The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated
financial statements of 1847 Holdings LLC (the “Company,” “we,” “us,” or “our”) have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim
financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required
by GAAP for complete financial statements. The December 31, 2022 consolidated balance sheet data was derived from audited financial statements
but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information
disclosed in the notes to the consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual
Report on Form 10-K, as filed with the Securities and Exchange Commission on April 11, 2023. The interim unaudited condensed consolidated
financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion
of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring
adjustments, have been made. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2023.
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact
of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). The
Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company
has not had or is not expected to have a material impact on the Company’s condensed consolidated financial statements.
NOTE 3—LIQUIDITY AND GOING CONCERN ASSESSMENT
Management assesses liquidity and going concern
uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and
working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated
financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in
GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various
scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash
expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary,
among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments
or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved
and management has the proper authority to execute them within the look-forward period.
As of March 31, 2023, the Company had cash and
cash equivalents of $2,297,927. For the three months ended March 31, 2023, the Company incurred a loss from operations of $77,833 (before
deducting losses attributable to non-controlling interests), cash flows used in operations of $1,851,766, and working capital deficit
of $1,235,919. The Company has generated operating losses since its inception and has relied on cash on hand, sales of securities, external
bank lines of credit, and issuance of third-party and related party debt to support cashflow from operations, which creates substantial
doubt about its ability to continue as a going concern for a period at least one year from the date of issuance of these condensed consolidated
financial statements.
Management plans to address the above as needed
by, securing additional bank lines of credit and obtaining additional financing through debt or equity transactions. Management has implemented
tight cost controls to conserve cash.
The ability of the Company to continue as a going
concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and to eventually attain
profitable operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease
operations.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
NOTE 4—DISAGGREGATION OF REVENUES AND
SEGMENT REPORTING
The Company has four reportable segments:
The Retail and Appliances Segment provides a wide
variety of appliance products (laundry, refrigeration, cooking, dishwashers, outdoor, accessories, parts, and other appliance related
products) and services (delivery, installation, service and repair, extended warranties, and financing).
The Retail and Eyewear Segment provides a wide
variety of eyewear products (non-prescription reading glasses, sunglasses, blue light blocking eyewear, sun readers and outdoor specialty
sunglasses).
The Construction Segment provides finished carpentry
products and services (door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, fireplace
mantles, windows, and custom design and build of cabinetry and countertops).
The Automotive Supplies Segment provides horn
and safety products (electric, air, truck, marine, motorcycle, and industrial equipment), and offers vehicle emergency and safety warning
lights for cars, trucks, industrial equipment, and emergency vehicles.
The Company provides general corporate services
to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services
are reported under “Corporate Services” below and these include costs associated with executive management, financing activities
and public company compliance.
The Company’s revenues for the three months
ended March 31, 2023 and 2022 are disaggregated as follows:
| |
Three Months Ended March 31, 2023 | |
| |
Retail and
Appliances | | |
Retail and
Eyewear | | |
Construction | | |
Automotive
Supplies | | |
Total | |
Revenues | |
| | |
| | |
| | |
| | |
| |
Appliances | |
$ | 2,144,825 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,144,825 | |
Appliance accessories, parts, and other | |
| 293,110 | | |
| - | | |
| - | | |
| - | | |
| 293,110 | |
Eyewear | |
| - | | |
| 2,792,712 | | |
| - | | |
| - | | |
| 2,792,712 | |
Automotive horns | |
| - | | |
