of 2022. The cost of goods sold relates to camper sales from the Company’s Cortes Campers subsidiary.
Operating Expenses
Selling, general and administrative expenses (“SG&A”) from continuing operations were $472,349 for the quarter ended March 31, 2023, compared to $266,000 for the first quarter of 2022, an increase of $206,349, or 77.6%.$206,349. The increase over the prior year can be attributed to increased personnel costs associated with the Company’s Cortes Campers Subsidiary.
We had no product development costs for the quarterquarters ended March 31, 2023, compared to $0 for the first quarter ofand 2022. The Company continues its focus to the RV, marine, composite housing, and electronics sectors.
Other Income/Expense
During the quarter ended March 31, 2022,2023, we had total other expense of $6,797. Total other expense from interest expense for the first quarter of 2022 was $118,000.
Net Loss
We had a net income from continuing operationsloss of $24,769$154,728 for the quarter ended March 31, 2022,2023, compared to a net loss of $376,000 for the first quarter of 2022. Our overall net income increasedloss decreased mainly due to the sales of Cortes Campers RVs and related components and new distributorships for Futuro Houses.components.
Liquidity and Capital Resources
Changes in Cash Flows
Net cash used in operating activities for the quarter ended March 31, 2023 was $257,000,$292,156, compared to net cash provided byused in operating activities of $218,559$257,000 for the first quarter of 2022.
Net cash used in investing activities was $190,221 for the quarter ended March 31, 2023, compared to $703,000 of cash provided by investing activities for the first quarter of 2022. The difference is primarily due to a very small investment in fixed assets for the first quarter of 2022 and proceeds of $704,000 received from the sale of trading securities as compared with a much larger investment in fixed assets for the first quarter of 2023.
Net cash provided by financing activities for the quarter ended March 31, 2023 was $403,691, which included proceeds of $167,500 received from the sale of common stocksstock and the repaymentproceeds of $236,191 of loans payable.payable and related party loans. Net cash used in financing activities for the first quarter of 2022 was $328,000, which was allmostly for the repayment of loans payable.to related parties.
Critical Accounting Policies and Estimates
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2022, for a full discussion of our critical accounting policies. In this Amendment No. 1, the Company is amending and replacing its previously disclosed accounting for revenue recognition to the following:
Unit Sales
The Company’s primary source of revenue is generated through the sale of molded fiberglass campers and homes (units). Unit sales are recognized at a point- in-time when the performance obligation is satisfied and control of the promised goods or services is transferred to the customer, which generally occurs when the unit is shipped to or picked-up from our facility by the customer. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits from the goods or services. Unit payment terms include deposits payable prior to delivery or on terms of 60 days or less post-delivery.
Net sales include shipping and handling charges billed directly to customers. Any shipping and handling costs that occur after the transfer of control are treated as fulfillment cost that are accrued when control is transferred. We also have made an accounting policy election to exclude from revenue sales and usage-based taxes collected.
Warranty obligations associated with the sale of a unit are assurance-type warranties that are a guarantee of the unit’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract.
Dealer Arrangement Fees
Beginning in 2023, the Company began to enter into certain arrangements with dealers providing exclusive selling rights for Futuro Homes geographic territories. The arrangements typically include provisions that in exchange for the territory rights, dealers pay an initial up-front one-time only fee. Subject to meeting minimum unit sale levels on an annual basis, the arrangement automatically renews for an additional year with no additional fee.
The intellectual property subject to the exclusive territory rights is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The dealer arrangements are highly interrelated with the Company’s performance obligations to produce future units, further develop the brand and provide training and support to dealers and as such are considered to represent a single performance obligation.
