Filed Pursuant to Rule 424(b)(3)
Registration No. 333-249752
Prospectus Supplement No. 1 to Prospectus
dated November 12, 2020
1847
HOLDINGS LLC
7,193,682 Common Shares
____________________________
This Prospectus Supplement No. 1 (this “Supplement”)
relates to the prospectus of 1847 Holdings LLC (which, together with its consolidated subsidiaries, is referred to herein as “we,”
“us,” “our” and “our company”), dated November 12, 2020 (the “Prospectus”), relating
to 7,193,682 of our common shares that may be sold from time to time by the selling shareholders named in the Prospectus. This
Supplement should be read in conjunction with the Prospectus and is qualified by reference to the Prospectus, except to the extent
that the information in this Supplement supersedes the information contained in the Prospectus, and may not be delivered without
the Prospectus.
This Supplement is being filed to include the information set
forth in the following filings with the Securities and Exchange Commission: (i) Quarterly Report on Form 10-Q filed on November
23, 2020; (ii) Current Report on Form 8-K filed on November 27, 2020; (iii) Current Report on Form 8-K filed on December 11, 2020;
and (iv) Current Report on Form 8-K filed on December 29, 2020.
Our common shares are quoted on the OTCQB Market operated by
OTC Markets Group Inc. under the symbol “EFSH.” On December 28, 2020, the last reported sale price of our common shares
on the OTCQB Market was $1.32.
Investing in our common shares involves a high degree of risk.
See “Risk Factors” beginning on page 12 of the Prospectus to read about factors you should consider before you make
an investment decision.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this Prospectus Supplement No.
1 is December 29, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−Q
(Mark One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September
30, 2020
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________
to _____________
Commission File Number: 333-193821
1847 HOLDINGS LLC
|
(Exact name of registrant as specified in its charter)
|
Delaware
|
|
38-3922937
|
(State or other jurisdiction
of incorporation)
|
|
(I.R.S. Employer
Identification No.)
|
590 Madison Avenue, 21st Floor, New York, NY
|
|
10022
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(212) 417-9800
|
(Registrant’s telephone number, including area code)
|
N/A
|
(Former name or former address, if changed since last report)
|
Securities registered pursuant to Section
12(b) of the Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Non-accelerated filer ☒
|
Smaller reporting company ☒
|
|
|
Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 23, 2020, there were 4,444,013 common shares
of the registrant issued and outstanding.
1847 HOLDINGS LLC
Quarterly Report on Form 10-Q
Period Ended September 30, 2020
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
|
ITEM 1.
|
FINANCIAL STATEMENTS.
|
1847 HOLDINGS LLC
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1847 HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
1,001,617
|
|
|
$
|
174,290
|
|
Restricted cash
|
|
|
175,780
|
|
|
|
-
|
|
Accounts receivable, net
|
|
|
950,730
|
|
|
|
591,369
|
|
Inventories, net
|
|
|
2,523,287
|
|
|
|
235,342
|
|
Contract assets
|
|
|
122,016
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
765,509
|
|
|
|
230,690
|
|
Discontinued operations – current assets
|
|
|
18,306,577
|
|
|
|
4,494,402
|
|
TOTAL CURRENT ASSETS
|
|
|
23,845,516
|
|
|
|
5,726,093
|
|
Property and equipment, net
|
|
|
2,628,728
|
|
|
|
3,181,821
|
|
Operating lease right of use assets
|
|
|
891,963
|
|
|
|
565,080
|
|
Goodwill
|
|
|
9,529,938
|
|
|
|
22,166
|
|
Intangible assets, net
|
|
|
971,897
|
|
|
|
14,733
|
|
Deferred tax asset
|
|
|
62,000
|
|
|
|
-
|
|
Other assets
|
|
|
375
|
|
|
|
375
|
|
Discontinued operations – long-term assets
|
|
|
11,328,204
|
|
|
|
9,784,524
|
|
TOTAL ASSETS
|
|
$
|
49,258,621
|
|
|
$
|
19,294,792
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
3,607,827
|
|
|
$
|
1,552,410
|
|
Floor plan payable
|
|
|
-
|
|
|
|
10,581
|
|
Current portion of operating lease liability
|
|
|
131,846
|
|
|
|
63,253
|
|
Advances, related party
|
|
|
185,608
|
|
|
|
43,833
|
|
Due to seller
|
|
|
4,356,162
|
|
|
|
-
|
|
Note payable – related party
|
|
|
56,900
|
|
|
|
119,400
|
|
Notes payable – current portion
|
|
|
1,375,655
|
|
|
|
3,299,364
|
|
Contract liabilities
|
|
|
43,428
|
|
|
|
-
|
|
Customer deposits
|
|
|
3,037,743
|
|
|
|
-
|
|
Current portion of financing lease liability