| - | | |
| - | | |
| 995,417 | | |
| 995,417 | |
Automotive lighting | |
| - | | |
| - | | |
| - | | |
| 264,749 | | |
| 264,749 | |
Custom cabinets and countertops | |
| - | | |
| - | | |
| 2,116,182 | | |
| - | | |
| 2,116,182 | |
Finished carpentry | |
| - | | |
| - | | |
| 6,796,543 | | |
| - | | |
| 6,796,543 | |
Total Revenues | |
$ | 2,437,935 | | |
$ | 2,792,712 | | |
$ | 8,912,725 | | |
$ | 1,260,166 | | |
$ | 15,403,538 | |
| |
Three Months Ended March 31, 2022 | |
| |
Retail and
Appliances | | |
Retail and
Eyewear | | |
Construction | | |
Automotive
Supplies | | |
Total | |
Revenues | |
| | |
| | |
| | |
| | |
| |
Appliances | |
$ | 2,204,625 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,204,625 | |
Appliance accessories, parts, and other | |
| 316,159 | | |
| - | | |
| - | | |
| - | | |
| 316,159 | |
Eyewear | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Automotive horns | |
| - | | |
| - | | |
| - | | |
| 1,199,856 | | |
| 1,199,856 | |
Automotive lighting | |
| - | | |
| - | | |
| - | | |
| 442,135 | | |
| 442,135 | |
Custom cabinets and countertops | |
| - | | |
| - | | |
| 4,167,801 | | |
| - | | |
| 4,167,801 | |
Finished carpentry | |
| - | | |
| - | | |
| 3,743,302 | | |
| - | | |
| 3,743,302 | |
Total Revenues | |
$ | 2,520,784 | | |
$ | - | | |
$ | 7,911,103 | | |
$ | 1,641,991 | | |
$ | 12,073,878 | |
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Segment information for the three months ended
March 31, 2023 and 2022 are as follows:
| |
Three Months Ended March 31, 2023 | |
| |
Retail and
Appliances | | |
Retail and
Eyewear | | |
Construction | | |
Automotive
Supplies | | |
Corporate
Services | | |
Total | |
Revenues | |
$ | 2,437,935 | | |
$ | 2,792,712 | | |
$ | 8,912,725 | | |
$ | 1,260,166 | | |
$ | - | | |
$ | 15,403,538 | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 1,813,783 | | |
| 1,667,442 | | |
| 5,375,027 | | |
| 710,256 | | |
| - | | |
| 9,566,508 | |
Personnel | |
| 273,204 | | |
| 806,644 | | |
| 1,771,936 | | |
| 332,320 | | |
| (157,911 | ) | |
| 3,026,193 | |
Depreciation and amortization | |
| 46,603 | | |
| 62,078 | | |
| 412,989 | | |
| 51,939 | | |
| - | | |
| 573,609 | |
General and administrative | |
| 425,601 | | |
| 177,803 | | |
| 1,093,322 | | |
| 337,233 | | |
| 281,102 | | |
| 2,315,061 | |
Total Operating Expenses | |
| 2,559,191 | | |
| 2,713,967 | | |
| 8,653,274 | | |
| 1,431,748 | | |
| 123,191 | | |
| 15,481,371 | |
Income (loss) from operations | |
$ | (121,256 | ) | |
$ | 78,745 | | |
$ | 259,451 | | |
$ | (171,582 | ) | |
$ | (123,191 | ) | |
$ | (77,833 | ) |
| |
Three Months Ended March 31, 2022 | |
| |
Retail and Appliances | | |
Retail and Eyewear | | |
Construction | | |
Automotive Supplies | | |
Corporate Services | | |
Total | |
Revenues | |
$ | 2,520,784 | | |
$ | - | | |
$ | 7,911,103 | | |
$ | 1,641,991 | | |
$ | - | | |
$ | 12,073,878 | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 1,871,450 | | |
| - | | |
| 4,879,591 | | |
| 998,089 | | |
| - | | |
| 7,749,130 | |
Personnel | |
| 230,388 | | |
| - | | |
| 1,134,210 | | |
| 300,328 | | |
| (87,226 | ) | |
| 1,577,700 | |
Depreciation and amortization | |
| 79,797 | | |
| - | | |
| 379,704 | | |
| 51,870 | | |
| - | | |
| 511,371 | |
General and administrative | |
| 449,494 | | |
| - | | |
| 1,116,558 | | |
| 386,781 | | |
| 213,374 | | |
| 2,166,207 | |
Total Operating Expenses | |
| 2,631,129 | | |
| - | | |
| 7,510,063 | | |
| 1,737,068 | | |
| 126,148 | | |
| 12,004,408 | |
Income (loss) from operations | |
$ | (110,345 | ) | |
$ | - | | |
$ | 401,040 | | |
$ | (95,077 | ) | |
$ | (126,148 | ) | |
$ | 69,470 | |
NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2023 and December
31, 2022 consisted of the following:
| |
March 31,
2023 | | |
December 31, 2022 | |
Equipment and machinery | |
$ | 1,403,817 | | |
$ | 1,403,817 | |
Office furniture and equipment | |
| 156,960 | | |
| 156,960 | |
Transportation equipment | |
| 883,077 | | |
| 883,077 | |
Displays | |
| 595,841 | | |
| - | |
Leasehold improvements | |
| 180,032 | | |
| 166,760 | |
Total property and equipment | |
| 3,219,727 | | |
| 2,610,614 | |
Less: Accumulated depreciation | |
| (934,325 | ) | |
| (725,408 | ) |
Property and equipment, net | |
$ | 2,285,402 | | |
$ | 1,885,206 | |
Depreciation expense for the three months ended
March 31, 2023 and 2022 was $208,917 and $146,679, respectively.
NOTE 6—INTANGIBLE ASSETS
Intangible assets at March 31, 2023 and December
31, 2022 consisted of the following:
| |
March 31, 2023 | | |
December 31, 2022 | |
Customer relationships | |
$ | 9,024,000 | | |
$ | 9,024,000 | |
Marketing-related | |
| 2,992,000 | | |
| 2,684,000 | |
Technology-related | |
| 623,000 | | |
| 623,000 | |
Total intangible assets | |
| 12,639,000 | | |
| 12,331,000 | |
Less: accumulated amortization | |
| (2,710,563 | ) | |
| (2,345,871 | ) |
Intangible assets, net | |
$ | 9,928,437 | | |
$ | 9,985,129 | |
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Amortization expense for the three months ended
March 31, 2023 and 2022 was $364,692, respectively.
