Business Acquisition

12 Months Ended

Dec. 31, 2023

Business Acquistion [Abstract]

BUSINESS ACQUISITION

NOTE 2 – BUSINESS ACQUISITION

The Company accounted for the acquisitions as a business combinations using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company used its best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. The results of operations of the acquired businesses since the date of acquisition are included in the consolidated financial statements of the Company years ended December 31, 2023 and 2022. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The value of the goodwill from the acquisitions described below can be attributed to a number of business factors including, but not limited to, cost synergies expected to be realized and a trained technical workforce.

In conjunction with acquisitions noted below, we used various valuation techniques to determine fair value of the assets acquired, with the primary techniques being discounted cash flow analysis, relief-from-royalty, a form of the multi-period excess earnings and the with-and-without valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to these valuation approaches require significant judgment including: (i) forecasted sales, growth rates and customer attrition rates, (ii) forecasted operating margins, (iii) royalty rates and discount rates used to present value future cash flows, (iv) the amount of synergies expected from the acquisition, (v) the economic useful life of assets and (vi) the evaluation of historical tax positions. In certain acquisitions, historical data is limited, therefore, we base our estimates and assumptions on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

In relation with the purchase by Sterilumen, Inc., of Old SAM Partners, LLC, on March 31, 2022, there was a settlement of a dispute that arose during the first quarter of 2022 between both parties regarding certain representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement where the seller agreed to relinquish any right, title, and interest in the previously issued 80,000 shares. During the six months ended June 30, 2022, the company recorded a loss on change in fair market value of contingent consideration of $240,000 and, as a result of the settlement agreement, the company recorded a gain on settlement of contingent consideration of $1,700,000. The Company also determined that a triggering event had occurred as a result of the settlement agreement. A quantitative impairment test on the goodwill and intangible assets determined that the fair value was below the carrying value and as a result the Company recorded a full goodwill impairment charge of $1,138,203 in the first quarter of 2022. As a result of our evaluation, we determined that the fair value of certain intangible assets were less than the carrying amount as of December 31, 2022. The Company recorded an impairment on intangibles of $5,854,872 in the Consolidated Statements of Operations during the year ended December 31, 2022.

On March 25, 2022, the Company entered into an asset purchase agreement by and among the Company, Munnworks, LLC., a New York Limited Liability Company and wholly-owned subsidiary of the Company (the “Purchaser”) and VisionMark LLC, a New York limited liability company (the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for the assumption of obligations of buyer under the sublease and sublease guarantee.

The purchase price and purchase price allocation as of the acquisition completion date follows.

Purchase Price:
Cash paid at closing	$	10
Due to landlord		755,906
Total Purchase Price, net of cash acquired		755,916
Assets Acquired:
Accounts receivable, net		636,550
Inventory		176,583
Costs and estimated earnings in excess of billings		181,152
Machinery and equipment		1,100,000
Total Assets Acquired:		2,094,285
Liabilities Assumed:
Billings in excess of costs and earnings on uncompleted contracts		(1,388,838	)
Total Liabilities Assumed		(1,388,838	)
Net Assets Acquired		705,447
Excess Purchase Price “Goodwill”	$	50,469

The excess purchase price has been recorded as goodwill in the amount of approximately $50,469. The goodwill is amortizable for tax purposes.

In connection with the VisionMark LLC acquisition, the Company is obligated to repay $31,057 of past due lease payments per month for the next 36 months commencing on April 1, 2022. The Company recognized a discount and related liability equal to the present value of the past due lease liability, and amortizes the difference between such present value and the liability through interest expense using a rate of 38.7% as per the effective interest rate method over the repayment period. Amortization of discount included in interest expenses was $143,453 and $146,073 for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, the future maturity of the lease liability as of December 31, is as follows:

Years Ended December 31,
2024		372,688
2025		93,172
Total		465,860
Less: Unamortized discount		(72,631	)
Total amount due to landlord		393,229
Less: current portion of amount due to landlord, net of discount		(302,372	)
Total long-term portion of amount due to landlord	$	90,857

