Notes Payable

12 Months Ended

Dec. 31, 2023

Notes Payable [Abstract]

NOTES PAYABLE

NOTE 7 – NOTES PAYABLE

As of December 31, 2023 and 2022, the Company had the following notes payable outstanding:

	December 31,			December 31,
	2023			2022
Loan Agreement	$	157,500		$	157,500
Streeterville Notes		-			2,807,500
Directors and Officers Liability Insurance Agreement		133,005			166,262
Pinnacle Note		4,095,093			-
Total		4,385,598			3,131,262
Less: Unamortized debt discount		-			267,433
Total notes payable		4,385,598			2,863,829
Notes payable, current		(290,505	)		(2,098,685	)
Notes payable, non current	$	4,095,093		$	765,144

Minimum obligations under these loan agreement are as follows:

2024	$	290,505
2025		4,095,093
	$	4,385,598

Loan Agreement

The Company entered into a loan agreement in April of 2019 where the company was required to pay $157,500 in five payments in the amount of $30,000 per year, with an additional $7,500, representing interest, in year two to a loan holder. As of December 31, 2023, the Company has an outstanding balance of $157,500, and no payments have been made as of December 31, 2023.

Streeterville Note #1

On October 7, 2022, the Company entered into a Security Purchase Agreement with Streeterville Capital, LLC whereby the Company issued an 8% unsecured redeemable note in the principal amount of $2,807,500. The Company received net proceeds of $2,462,500, after the deduction of debt issuance costs of $345,000. These fees were recorded as debt discounts, net of the carrying value of the debt, and are being amortized over the life of the loan using the effective interest rate method. The note has a maturity date of April 7, 2024. At any time following the occurrence of any event of default, interest shall accrue on the outstanding balance beginning on the date the applicable event of default occurred at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.

On May 1, 2023, the Company paid an amendment fee of $65,000 which was added to principal and recorded as a debt discount. The amendment was to extend the required principal payments to September of 2023. In May of 2023, the noteholder converted $217,500 of principal in exchange for 4,405 common shares. In August of 2023, the noteholders converted an additional $250,000 of principal in exchange for 16,559 common shares.

The lender has the right at any time 6 months after the effective date, at its election, to redeem all or part of the maximum redemption amount as set forth in the promissory note. Payments of each redemption amount may be made (a) in cash, or (b) in common stock per the following formula: the portion of the applicable Redemption amount being paid in common stock divided by the common stock redemption price, or (c) by any combination of the foregoing. Whereas common stock redemption price means 87.5% multiplied by the Nasdaq minimum price. Whereas Nasdaq minimum price means the lower of: (i) the closing price on the trading day immediately preceding the date the common stock redemption price is measured; or (ii) the average closing price of the common stock for the five trading days immediately preceding the date the common stock redemption price is measured.

The principal amount of the Note may be prepaid in full, or any portion of the outstanding balance earlier than it is due; provided that in the event borrower elects to prepay all or any portion of the outstanding balance it shall pay to lender 120% of the portion of the outstanding balance borrower elects to prepay. The prepayment premium will not apply if borrower repays the Note in full on the anniversary date, which is one year from the purchase price date.

If prior to the anniversary date all redemption amounts are paid as common stock redemptions, then each time after the anniversary date that borrower makes a common stock redemption, $8,333 of the monitoring fee will be deducted from the outstanding balance, not to exceed $50,000. No interest will accrue on the monitoring fee.

Debt discount related to the note amounts to $345,000 and is being amortized using the effective interest method over the term of the note. The effective interest rate of the note is 21.84%. The Company paid an amendment fee in May of 2023 of $65,000 which was added to debt discount.

On November 15, 2023, the book value of the loan of $2,453,662 was settled in full for $2,125,000 using the proceeds received from an equity offering that took place in December of 2023. Refer to Note 9 of the financial statements for further detail of the equity offering. The net amount of $328,662 was recorded to gain on settlement of debt.

Interest expense recorded in the accompanying Statements of Operations by the Company was $187,323 and $53,301 for the years ended December 31, 2023 and 2022, respectively.

Streeterville Note #2

Debt discount recognized during 2023 related to the note amounts to $344,500 and is being amortized using the effective interest method over the term of the note. The effective interest rate of the note is 22.63%. The Company paid an amendment fee in May of 2023 of $35,000 which was added to debt discount. In August of 2023, the noteholders converted $266,746 of principal and $33,254 of accrued interest in exchange for 19,197 common shares.