Estimated amortization expense for intangible
assets for the next five years consists of the following as of March 31, 2023:
Year Ending December 31, | |
Amount | |
2023 - remaining | |
$ | 1,094,076 | |
2024 | |
| 1,458,768 | |
2025 | |
| 1,325,778 | |
2026 | |
| 1,150,640 | |
2027 | |
| 909,142 | |
Thereafter | |
| 3,990,032 | |
Total | |
$ | 9,928,437 | |
NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables
Receivables at March 31, 2023 and December 31,
2022 consisted of the following:
| |
March 31, 2023 | | |
December 31, 2022 | |
Trade accounts receivable | |
$ | 6,953,068 | | |
$ | 4,867,749 | |
Vendor rebates receivable | |
| 3,260 | | |
| 460 | |
Credit card payments in process of settlement | |
| 160,353 | | |
| 102,917 | |
Retainage | |
| 724,025 | | |
| 603,442 | |
Total receivables | |
| 7,840,706 | | |
| 5,574,568 | |
Allowance for doubtful accounts | |
| (359,000 | ) | |
| (359,000 | ) |
Total receivables, net | |
$ | 7,481,706 | | |
$ | 5,215,568 | |
Inventories
Inventories at March 31, 2023 and December 31,
2022 consisted of the following:
| |
March 31, 2023 | | |
December 31, 2022 | |
Appliances | |
$ | 1,972,631 | | |
$ | 2,155,839 | |
Eyewear | |
| 9,768,324 | | |
| - | |
Automotive | |
| 1,042,267 | | |
| 934,683 | |
Construction | |
| 1,706,563 | | |
| 1,519,345 | |
Total inventories | |
| 14,489,785 | | |
| 4,609,867 | |
Less reserve for obsolescence | |
| (425,848 | ) | |
| (425,848 | ) |
Total inventories, net | |
$ | 14,033,937 | | |
$ | 4,184,019 | |
Inventory balances are composed of finished goods.
Raw materials and work in process inventory are immaterial to the condensed consolidated financial statements.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Accounts payable and accrued expenses
Accounts payable and accrued expenses at March
31, 2023 and December 31, 2022 consisted of the following:
| |
March 31, 2023 | | |
December 31, 2022 | |
Trade accounts payable | |
$ | 8,555,914 | | |
$ | 4,129,393 | |
Credit cards payable | |
| 57,090 | | |
| 357,964 | |
Accrued payroll liabilities | |
| 898,781 | | |
| 824,369 | |
Accrued interest | |
| 1,891,786 | | |
| 1,179,875 | |
Accrued dividends | |
| 97,568 | | |
| 136,052 | |
Other accrued liabilities | |
| 965,312 | | |
| 114,116 | |
Total accounts payable and accrued expenses | |
$ | 12,466,451 | | |
$ | 6,741,769 | |
NOTE 8—LEASES
Operating Leases
The following was included in the condensed consolidated
balance sheets at March 31, 2023 and December 31, 2022:
| |
March 31, 2023 | | |
December 31, 2022 | |
Operating lease right-of-use assets | |
$ | 2,668,680 | | |
$ | 2,854,196 | |
Lease liabilities, current portion | |
| 718,868 | | |
| 713,100 | |
Lease liabilities, long-term | |
| 2,052,170 | | |
| 2,237,797 | |
Total operating lease liabilities | |
$ | 2,771,038 | | |
$ | 2,950,897 | |
Weighted-average remaining lease term (months) | |
| 44 | | |
| 47 | |
Weighted average discount rate | |
| 4.35 | % | |
| 4.36 | % |
Rent expense for the three months ended March
31, 2023 and 2022 was $340,592 and $235,438, respectively.
As of March 31, 2023, maturities of operating
lease liabilities were as follows:
Year Ending December 31, | |
Amount | |
2023 - remaining | |
$ | 617,178 | |
2024 | |
| 846,987 | |
2025 | |
| 802,413 | |
2026 | |
| 512,756 | |
2027 | |
| 228,889 | |
Thereafter | |
| - | |
Total | |
| 3,008,223 | |
Less: imputed interest | |
| (237,185 | ) |
Total operating lease liabilities | |
$ | 2,771,038 | |
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Finance Leases
As of March 31, 2023, maturities of financing
lease liabilities were as follows:
Year Ending December 31, | |
Amount | |
2023 - remaining | |
$ | 176,013 | |
2024 | |
| 218,099 | |
2025 | |
| 211,332 | |
2026 | |
| 211,332 | |
2027 | |
| 210,042 | |
Thereafter | |
| 28,833 | |
Total | |
| 1,055,651 | |
Less: amount representing interest | |
| (131,229 | ) |
Present value of minimum lease payments | |
$ | 924,422 | |
As of March 31, 2023, the weighted-average remaining
lease term for all finance leases is 4.80 years.
NOTE 9—BUSINESS COMBINATIONS
ICU Eyewear
On December 21, 2022, the Company’s newly
formed wholly owned subsidiaries 1847 ICU Holdings Inc. (“1847 ICU”) and 1847 ICU Acquisition Sub Inc. entered into an agreement
and plan of merger with ICU Eyewear Holdings, Inc. (“ICU Eyewear”) and San Francisco Equity Partners, as the stockholder representative,
which was amended on February 9, 2023.
On February 9, 2023, closing of the transactions
contemplated by the agreement and plan of merger was completed. Pursuant to the agreement and plan of merger, 1847 ICU Acquisition Sub
Inc. merged with and into ICU Eyewear, with ICU Eyewear surviving the merger as a wholly owned subsidiary of 1847 ICU. The merger consideration
paid by 1847 ICU to the stockholders of ICU Eyewear consists of (i) $4,000,000 in cash, minus any unpaid debt of ICU Eyewear and certain
transaction expenses, and (ii) 6% subordinated promissory notes in the aggregate principal amount of $500,000.