On January 26, 2023, the Company entered into an asset purchase agreement by the Company (the “Buyer”) and PURO Lighting, LLC, (the “Seller”) a limited liability company under the laws of the State of Colorado, pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for cash, common stock and preferred stock of the buyer. The Company paid or issued, as applicable (i) 19,978 shares of the Company’s common stock, (ii) 251,108 shares of the Company’s 5% Series C Cumulative Perpetual Preferred Stock, par value $0.0001 per share (“Series C Preferred Stock”) (iii) cash of $3,828,702 and (iv) 1,250,000 shares of the Company’s 2% Series B Cumulative Perpetual Preferred Stock (the “Series B Preferred Stock”). In addition, the seller has the right to receive earnout payments subject to certain conditions, including achieving certain revenue targets and gross profit margins and payable as set forth in the PURO Merger Agreement.

The purchase price and purchase price allocation as of the acquisition completion date follows, which includes an adjustment for changes during the measurement period of ($332,357) in contingent consideration – earnout, resulting in a corresponding reduction in goodwill.

Purchase Price:
Cash paid at closing, net of cash acquired	$	3,828,967
Common stock		2,597,111
Series B Preferred Stock		3,712,500
Series C Preferred Stock		667,947
Contingent consideration-Common Stock True Up***		2,397,334
Contingent consideration-Earnout		3,713,875
Total Purchase Price, net of cash acquired		16,917,734
Assets Acquired:
Accounts receivable, net		274,574
Inventory		2,085,912
Other current assets		415,188
Fixed assets, net		5,075
Tradenames/trademarks		1,228,000
Technology/know-how/trade secrets		1,842,000
Patented technology		1,710,000
Customer relationships		4,705,000
Total Assets Acquired:		12,265,749
Liabilities Assumed:
Accounts payable and accrued expenses		(936,448	)
Deferred revenue		(18,482	)
Total Liabilities Assumed		(954,930	)
Net Assets Acquired		11,310,819
Excess Purchase Price “Goodwill”	$	5,606,915

*** Represents the difference in fair value of common stock on the date of acquisition versus agreed upon $2 per share (“Make Whole”). In the event any PURO Equityholder sells any shares of Common Stock obtained pursuant to the terms of the Agreement through a registered broker/dealer on or after the first anniversary of the Closing Date for a price per share of the Common Stock less than $2.00 (the “Sale Price”), Parent will pay to such PURO Equityholder within ten (10) Business Days following the consummation of such sale to an account designated in writing by such PURO Equityholder an amount equal to (a) (i) $2.00 less (ii) the Sale Price, multiplied by (b) the number of shares of Common Stock sold in such sale (the “Make Whole Amount”). The Make Whole Amount payment shall be 50% in cash and 50% in shares of Common Stock (with the number of shares of Common Stock to be issued determined based on a price per share equal to 90% of the Sale Price).

The excess purchase price has been recorded as goodwill in the amount of approximately $5,606,915. The goodwill is not amortizable for tax purposes.

On January 26, 2023, the Company entered into an asset purchase agreement by the Company (the “Buyer”) and LED Supply Co, LLC, (the “Seller”), a limited liability company under the laws of the State of Colorado, pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for cash, common stock and preferred stocks of the buyer. The Company paid or issued, as applicable (i) 11,023 shares of the Company’s common stock; (ii) 148,888 shares of Series C Preferred Stock; and (iii) cash of $286,742. In addition, the seller has the right to receive earnout payments subject to certain conditions, including achieving certain revenue targets and gross profit margins and payable as set forth in the LED Merger Agreement.

The purchase price and purchase price allocation as of the acquisition completion date follows, which includes an adjustment for changes during the measurement period of ($723,468) in contingent consideration – earnout and ($126,000) in assets acquired - customer relationships, resulting in a corresponding reduction in goodwill of ($597,468).

