SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2022

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 16 – SUBSEQUENT EVENTS

Streeterville Capital

On January 25, 2023, (the “Execution Date”) the Company executed a Redeemable Promissory Note with Streeterville Capital, LLC (the “Investor”) in the amount of $2,807,500 (the “Note”). The Note matures eighteen (18) months from its issuance date of January 25, 2023 and bears interest at 8% per annum on the outstanding principal balance of the Note. The original principal balance of the Note is $2,500,000, plus debt issuance costs of $345,000. Beginning on July 25, 2023, the Investor shall have the right in any month to cause the Company to redeem up to $247,500 of the principal amount of the Note in such month. The Company may elect, in its sole discretion, to redeem such portions of the Note in cash or in its common stock or in any combination thereof. If redemptions are made by the Company with its common stock, such stock will be valued at 87.5% of the Nasdaq Minimum Price. The Company may not redeem the Note with its common stock if at the time of such redemption there is an Equity Condition Failure. It is the intention of the Company to make all Note redemption payments in cash and not in stock. Beginning on July 25, 2023, all cash redemptions will be subject to a ten percent (10%) redemption premium. The Company may pay all or any portion of the outstanding balance on or before one hundred five (105) days from the Execution Date without a prepayment penalty; if paid after one hundred five (105) days, the Company will be subject to a 10% prepayment premium.

The Acquisitions

The PURO Acquisition

On January 26, 2023 (the “Closing Date”), prior to the effective time of the Puro Mergers (as defined below), the Company paid or issued, as applicable (i) 2,497,220 shares of the Company’s common (based on a value of $2.00 per share), (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) $1,335,114 of PURO’s indebtedness to various creditors, (iv) $221,675 of the PURO’s transaction expenses and (v) $2,500,000 and 1,250,000 shares of the Company’s 2% Series B Cumulative Perpetual Preferred Stock (the “Series B Preferred Stock”) in repayment of a $5 million note issued by PURO and held by one of its vendor’s. As a result of these issuances and payments the Company and PURO agreed that the acquisition of PURO by the Company (the “PURO Acquisition”) was closed and the PURO Mergers could be affected as soon as possible. The Company financed the payments described above through a $2,807,500 Redeemable Promissory Note from Streeterville Capital, LLC (the “Redeemable Note”) and a $1,537,938 draw on a line of credit from Pinnacle Bank (the “Line of Credit Draw”). The shares described in clauses (i) and (ii) above are collectively referred to herein as the “PURO Equity Consideration”.

 On January 27, 2023 in connection with the prior closing of the PURO Acquisition, the Company caused a two-step merger to occur as follows: (i) a merger between PURO Lighting, LLC, a Colorado limited liability company (“Old PURO”) and PURO Acquisition Sub I, Inc., a Colorado corporation (“PURO Sub I”) and wholly owned subsidiary of the Company became effective (the “First PURO Merger), whereby PURO Sub I was the surviving entity of the merger and then (ii) a merger between PURO Sub I and PURO Acquisition Sub II, LLC, a Delaware limited liability corporation (“PURO Sub II”) and wholly owned subsidiary of the Company became effective (the “Second PURO Merger” and together with the First PURO Merger, the “PURO Mergers”), in each case, pursuant to a previously executed Agreement and Plan of Merger dated as of December 19, 2022, as amended on January 26, 2023 (the “PURO Merger Agreement”), by and between the Company, PURO Acquisition Sub I, PURO Acquisition Sub II, PURO, Brian Stern and Andrew Lawrence. In connection with the PURO Mergers, PURO Sub II was renamed Puro Lighting, LLC (“New PURO”) and New PURO is a wholly-owned subsidiary of the Company.

At the effective time of the First Puro Merger (i) all of the capital stock of PURO Merger Sub I that was outstanding immediately prior to the effective time of the First PURO Merger was converted into and became (i) 100% of the membership interests of Old PURO (and the membership interests of Old PURO into which the membership interests of PURO Merger Sub I were converted became the only outstanding membership interests of Old PURO) and (ii) the right of each holder of a membership interest or profit interest in Old PURO immediately prior to the effective time of the First PURO Merger to receive from the Company their ownership percentage of the following:

(1) The PURO Equity Consideration; and

(2) 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 and Schedule II thereto.