The Company accounted for the acquisition using
the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. In accordance with ASC 805, the Company
used its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at
the acquisition date. Goodwill is measured as the excess of the purchase consideration over the fair value of the net tangible assets
and identifiable assets acquired, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase
gain is recorded.
The preliminary fair value of the purchase consideration
issued to the ICU Eyewear stockholders was allocated to the net tangible assets acquired. The preliminary fair value of the net assets
acquired was $7,139,861. The preliminary fair value of the net assets acquired exceeded the purchase consideration, resulting in a bargain
purchase gain of $2,639,861. For the three months ended March 31, 2023, ICU Eyewear contributed revenue of $2,792,712 and net income of
$2,581,437, which are included in our condensed consolidated statements of operations for the three months ended March 31, 2023.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
The table below represents the estimated preliminary
purchase price allocation to the net assets acquired:
Provisional purchase consideration at preliminary fair value: | |
| |
Cash | |
$ | 4,000,000 | |
Notes payable | |
| 500,000 | |
Amount of consideration | |
$ | 4,500,000 | |
| |
| | |
Assets acquired and liabilities assumed at preliminary fair value | |
| | |
Cash | |
$ | 329,113 | |
Accounts receivable | |
| 1,922,052 | |
Inventory | |
| 9,997,332 | |
Prepaids and other current assets | |
| 79,777 | |
Property and equipment | |
| 545,670 | |
Other assets | |
| 74,800 | |
Marketing related intangibles | |
| 308,000 | |
Accounts payable and accrued expenses | |
| (6,116,883 | ) |
Net tangible assets acquired | |
$ | 7,139,861 | |
| |
| | |
Consideration paid | |
| 4,500,000 | |
Preliminary gain on bargain purchase | |
$ | (2,639,861 | ) |
Pro Forma Information
The following unaudited pro forma results presented
below include the effects of the ICU Eyewear acquisition as if it had been consummated as of January 1, 2022, with adjustments to give
effect to pro forma events that are directly attributable to this acquisition.
| |
Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
Revenues | |
$ | 17,479,875 | | |
$ | 18,561,294 | |
Net loss | |
| 1,027,971 | | |
| (441,479 | ) |
Net loss attributable to common shareholders | |
| (904,841 | ) | |
| (522,516 | ) |
Loss per share attributable to common shareholders: | |
| | | |
| | |
Basic | |
$ | (0.20 | ) | |
$ | (0.11 | ) |
Diluted | |
$ | (0.20 | ) | |
$ | (0.11 | ) |
These unaudited pro forma results are presented
for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisitions
had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
NOTE 10—NOTES PAYABLE
6% Subordinated Promissory Notes
As part of the consideration paid in the acquisition
of ICU Eyewear, 1847 ICU issued the sellers 6% subordinated promissory notes in the aggregate principal amount of $500,000. The notes
bear interest at the rate of 6% per annum with all principal and accrued interest being due and payable in one lump sum on February 9,
2024; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. 1847 ICU may prepay
all or any portion of the notes at any time prior to the maturity date without premium or penalty of any kind. The notes contain customary
events of default, including, without limitation, in the event of (i) non-payment, (ii) a default by 1847 ICU of any of its covenants
in the notes, the agreement and plan of merger or any other agreement entered into in connection with the agreement and plan of merger,
or a breach of any of the representations or warranties under such documents, (iii) the insolvency or bankruptcy of 1847 ICU or ICU Eyewear
or (iv) a change of control (as defined in the notes) of 1847 ICU or ICU Eyewear. The notes are unsecured and subordinated to all senior
indebtedness.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Revolving Line of Credit
On February 9, 2023, 1847 ICU and ICU Eyewear
entered into a loan and security agreement with Industrial Funding Group, Inc. for a revolving loan of up to $5,000,000, which is evidenced
by a secured promissory note in the principal amount of up to $5,000,000. On February 9, 2023, 1847 ICU received an advance of $2,063,182
under the note, of which $1,963,182 was used to repay certain debt of ICU Eyewear in connection with the agreement and plan of merger,
with the remaining $100,000 used to pay lender fees. On February 11, 2023, the Industrial Funding Group, Inc. sold and assigned the loan
and security agreement, the note and related loan documents to GemCap Solutions, LLC.
The note matures on February 9, 2025 with all
advances bearing interest at an annual rate equal to the greater of (i) the sum of (a) the “Prime Rate” as reported in the
“Money Rates” column of The Wall Street Journal, adjusted as and when such prime rate changes, plus (b) eight percent (8.00%),
and (ii) fifteen percent (15.00%); provided that following and during the continuation of an event of default (as defined in the loan
and security agreement), interest on the unpaid principal balance of the advances shall accrue at an annual rate equal to such rate plus
three percent (3.00%). Interest accrued on the advances shall be payable monthly commencing on March 7, 2023. The borrowers may voluntarily
prepay the entire unpaid principal amount of the note without premium or penalty; provided that in the event that we make such prepayment
on or before February 9, 2024, then the borrowers must pay certain fees set forth in the note. The note is secured by all of the assets
of 1847 ICU and ICU Eyewear.