Purchase Price:
Cash paid at closing	$	286,742
Common stock		1,432,889
Series C Preferred Stock		396,042
Contingent considerations-Common Stock True Up***		1,322,665
Contingent considerations-Earnout		9,885,974
Total Purchase Price, net of cash acquired		13,324,312
Assets Acquired:
Accounts receivable, net		1,461,461
Inventory		1,925,285
Other current assets		36,815
Vendor deposits		375,672
Costs and estimated earnings in excess of billings		533,638
Fixed assets, net		106,330
Trademarks/tradenames		1,806,000
Technology/know-how/trade secrets		1,169,193
Vendor relationships		1,416,000
Rebate program		1,894,703
Customer relationships		1,962,000
Other non-current assets		24,819
Total Assets Acquired:		12,711,916
Liabilities Assumed:
Accounts payable		(2,854,509	)
Deferred revenue		(2,279,616	)
Notes payable		(1,778,666	)
Financing lease liability		(25,231	)
Total Liabilities Assumed		(6,938,022	)
Net Assets Acquired		5,773,894
Excess Purchase Price “Goodwill”	$	7,550,418

*** The amount represents the difference in fair value of common stock on the date of acquisition versus the agreed upon $2 per share (“Make Whole”). In the event any LED Equityholder sells any shares of Common Stock obtained pursuant to the terms of the Agreement through a registered broker/dealer on or after the first anniversary of the Closing Date for a price per share of the Common Stock less than $2.00 (the “Sale Price”), Parent will pay to such LED Equityholder within ten (10) Business Days following the consummation of such sale to an account designated in writing by such LED Equityholder an amount equal to (a) (i) $2.00 less (ii) the Sale Price, multiplied by (b) the number of shares of Common Stock sold in such sale (the “Make Whole Amount”). The Make Whole Amount payment shall be 50% in cash and 50% in shares of Common Stock (with the number of shares of Common Stock to be issued determined based on a price per share equal to 90% of the Sale Price).

The excess purchase price has been recorded as goodwill in the amount of approximately $7,550,418. The goodwill is not amortizable for tax purposes.

Make Whole Revision and Impairment on Intangibles

In December of 2023, management determined that the revenues of PURO are significantly lower than projected during the business acquisition process. This discrepancy was primarily due to the realization that a substantial portion of the anticipated announced government funding, which was expected to benefit PURO had already been allocated to specific projects. Consequently, PURO and other enterprises have not been able to fully benefit from the expected government funding; therefore leading to lower-than-anticipated sales projections.

Revisions of certain considerations transferred as per the December 11, 2023 Restructuring Agreements: In light of the revised business projections, the Company and the seller have agreed to modify the purchase price terms for both PURO and LED:

PURO:

(i) The contingent consideration make-whole reserve has been reduced to $0.

(ii) Previously issued common stock have been clawed back in exchange for new options to be issued in January 2024.

(iii) The contingent consideration earnout components for both Year 2022 and Years 2023-2025 would be impacted as well.

LED:

While LED’s business is not adversely affected by the already allocated government funding, the uncertain economic climate has prompted the seller (now part of the Company’s management team) to make concessions on the purchase price. The concessions comprised of the following:

(i) The contingent consideration make-whole reserve has been reduced to $0.

(ii) Previously issued common stock have been clawed back in exchange for new options to be issued in January 2024.

(iii) The contingent consideration earnout components for both Year 2022 and Years 2023-2025 would be impacted as well.

The reduction in purchase price triggered an assessment for impairment which resulted in the Company recording a loss on impairment of PURO goodwill and intangible assets of $6,473,310 and a gain on settlement of contingent consideration of $7,045,936.

The loss on impairment of goodwill and intangibles was comprised of the following:

	December 31,
	2023
Tradenames	$	473,415
Technology/know-how		817,122
Customer relationships		2,221,410
Patented technology		736,020
Goodwill		2,225,343
	$	6,473,310

The gain on settlement of contingent consideration was comprised of the following:

	December 31,
	2023
Gain on Make-Whole Provision Adjustment	$	3,719,997
Gain on Settlement of 2022 Earnout Reserve		751,867
Gain on Adjustment of 2023-2025 Earnout Reserves		3,090,014
Sub-total		7,561,878
Loss on Exchange of Stock Options for Common Shares clawed-back		(515,942	)
Total	$	7,045,936

In addition, certain assumed liabilities were reduced in agreement with the sellers which resulted in a gain of $268,376.