Item 1. Financial Statements.
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.
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
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. GAAP. 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 product titles are transferred to the customer’s control and performance obligations are satisfied.
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 income of $24,769 and cash used for operating activities was $291,059, compared to cash used for operating activities of $1,2537,657
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
at 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 at March
31, 2023 and December 31, 2022:
| |
2023 | | |
2022 | |
Loan payable to officers/shareholders (a) | |
$ | 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 | |
Loan payable to related party, current portion | |
| (352,296 | ) | |
| (302,296 | ) |
Total loans payable to related parties | |
| 6,788,333 | | |
| 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, 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, the Company’s former CEO, and secured by
the Company’s real estate. The loan balance on December 31, 2022, was $259,450. During the year ended December 31, 2022, the Company
made principal payments of $3,084 leaving a total of $259,450 owed at March 31, 2023. |
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.