The loan and security agreement contains customary
representations, warranties and affirmative and negative financial and other covenants for loans of this type. The loan and security agreement
contains customary events of default, including, among others: (i) for failure to pay principal and interest on the note when due, or
to pay any fees due under the loan and security agreement; (ii) for failure to perform any covenant or agreement contained in the loan
and security agreement or any document delivered in connection therewith; (iii) if any statement, representation or warranty in the loan
and security agreement or any document delivered in connection therewith is at any time found to have been false in any material respect
at the time such representation or warranty was made; (iv) if the borrowers default under any agreement or contract with a third party
which default would result in a liability to us in excess of $25,000; (v) for any voluntary or involuntary bankruptcy, insolvency, or
dissolution or assignment to creditors; (vi) if any judgments or attachments aggregating in excess of $10,000 at any given time are obtained
against the borrowers which remain unstayed for a period of ten (10) days or are enforced or if there is an indictment under an criminal
statute or proceeding pursuant to which remedies sought may include the forfeiture of any property; (vii) if a material adverse effect
or change of control (each as defined in the loan and security agreement) shall have occurred; (viii) for certain environmental claims;
and (ix) for failure to notify the lender of certain events or failure to deliver certain documentation required by the loan and security
agreement.
Private Placements
On February 3, 2023, the Company entered into
securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors (i) promissory notes
in the aggregate principal amount of $604,000 and (ii) five-year warrants for the purchase of an aggregate of 125,833 common shares at
an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $540,000. As additional consideration, the Company
issued an aggregate of 125,833 common shares to the investors as a commitment fee. Additionally, the Company issued a five-year warrant
to J.H. Darbie & Co (the broker) for the purchase of 892 common shares at an exercise price of $5.25 (subject to adjustment). Accordingly,
a portion of the proceeds were allocated to the warrants and common shares based on their relative fair value using the Geometric Brownian
Motion Stock Path Monte Carlo Simulation (see Note 12).
On February 9, 2023, the Company entered into
securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors (i) promissory notes
in the aggregate principal amount of $2,557,575 and (ii) five-year warrants for the purchase of an aggregate of 532,827 common shares
at an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $2,271,818. As additional consideration, the
Company issued 289,772 common shares to one investor and issued to the other investor a five-year warrant for the purchase of 243,055
common shares at an exercise price of 0.01 per share (subject to adjustment), which were issued as a commitment fee. Additionally, the
Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 11,923 common shares at an exercise price
of $5.25 (subject to adjustment). Accordingly, a portion of the proceeds were allocated to the warrants and common shares based on their
relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation (see Note 12).
On February 22, 2023, the Company entered into
securities purchase agreement with one accredited investor, pursuant to which the Company issued to such investor (i) a promissory note
in the principal amount of $878,000 and (ii) five-year warrants for the purchase of an aggregate of 182,917 common shares at an exercise
price of $4.20 per share (subject to adjustment) for total cash proceeds of $737,700. As additional consideration, the Company issued
a five-year warrant for the purchase of 198,343 common shares at an exercise price of $0.01 per share (subject to adjustment) to the investor
as a commitment fee. Additionally, the Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 7,526
common shares at an exercise price of $5.25 (subject to adjustment). Accordingly, a portion of the proceeds were allocated to the warrants
based on their relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation (see Note 12).
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
In the aggregate, the Company issued promissory
notes in the aggregate principal amount of $4,039,575, warrants for the purchase of an aggregate of 1,303,316 common shares, and 415,605
common shares for net proceeds of $3,549,518.
These notes bear interest at a rate of 12% per
annum and mature on the first anniversary of the date of issuance; provided that any principal amount or interest which is not paid when
due shall bear interest at a rate of the lesser of 16% per annum or the maximum amount permitted by law from the due date thereof until
the same is paid. The notes require monthly payments of principal and interest commencing in May 2023. The Company may voluntarily prepay
the outstanding principal amount and accrued interest of each note in whole upon payment of certain prepayment fees. In addition, if at
any time the Company receives cash proceeds from any source or series of related or unrelated sources, including, but not limited to,
the issuance of equity or debt, the exercise of outstanding warrants, the issuance of securities pursuant to an equity line of credit
(as defined in the notes) or the sale of assets outside of the ordinary course of business, each holder shall have the right in its sole
discretion to require the Company to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding principal
amount and interest then due under the notes. The notes are unsecured and have priority over all other unsecured indebtedness. The notes
contain customary affirmative and negative covenants and events of default for a loan of this type.
The notes become convertible into common shares
at the option of the holders at any time on or following the date that an event of default (as defined in the notes) occurs under the
notes at a conversion price equal the lower of (i) $4.20 (subject to adjustments) and (ii) 80% of the lowest volume weighted average price
of the common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such conversion price
shall not be less than $0.03 (subject to adjustments).
Purchase and Sale of Future Receivables
Agreement
On March 31, 2023, the Company and its subsidiary
1847 Cabinet Inc. (“1847 Cabinet”) entered into a non-recourse funding agreement with a third-party for the sale of future
receivables totaling $1,965,000 for net cash proceeds of $1,410,000. The Company is required to make weekly ACH payments in the amount
of $39,300. The agreement also allows for the third-party to file UCCs securing their interest in the receivables and includes customary
events of default.
The Company recorded a debt discount of $555,000,
which will be amortized under the effective interest method. The Company is utilizing the prospective method to account for subsequent
changes in the estimated future payments, whereby if there is a change in the estimated future cash flows, a new effective interest rate
is determined based on the revised estimate of remaining cash flows. As of March 31, 2023 the effective interest rate was approximately
72%.