On November 15, 2023, the book value of the loan of $2,592,788 was settled in full for $2,125,000 using the proceeds received from an equity offering that took place in December of 2023. Refer to Note 9 of the financial statements for further detail of the equity offering. The net amount of $467,788 was recorded to gain on settlement of debt.

Interest expense recorded in the accompanying Statements of Operations by the Company was $175,767 and $- for the years ended December 31, 2023 and 2022, respectively.

Directors and Officers Liability Insurance Agreement

On August 28, 2022, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $318,833. Under the terms of the agreement, the Company made a down payment of $41,730, with the remaining balance financed over the remaining term at an annual percentage rate of 5.05%. Beginning in September 2022, the Company is making 10 monthly payments of $27,710, with the last payment made in June 2023. As of years ended, December 31, 2023 and 2022, the outstanding balance on the note payable was $0 and $166,262. respectively.

On August 28, 2023, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $279,347. Under the terms of the agreement, the Company made a down payment of $42,115, with the remaining balance financed over the remaining term at an annual percentage rate of 6.28%. Beginning in September 2023, the Company is making 10 monthly payments of $24,411, with the last payment made in June 2024. At December 31, 2023 the outstanding balance on the note payable was $133,005.

Interest expense for the years ended December 31, 2023 and 2022 were immaterial to the consolidated financial statements.

Pinnacle Note

In December 2022, the Company entered into a Loan and Security Agreement, or (the “Loan Agreement”), with Pinnacle Bank, which provides for a $5,000,000 secured revolving credit facility (the “Loan Facility”). The facility was later amended and increased to $6,000,000 on May 23, 2023. The loan is subject to a maximum advance amount of up to 85% of net face amount of eligible accounts, plus the lessor a) of the sum of 20% of the aggregate eligible inventory value of raw materials and 35% of the aggregate eligible inventory value of finished goods, b) $1 million, c) 80% of the net orderly liquidation value of raw materials and finished goods, or d) 100% of the aggregate outstanding principal amount of advances. In no event shall the aggregate amount of the outstanding advances under the Loan Facility be greater than $6 million. The loan matures on January 25, 2025. The principal amount of outstanding revolving loan, together with accrued and unpaid interest, is due on the maturity date.

The loan accrues interest at a 1.50% margin above the greater of the prime rate or 4.00%. The interest margin is increased to 2.00% in respect to the advances against eligible inventory. If the Company fails to perform any covenant, term or provision of the Loan Agreement, then interest shall accrue at the rate of 6.0% above the interest rate. If after the occurrence of an event of default and the loan is not paid in full by the maturity date, the loan shall bear interest at the rate of 18.0% above the interest rate.

Obligations under the Loan Agreement are secured by all of the Company’s assets. On the effective date the Company paid a loan fee of 2% of the amount of the Loan Facility and will be required to pay a loan fee of 1.5% of the amount of the Loan Facility annually thereafter.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and the Subsidiaries, including, without limitation, restrictions on liens, indebtedness, fundamental changes, capital expenditures, consignments of inventory and distributions.

The Loan Agreement contains customary events of default, including, without limitation, payment defaults, covenant defaults, breaches of certain representations and warranties, certain events of bankruptcy and insolvency, certain events under ERISA and judgments. If an event of default occurs and is not cured within any applicable grace period or is not waived, the Lender is entitled to take various actions, including, without limitation, the acceleration of amounts due thereunder and termination of commitments under the Loan Facility.

There was a $4,095,093 outstanding balance under the Loan Facility as of December 31, 2023 which has all been classified as long term. Interest expense recorded in the accompanying Statements of Operations by the Company was $506,424 and $-0- for the years ended December 31, 2023 and 2022, respectively.

Chase Credit Facility

In connection with the acquisition of LED Supply Co, LLC, the Company assumed $1,728,474 in principal and $71,724 in accrued interest relating to a credit facility issued by JP Morgan Chase Bank. On March 15, 2023, the Company paid the principle in full and accrued interest of $71,724, for an aggregate payment of $1,800,199, by drawing down on the Company’s credit facility with Pinnacle Bank.