The LED Supply Acquisition

On the Closing Date, prior to the effective time of the Puro Mergers, the Company paid or issued, as applicable (i) 1,377,777 shares of the Company’s common stock; (ii) 148,888 shares of Series C Preferred Stock; (iii) $364,316 of Old LED Supply’s indebtedness to various creditors; and (iv) $221,674 of Old LED Supply’s transaction expenses. Part of Old LED Supply’s indebtedness on the Closing Date was $1,778,667 outstanding principal and interest on a line of credit from JP Morgan Chase Bank, N.A. (the “Chase Loan”). The Company has agreed to repay the Chase Loan 14 calendar days from the Closing Date As a result of these issuances, agreements and payments the Company and Old LED Supply agreed that the acquisition of Old LED Supply by the Company (the “LED Supply Acquisition”) was closed and the LED Supply Mergers could be effected as soon as possible. The Company financed the payments described above through the Line of Credit Draw. The shares described in clauses (i) and (ii) above are collectively referred to herein as the “LED Supply Equity Consideration”.

On January 27, 2023 in connection with the prior closing of the LED Supply Acquisition, the Company caused a two-step merger to occur as follows: (i) a merger between LED Supply Co. LLC, a Colorado limited liability company (“Old LED Supply”) and LED Supply Acquisition Sub I, Inc., a Colorado corporation (“LED Supply Sub I”) and wholly owned subsidiary of the Company became effective (the “First LED Supply Merger”), whereby LED Supply Acquisition Sub I was the surviving entity in the merger and then (ii) a merger between LED Supply Sub I and LED Supply Acquisition Sub II, LLC, a Delaware limited liability corporation (“LED Supply Sub II”) and wholly owned subsidiary of the Company became effective (the “Second LED Supply Merger” and together with the First LED Supply Merger, the “LED Supply Mergers”), pursuant to the previously executed Agreement and Plan of Merger dated as of December 19, 2022, as amended on January 26, 2023 (the “LED Supply Merger Agreement”), by and between the Company, LED Supply Acquisition Sub I, LED Supply Acquisition Sub II, LED Supply, Brian Stern and Andrew Lawrence. In connection with the LED Supply Mergers, LED Supply Sub II was renamed Led Supply Co. LLC (“New LED Supply”) and New LED Supply is a wholly-owned subsidiary of the Company.

At the effective time of the First LED Supply Merger (i) all of the capital stock of LED Supply Merger Sub I that was outstanding immediately prior to the effective time of the First LED Supply Merger was converted into and became (i) 100% of the membership interests of Old LED Supply (and the membership interests of Old LED Supply into which the membership interests of LED Supply Merger Sub I were converted became the only outstanding membership interests of Old LED Supply) and (ii) the right of each holder of a membership interest or profit interest in Old LED Supply immediately prior to the effective time of the First LED Supply Merger to receive from the Company their ownership percentage of the following:

(1) The LED Supply Equity Consideration; and

(2) 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 Supply Merger Agreement and Schedule II thereto.

The foregoing descriptions of the transactions consummated by the Merger Agreements (as amended) are not intended to be complete and is qualified in its entirety by reference to the full text of the Merger Agreements previously filed as Exhibits 10.1 and 10.2 to the Form 8-K filed on December 20, 2022, and the Amendments to the Merger Agreements filed hereto as Exhibits 10.1 and 10.2including its amendments, and the Note Cancellation Agreement, copies of which are filed herewith as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5, respectively, and incorporated by reference herein.

Legal Settlement

On February 25, 2022, James Doyle, a former Chief Operating Officer of the Company filed an arbitration claim against the Company for approximately $1.5 million plus attorneys’ fees and other costs with the American Arbitration Association in the State of New York for severance pay and other claims after being terminated by the Company for cause. The arbitration proceeding was initiated pursuant to the arbitration provision in Mr. Doyle’s employment agreement with the Company. The evidentiary hearing was conducted at the American Arbitration Association’s midtown offices on November 7, 8, 9, and 10, 2022.  Afterwards, the parties submitted post-hearing briefs.  On January 24, 2023, the arbitration panel issued a Partial Final Award, whereby the Panel denied five of the seven counts asserted by Doyle, and awarded him only $100,000 in severance pay plus $21,153.84 in unused vacation time plus 6,379 additional shares in the Company pursuant to the terms of his Employment Agreement.  Because Mr. Doyle was determined to be the prevailing party, the Panel awarded him his reasonable attorneys’ fees and expenses, which amounts are currently the subject of post-hearing briefing.  The Company estimated additional legal fees of $10,000. The Company accrued a total of $131,153.83 in S,G&A expense to cover severance pay, unused vacation time, and the legal fee estimate. An additional $5,000 was accrued for interest expense as per the Partial Final Award.