NOTE 11—RELATED PARTIES
Related Party Notes Payable
On September 30, 2020, a portion of the purchase
price for the acquisition of Kyle’s Custom Wood Shop, Inc. (“Kyle’s”) was paid by the issuance of a promissory
note by 1847 Cabinet to the sellers in the principal amount of $1,260,000. Payment of the principal and accrued interest on the note was
subject to vesting. As of December 31, 2021, the vested principal and accrued interest balance of the related party note was $1,001,183
and $103,156, respectively.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
On July 26, 2022, the Company and 1847 Cabinet
entered into a conversion agreement with sellers, pursuant to which they agreed to convert $797,221 of the vesting note into 189,815 common
shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of
$303,706. Pursuant to the conversion agreement, the note was cancelled, and the Company agreed to pay $558,734 to the sellers no later
than October 1, 2022.
On March 30, 2023, the Company entered into an
amendment to the conversion agreement, effective retroactively to October 1, 2022. Pursuant to the amendment, the Company agreed to pay
a total of $642,544 in three monthly payments commencing on April 5, 2023.
Management Services Agreement
On April 15, 2013, the Company and 1847 Partners
LLC (the “Manager”) entered into a management services agreement, pursuant to which the Company is required to pay the Manager
a quarterly management fee equal to 0.5% of its adjusted net assets for services performed (the “Parent Management Fee”).
The amount of the Parent Management Fee with respect to any fiscal quarter is (i) reduced by the aggregate amount of any management fees
received by the Manager under any offsetting management services agreements with respect to such fiscal quarter, (ii) reduced (or increased)
by the amount of any over-paid (or under-paid) Parent Management Fees received by (or owed to) the Manager as of the end of such fiscal
quarter, and (iii) increased by the amount of any outstanding accrued and unpaid Parent Management Fees. The Company expensed $0 in Parent
Management Fees for the three months ended March 31, 2023 and 2022.
Offsetting Management Services Agreements
The Company’s subsidiary 1847 Asien Inc.
(“1847 Asien”) entered into an offsetting management services agreement with the Manager on May 28, 2020, 1847 Cabinet entered
into an offsetting management services agreement with the Manager on August 21, 2020 (which was amended and restated on October 8, 2021),
the Company’s subsidiary 1847 Wolo Inc. (“1847 Wolo”) entered into an offsetting management services agreement with
the Manager on March 30, 2021 and 1847 ICU entered into an offsetting management services agreement with the Manager on February 9, 2023.
Pursuant to the offsetting management services agreements, each of 1847 Asien, 1847 Wolo and 1847 ICU appointed the Manager to provide
certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the
management services agreement) and 1847 Cabinet appointed the Manager to provide certain services to it for a quarterly management fee
equal to the greater of $125,000 or 2% of adjusted net assets (as defined in the management services agreement); provided, however, in
each case that if the aggregate amount of management fees paid or to be paid by such entities, together with all other management fees
paid or to be paid to the Manager under other offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of the
Company’s gross income in any fiscal year or the Parent Management Fee in any fiscal quarter, then the management fee to be paid
by such entities shall be reduced, on a pro rata basis determined by reference to the other management fees to be paid to the Manager
under other offsetting management services agreements.
1847 Asien expensed management fees of $75,000
and for the three months ended March 31, 2023 and 2022.
1847 Cabinet expensed management fees of $125,000
and for the three months ended March 31, 2023 and 2022.
1847 Wolo expensed management fees of $75,000
and for the three months ended March 31, 2023 and 2022.
1847 ICU expensed management fees of $0 and for
the three months ended March 31, 2023.
On a consolidated basis, the Company expensed
total management fees of $275,000 for the three months ended March 31, 2023 and 2022.
Advances
From time to time, the Company has received advances
from its chief executive officer to meet short-term working capital needs. As of March 31, 2023 and December 31, 2022, a total of $118,834
in advances from related parties are outstanding. These advances are unsecured, bear no interest, and do not have formal repayment terms
or arrangements.
As of March 31, 2023 and December 31, 2022, the
Manager has funded the Company $74,928 in related party advances. These advances are unsecured, bear no interest, and do not have formal
repayment terms or arrangements.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Building Lease
On September 1, 2020, Kyle’s entered into
an industrial lease agreement with Stephen Mallatt, Jr. and Rita Mallatt, the sellers of Kyle’s, who are officers of Kyle’s
and principal shareholders of the Company. The lease is for a term of five years, with an option for a renewal term of five years and
provides for a base rent of $7,000 per month for the first 12 months, which will increase to $7,210 for months 13-16 and to $7,426 for
months 37-60. In addition, Kyle’s is responsible for all taxes, insurance and certain operating costs during the lease term.
The total rent expense under this related party
lease was $21,777 for the three months ended March 31, 2023 and 2022.
NOTE 12—SHAREHOLDERS’ EQUITY (DEFICIT)
Series A Senior Convertible Preferred Shares
During the three months ended March 31 2023, the
Company accrued dividends attributable to the series A senior convertible preferred shares in the amount of $110,045 and settled $152,668
of previously accrued dividends through the issuance of common shares (see below).
