BUSINESS ACQUISITION

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [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 for the three months ended March 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 400,000 shares. During the three months ended March 31, 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.

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.

Schedule of recognized identified assets acquired and liabilities assumed
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	)
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 $40,797 and $0 for the three months ended March 31, 2023 and 2022, respectively.

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

Schedule of future maturity of the lease liability
Years Ended December 31,
2023 (9 months)	$	279,512
2024		372,684
2025		93,174
Total		745,370
Less: Unamortized discount		(175,281	)
Total amount due to landlord		570,089
Less: current portion of amount due to landlord, net of discount		(244,532	)
Total long-term portion of amount due to landlord	$	325,557

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) 2,497,220 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.

Schedule of recognized identified assets acquired and liabilities assumed
Purchase Price:
Cash paid at closing, net of cash acquired	$	3,828,972
Common stock		2,597,111
Series B Preferred Stock		3,712,500
Series C Preferred Stock		667,947
Contingent consideration-Make Whole***		2,397,329
Contingent consideration-Earnout		4,046,232
Total Purchase Price, net of cash acquired		17,250,091
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		(936,448	)
Deferred revenue		(18,482	)
Total Liabilities Assumed		(954,930	)
Net Assets Acquired		11,310,819
Excess Purchase Price "Goodwill"	$	5,939,272

***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). As a result of the make-whole provision, the liability was increased to $2,796,889 as of March 31, 2023 with the change in fair market value of $399,555 being recorded to other expense within the consolidated statements of operations.

The excess purchase price has been recorded as goodwill in the amount of approximately $5,603,818. The goodwill is amortizable for tax purposes.

On January 26, 2023, the Company also 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) 1,377,777 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.

Schedule of recognized identified assets acquired and liabilities assumed
Purchase Price:
Cash paid at closing, net of cash acquired	$	286,742
Common stock		1,432,889
Series C Preferred Stock		396,042
Contingent considerations - Make Whole***		1,322,665
Contingent considerations - Earnout		10,609,442
Total Purchase Price, net of cash acquired		14,047,780
Assets Acquired:
Accounts receivable, net		1,461,461
Inventory		1,925,285
Other current assets		232,095
Vendor deposits		375,672
Costs and estimated earnings in excess of billings		533,638
Fixed assets, net		106,330
Tradenames/trademarks		1,806,000
Technology/know-how/trade secrets		1,169,193
Vendor relationships		1,416,000
Rebate program		1,894,703
Customer relationships		2,088,000
Other non-current assets		24,819
Total Assets Acquired:		13,033,196
Liabilities Assumed:
Accounts payable and accrued expenses		(2,854,509	)
Deferred revenue		(2,279,616	)
Notes payable		(1,973,946	)
Financing lease liability		(25,231	)
Total Liabilities Assumed		(7,133,302	)
Net Assets Acquired		5,899,894
Excess Purchase Price "Goodwill"	$	8,147,886

***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). As a result of the make-whole provision, the liability was increased to $1,543,110 as of March 31, 2023 with the change in fair market value of $220,444 being recorded to other expense within the consolidated statements of operations.

The excess purchase price has been recorded as goodwill in the amount of approximately $7,622,091. The goodwill is amortizable for tax purposes.