Unregistered Sales of Equity Securities.

The issuance of the PURO Equity Consideration, the LED Supply Equity Consideration and the Series B Preferred Stock are exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).

Material Modification to Rights of Security Holders.

Series B Preferred Stock

On January 25, 2023, the Company filed the Certificate of Designations, Rights, and Preferences for the Series B Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. On January 26, 2023, the Company filed the Amendment to the Series B Certificate of Designation (together with the Certificate of Designations, Rights, and Preferences for the Series B Preferred Stock, the “Series B Certificate of Designation”), which became effective upon acceptance for record. The Series B Certificate of Designation classified a total of 1,250,000 shares of the Company’s authorized shares of preferred stock, $0.0001 par value per share, as Series B Preferred Stock.

As set forth in the Series B Certificate of Designation, the Series B Preferred Stock ranks, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to all classes or series of Common Stock and to all other equity securities issued by the Company expressly designated as ranking junior to the Series B Preferred Stock; (ii) on parity with the Company’s 10.5% Series A Cumulative Perpetual Preferred Stock; (iii) at least on parity with any future class or series of the Company’s equity securities designated on or after January 25, 2023, including the Company’s 5% Series C Cumulative Perpetual Preferred Stock; and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of the Company’s existing or future subsidiaries.

Holders of Series B Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 2% of the $6 per share liquidation preference per year (equivalent to $0.12 per share per year). Dividends will be payable quarterly in arrears, on or about the 15th day after the end of a quarterly period, beginning on April 15, 2023.

The holders of Series B Preferred Stock, at his, her, or its option, can require the Company to redeem all or a portion of the Series B Preferred Stock at any time and from time to time held by such holder after 30 months from the original issue date at a redemption price of $2.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared), up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefor; provided that if a holder requires the Company to redeem all or a portion of the Series B Preferred Stock at any time and from time to time held by such holder on or after the five (5) year anniversary of the original issue date, the redemption price will be $6.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared), up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefor.

The Series B Certificate of Designation provides for a special optional redemption by the Company upon a change of control, in whole or in part, for $6.00 per share, plus accrued but unpaid dividends to, but not including the redemption date.

The holders of Series B Preferred Stock neither have voting nor preemptive rights. Each share of Series B Preferred Stock is convertible, at any time and from time to time from and after the original issue date, at the option of the holder, into one share of Common Stock. The Series B Preferred Stock has no stated maturity and will not be subject to any sinking fund for the payment of the redemption price or mandatory redemption.

Series C Preferred Stock

On January 25, 2023, the Company filed the Certificate of Designations, Rights, and Preferences for the Series C Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. On January 26, 2023, the Company filed the Amendment to the Series C Certificate of Designation (together with the Certificate of Designations, Rights, and Preferences for the Series C Preferred Stock, the “Series C Certificate of Designation”), which became effective upon acceptance for record. The Series C Certificate of Designation classified a total of 2,500,000 shares of the Company’s authorized shares of preferred stock, $0.0001 par value per share, as Series C Preferred Stock.

As set forth in the Series C Certificate of Designation, the Series C Preferred Stock will rank, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to all classes or series of Common Stock and to all other equity securities issued by the Company expressly designated as ranking junior to the Series C Preferred Stock; (ii) on parity with any future class or series of the Company’s equity securities expressly designated as ranking on parity with the Series C Preferred Stock; (iii) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series C Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up; and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of the Company’s existing or future subsidiaries.

Holders of Series C Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 5% of the $5.00 per share liquidation preference per year (equivalent to $0.25 per share per year). Dividends will be payable quarterly in arrears, on or about the 15th day after the end of a quarterly period, beginning on April 15, 2023.

The Company, to the extent it has legally available funds, must redeem all shares of Series C Preferred Stock on the date that is three years from January 26, 2023. The Series C Certificate of Designation provides for a special optional redemption by the Company upon a change of control, in whole or in part, for $5.00 per share, plus accrued but unpaid dividends to, but not including the redemption date.

The holders of Series C Preferred Stock neither have voting nor preemptive rights. Each share of Series C Preferred Stock will be convertible, at any time and from time to time from and after January 26, 2023, at the option of the holder, into one share of Common Stock. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking fund for the payment of the redemption price or mandatory redemption.