As of March 31, 2023 and December 31, 2022, the
Company had 1,593,940 series A senior convertible preferred shares issued and outstanding.
Series B Senior Convertible Preferred Shares
During the three months ended March 31 2023, the
Company accrued dividends attributable to the series B senior convertible preferred shares in the amount of $52,820 and paid $48,681 of
previously accrued dividends.
As of March 31, 2023 and December 31, 2022, the
Company had 464,899 series B senior convertible preferred shares issued and outstanding.
Common Shares
As of March 31, 2023 and December 31, 2022, the
Company was authorized to issue 500,000,000 common shares. As of March 31, 2023 and December 31, 2022, the Company had 4,655,636 and 4,079,137
common shares issued and outstanding, respectively.
On January 30, 2023, the Company issued an aggregate
of 99,505 common shares to the holders of the series A senior convertible preferred shares, in settlement of $152,668 of accrued dividends.
Pursuant to the series A senior convertible preferred shares designations, dividends payable in common shares shall be calculated based
on a price equal to eighty percent (80%) of the volume weighted average price for the common shares on the Company’s principal trading
market during the five (5) trading days immediately prior to the applicable dividend payment date.
On February 3, 2023 and February 9, 2023, the
Company issued an aggregate of 415,605 common shares to two accredited investors as a commitment fee (see Note 10).
On February 13, 2023, the Company issued 61,389
common shares upon the cashless exercises of warrants.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Warrants
On January 3, 2023, the Company issued warrants
for the purchase of 407,872 common shares as a dividend to common shareholders of record as of December 23, 2022 pursuant to a warrant
agent agreement, dated January 3, 2023, with VStock Transfer, LLC. Each holder of common shares received a warrant to purchase one (1)
common share for every ten (10) common shares owned as of the record date (with the number of shares underlying the warrant received rounded
down to the nearest whole number). Each warrant represents the right to purchase common shares at an initial exercise price of $4.20 per
share (subject to certain adjustments as set forth in the warrants). The Company may, at its option, voluntarily reduce the then-current
exercise price to such amount and for such period or periods of time which may be through the expiration date as may be deemed appropriate
by the board of directors. Cashless exercises of the warrants are not permitted.
The warrants will generally be exercisable in
whole or in part beginning on the later of (i) January 3, 2024 or (ii) the date that a registration statement on Form S-3 with respect
to the issuance and registration of the common shares underlying the warrants has been filed with and declared effective by the SEC, and
thereafter until January 3, 2026.
The Company may redeem the warrants at any time
in whole or in part at $0.001 per warrant (subject to equitable adjustment to reflect share splits, share dividends, share combinations,
recapitalizations and like occurrences) upon not less than 30 days’ prior written notice to the registered holders of the warrants.
As a result of the issuance of warrants as a dividend to common shareholders,
the Company recognized a deemed dividend of approximately $0.6 million, which was calculated using a Black-Scholes pricing model.
On February 3, 2023 (as described in Note 10),
the Company entered into securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors
(i) promissory notes in the aggregate principal amount of $604,000 and (ii) five-year warrants for the purchase of an aggregate of 125,833
common shares at an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $540,000. As additional consideration,
the Company issued an aggregate of 125,833 common shares to the investors as a commitment fee. Additionally, the Company issued a five-year
warrant to J.H. Darbie & Co (the broker) for the purchase of 892 common shares at an exercise price of $5.25 (subject to adjustment).
Accordingly, a portion of the proceeds were allocated to the warrants and common shares based on their relative fair value using the Geometric
Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected
volatility of 162.3%; (iii) weighted average risk-free interest rate of 4.1%; (iv) expected life of five years; (v) estimated fair value
of the common shares of $1.93 per share; (vi) exercise price ranging from $4.20 to $5.25; and (vii) various probability assumptions related
to down round price adjustments. The fair value of the warrants was $222,129 and the fair value of the commitment shares was $242,858,
resulting in the amount allocated to the warrants and commitment shares, based on their relative fair value of $218,172, which was recorded
as additional paid-in capital.
On February 9, 2023 (as described in Note 10),
the Company entered into securities purchase agreements with two accredited investors, pursuant to which the Company issued to such investors
(i) promissory notes in the aggregate principal amount of $2,557,575 and (ii) five-year warrants for the purchase of an aggregate of 532,827
common shares at an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $2,271,818. As additional consideration,
the Company issued 289,772 common shares to one investor and issued to the other investor a five-year warrant for the purchase of 243,055
common shares at an exercise price of 0.01 per share (subject to adjustment), which were issued as a commitment fee. Additionally, the
Company issued a five-year warrant to J.H. Darbie & Co (the broker) for the purchase of 11,923 common shares at an exercise price
of $5.25 (subject to adjustment). Accordingly, a portion of the proceeds were allocated to the warrants and common shares based on their
relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows:
(i) dividend yield of 0%; (ii) expected volatility of 162.0%; (iii) weighted average risk-free interest rate of 4.3%; (iv) expected life
of five years; (v) estimated fair value of the common shares of $1.80 per share; (vi) exercise price ranging from $0.01 to $5.25; and
(vii) various probability assumptions related to down round price adjustments. The fair value of the warrants was $1,323,774 and the fair
value of the commitment shares was $521,590, resulting in the amount allocated to the warrants and commitment shares, based on their relative
fair value of $879,829, which was recorded as additional paid-in capital.