The Company recognizes dealer territory fees over the expected term of the arrangement which includes estimated annual renewal periods. Changes in the estimate of renewal periods are accounted for prospectively from the period of the change in estimate by adjusting the remaining unrecognized revenue over the remaining estimated term. As these fees are typically received in cash at or near the execution of the arrangement, the cash received is initially recorded as a contract liability in deferred revenue until recognized as revenue over time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Because USLG is a “smaller reporting company” as defined by the Securities and Exchange Commission we are not required to provide additional market risk disclosure.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
OurDisclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, team, withincluding our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13(a)-15(e) and 15(d)-15(e) under the participationExchange Act, at the time the Original Form 10-Q was filed, our Chief Executive Officer and Chief Financial Officer carried out evaluations of our chief executive officer, Anthony Corpora, and chief financial officer, Donald O. Retreage, Jr., evaluated the effectiveness of the design and operation of USLG’sour disclosure controls and procedures as of March 31, 2023 and concluded that our disclosure controls and procedures were effective. After filing the Original Form 10-Q, the Company identified a material weakness in internal control over financial reporting as described below. As a result, our Chief Executive Officer and Chief Financial Officer have re-evaluated the disclosure controls and procedures and concluded that our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act) as of March 31, 2023. Based upon this evaluation, Messrs. Corpora and Retreage concluded that the company’s disclosure controls and procedures were not effective as of March 31, 2023.
Changes2023 due to the material weakness in Internal Control Over Financial Reporting
Our senior management team is responsible for establishing and maintaining adequate internal control over financial reporting defined under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board, senior management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.described below.
BecauseMaterial Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of its inherent limitations,deficiencies, in internal control over financial reporting, maysuch that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not preventbe prevented or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changesdetected on a timely basis. Management identified a material weakness in conditions, or the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting as of March 31, 2023 that prevented us appropriately determining the required revenue recognition accounting treatment for fees received from Futuro Houses dealer territory agreements, which was a new type of transaction for the Company beginning in 2023.
Remediation Plan
With oversight from the board of directors and mayinput from timemanagement, the Company has begun designing and implementing changes in processes and controls to time make changes aimed at enhancing their effectivenessremediate the material weakness described above and to ensureenhance our internal control over financial reporting, including a control to review types of transactions we are encountering for the first time and more extensively evaluating the applicable accounting guidance including where applicable seeking outside advisory services to assist us in that our systems evolve with our business.evaluation.
Changes in Internal Control over Financial Reporting
There were
Other than described above, there have been no changes in our internal control over financial reporting identified in connection withduring the evaluation required by the Securities Exchange Act that occurred during our first fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
There were no reportable legal proceedings initiated, or material developments in previously reported legal proceedings, during the first quarter.
Item 1A. Risk Factors.
Please refer to the risk factors listed under “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, for information relating to certain risk factors applicable to USLG.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter end of March 31, 2023, we offered unregistered shares of our common stock in a private placement to investors to fund our working capital needs. During the quarter we sold to four investors 1,675,000 shares for an aggregate amount of $167,500. The issuance of shares in the private placement was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) under the Securities Act. We discontinued the Rule 506(b) private placement at the end of March.
Item 3. Defaults Upon Senior Securities.
On August 5, 2022, we acquired Mig Marine for $6,833,333 from Paul Spivak, our former CEO and a significant shareholder. We paid for Mig Marine with a deferred deposit and $6,195,000 promissory note. As we ramped up our camper business and reinvested revenues in the company, we failed to make any payments under the note in 2022 or the first quarter of 2023, and as a result were in default. Reflecting his faith in USLG and in order to support the operations and continued growth of the company, Mr. Spivak waived the default, waived all interest due on the note for 2022 and 2023, and agreed to defer all payments of the deposit and under the note to January 2024, with the final note payment due December 1, 2028. Mr. Spivak provided the waiver and payment deferral on May 1, 2023, effective retroactively. For more information, please turn to Subsequent Events on page 12.13.
Item 4. Mine Safety Disclosures.
We are not engaged in mining operations.
Item 5. Other Information.
We have disclosed on Form 8-K all reportable events that occurred in the quarter ended March 31, 2023.
Item 6. Exhibits.
| Exhibit Number | Description of Exhibit | |
| 31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, US Lighting Group, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| US Lighting Group, Inc. | |
| /s/ Anthony Corpora | |
By Anthony Corpora, Chief Executive Officer (Principal Executive Officer) | |
| /s/ Donald O. Retreage, Jr. | |
By Donald O. Retreage, Jr., Chief Financial Officer (Principal Financial Officer) | |
| /s/ Michael A. Coates | |
By Michael A. Coates, Corporate Controller (Principal Accounting Officer) |
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