On February 22, 2023 (as described in Note 10),
the Company entered into securities purchase agreement with one accredited investor, pursuant to which the Company issued to such investor
(i) a promissory note in the aggregate principal amount of $878,000 and (ii) five-year warrants for the purchase of an aggregate of 182,917
common shares at an exercise price of $4.20 per share (subject to adjustment) for total cash proceeds of $737,700. As additional consideration,
the Company issued five-year warrants for the purchase of an aggregate of 198,343 common shares at an exercise price of $0.01 per share
(subject to adjustment) to the investor as a commitment fee. Additionally, the Company issued a five-year warrant to J.H. Darbie &
Co (the broker) for the purchase of 7,526 common shares at an exercise price of $5.25 (subject to adjustment). Accordingly, a portion
of the proceeds were allocated to the warrants based on their relative fair value using the Geometric Brownian Motion Stock Path Monte
Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 161.6%; (iii)
weighted average risk-free interest rate of 4.5%; (iv) expected life of five years; (v) estimated fair value of the common shares of $1.51
per share; (vi) exercise price ranging from $0.01 to $5.25; and (vii) various probability assumptions related to down round price adjustments.
The fair value of the warrants was $556,485, resulting in the amount allocated to the warrants, based on their relative fair value of
$261,945, which was recorded as additional paid-in capital.
As a result of the issuance of common shares in settlement of series
A senior convertible preferred shares accrued dividends on January 30, 2023, the exercise price of certain of the Company’s outstanding
warrants was adjusted to $1.53 pursuant to certain antidilution provisions of such warrants (down round feature). As a result, the Company
recognized a deemed dividend of approximately $1.2 million, which was calculated using a Black-Scholes pricing model.
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Below is a table summarizing the changes in warrants
outstanding during the three months ended March 31, 2023:
| |
Warrants | | |
Weighted- Average Exercise Price | |
Outstanding at December 31, 2022 | |
| 3,068,919 | | |
$ | 4.14 | |
Granted | |
| 1,711,188 | | |
| 3.13 | |
Exercised | |
| (62,500 | ) | |
| (0.04 | ) |
Outstanding at March 31, 2023 | |
| 4,717,607 | | |
$ | 2.11 | |
Exercisable at March 31, 2023 | |
| 4,309,735 | | |
$ | 1.92 | |
As of March 31, 2023, the outstanding warrants
have a weighted average remaining contractual life of 2.31 years and a total intrinsic value of $432,570.
NOTE 13—EARNINGS (LOSS) PER SHARE
The computation of weighted average shares outstanding
and the basic and diluted loss per common share attributable to common shareholders for the three months ended March 31, 2023 and 2022
consisted of the following:
|
|
Three Months Ended
March 31, |
|
|
|
2023 |
|
|
2022 |
|
Net loss attributable to common shareholders’ |
|
$ |
(885,331 |
) |
|
$ |
(1,008,245 |
) |
|
|
|
|
|
|
|
|
|
Loss per common share attributable to 1847 holdings common shareholders’ |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.20 |
) |
|
$ |
(0.21 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
4,419,917 |
|
|
|
4,915,655 |
|
For the three months ended March 31, 2023, there
were 8,991,587 potential common share equivalents from warrants excluded from the diluted earnings per share calculations as their effect
is anti-dilutive.
For the three months ended March 31, 2022, there
were 5,217,882 potential common share equivalents from warrants, convertible debt, and series A and B convertible preferred shares excluded
from the diluted earnings per share calculations as their effect is anti-dilutive.
NOTE 14—SUBSEQUENT EVENTS
Amendment to 6% Amortizing Promissory Note
On April 6, 2023, 1847 Asien entered into an amendment
to the 6% amortizing promissory note described in Note 12, effective retroactively to October 20, 2022. Pursuant to the amendment, the
parties agreed to extend the maturity date of the note to July 30, 2023 and revised the repayment terms so that the outstanding principal
amount and all accrued interest thereon shall be payable in three payments on April 6, 2023, June 30, 2023 and July 30, 2023. As additional
consideration for entering into the amendment, 1847 Asien also agreed to pay an amendment fee of $84,362 on the maturity date.
Common Share Issuances
On April 30, 2023, the Company issued 187,075
common shares as payment of dividends on the series A senior convertible preferred shares.
On May 10, 2023, the Company issued 232,216 common
shares upon the exercise of warrants.
Amendments to Securities Purchase Agreements
On May 15, 2023, the Company entered into amendments to the securities purchase agreements relating to the series A senior convertible
preferred shares and series B senior convertible preferred shares, pursuant to which the securities purchase agreements were amended to
include a provision requiring the exercise of warrants issued pursuant to such securities purchase agreements for the issuance of a number
of common shares equal to the quotient of (i) eighty percent (80%) of the Black Scholes Value of the warrants divided by (ii) the applicable
exercise price of the warrants. The Company expects to issue a forced exercise notice on May 16, 2023 with the requisite shares being
issued on May 17, 2023. The Company is effecting the forced exercise in part to eliminate the anti-dilution adjustment provisions of the
warrants, including the “exploding” feature of the warrants issued in connection with the series A preferred financing which
would result not just in the exercise price of the warrants being reduced, but in the number of underlying warrant shares being increased
proportionately.