|
|
|
-
|
|
|
|
358,584
|
|
Discontinued operations – current liabilities
|
|
|
23,205,078
|
|
|
|
11,215,928
|
|
TOTAL CURRENT LIABILITIES
|
|
|
36,000,247
|
|
|
|
16,663,353
|
|
Operating lease liability – long term, net of current portion
|
|
|
760,117
|
|
|
|
501,827
|
|
Notes payable – long term, net of current portion
|
|
|
6,273,741
|
|
|
|
1,025,000
|
|
Deferred tax liability
|
|
|
-
|
|
|
|
62,800
|
|
Accrued expenses – long term, related party
|
|
|
1,246,437
|
|
|
|
905,780
|
|
Financing lease liability, net of current portion
|
|
|
-
|
|
|
|
275,874
|
|
Discontinued operations – long-term liabilities
|
|
|
3,976,825
|
|
|
|
3,858,952
|
|
TOTAL LIABILITIES
|
|
$
|
48,257,367
|
|
|
$
|
23,293,586
|
|
1847 HOLDINGS SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Allocation shares, 1,000 shares issued and outstanding
|
|
|
1,000
|
|
|
|
1,000
|
|
Series A preferred stock, 3,157,895 authorized, 2,189,835 outstanding as of September 30, 2020
|
|
|
2,404,120
|
|
|
|
-
|
|
Subscription receivable
|
|
|
(4,160,686
|
)
|
|
|
-
|
|
Common Shares, 500,000,000 shares authorized, 4,444,013 and 3,165,625 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
|
|
|
4,444
|
|
|
|
3,165
|
|
Additional paid-in capital
|
|
|
7,775,740
|
|
|
|
442,014
|
|
Accumulated deficit
|
|
|
(4,073,346
|
)
|
|
|
(4,402,043
|
)
|
TOTAL 1847 HOLDINGS SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
1,951,272
|
|
|
|
(3,955,864
|
)
|
NON-CONTROLLING INTERESTS
|
|
|
(950,018
|
)
|
|
|
(42,930
|
)
|
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
1,001,254
|
|
|
|
(3,998,794
|
)
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
49,258,621
|
|
|
$
|
19,294,792
|
|
The accompanying notes are an integral
part of these consolidated financial statements
1847 HOLDINGS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
640,695
|
|
|
$
|
742,041
|
|
|
$
|
1,853,721
|
|
|
$
|
2,293,765
|
|
Sales of parts and equipment
|
|
|
1,448,917
|
|
|
|
670,221
|
|
|
|
2,053,964
|
|
|
|
1,523,031
|
|
Furniture and appliances revenue
|
|
|
3,141,313
|
|
|
|
-
|
|
|
|
4,327,294
|
|
|
|
-
|
|
TOTAL REVENUE
|
|
|
5,230,925
|
|
|
|
1,412,262
|
|
|
|
8,234,979
|
|
|
|
3,816,796
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,753,446
|
|
|
|
596,287
|
|
|
|
5,206,229
|
|
|
|
1,369,440
|
|
Personnel costs
|
|
|
626,363
|
|
|
|
520,808
|
|
|
|
1,565,651
|
|
|
|
1,524,033
|
|
Depreciation and amortization
|
|
|
371,593
|
|
|
|
338,112
|
|
|
|
999,107
|
|
|
|
1,015,152
|
|
Fuel
|
|
|
89,169
|
|
|
|
143,658
|
|
|
|
275,368
|
|
|
|
503,923
|
|
General and administrative
|
|
|
1,044,076
|
|
|
|
383,940
|
|
|
|
2,547,165
|
|
|
|
1,180,777
|
|
TOTAL OPERATING EXPENSES
|
|
|
5,884,647
|
|
|
|
1,982,805
|
|
|
|
10,593,520
|
|
|
|
5,593,325
|
|
NET LOSS FROM OPERATIONS
|
|
|
(653,722
|
)
|
|
|
(570,543
|
)
|
|
|
(2,358,541
|
)
|
|
|
(1,776,529
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs
|
|
|
(161,911
|
)
|
|
|
(8,100
|
)
|
|
|
(206,686
|
)
|
|
|
(24,300
|
)
|
Loss on extinguishment of debt
|
|
|
(382,681
|
)
|
|
|
-
|
|
|
|
(382,681
|
)
|
|
|
-
|
|
Interest expense
|
|
|
(101,306
|
)
|
|
|
(140,346
|
)
|
|
|
(337,649
|
)
|
|
|
(401,587
|
)
|
Gain (loss) on sale of property and equipment
|
|
|
16,981
|
|
|
|
-
|
|
|
|
54,748
|
|
|
|
24,224
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
(628,917
|
)
|
|
|
(148,446
|
)
|
|
|
(872,268
|
)
|
|
|
(401,663
|
)
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(1,282,639
|
)
|
|
|
(718,989
|
)
|
|
|
(3,230,809
|
)
|
|
|
(2,178,192
|
)
|
INCOME TAX BENEFIT
|
|
|
117,000
|
|
|
|
395,763
|
|
|
|
444,800
|
|
|
|
655,613
|
|
NET LOSS FROM CONTINUING OPERATIONS
|
|
$
|
(1,165,639
|
)
|
|
$
|
(323,226
|
)
|
|
$
|
(2,786,009
|
)
|
|
$
|
(1,522,579
|
)
|
NET LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(3,661,793
|
)
|
|
$
|
(856,743
|
)
|
|
$
|
(8,963,738
|
)
|
|
$
|
(1,548,389
|
)
|
NET LOSS
|
|
|
(4,827,432
|
)
|
|
|
(1,179,969
|
)
|
|
|
(11,749,747
|
)
|
|
|
(3,070,968
|
)
|
LESS NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
|
|
|
(1,922,849
|
)
|
|
|
(395,258
|
)
|
|
|
(3,930,172
|
)
|
|
|
(1,092,727
|
)
|
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(2,904,583
|
)
|
|
$
|
(784,711
|
)
|
|
$
|
(7,819,575
|
)
|
|
$
|
(1,978,241
|
)
|
DEEMED DIVIDEND RELATED TO ISSUANCE OF PREFERRED STOCK
|
|
$
|
(2,404,120
|
)
|
|
$
|
-
|
|
|
$
|
(2,404,120
|
)
|
|
$
|
-
|
|
NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS SHAREHOLDERS
|
|
$
|
(5,308,703
|
)
|
|
$
|
(784,711
|
)
|
|
$
|
(10,223,695
|
)
|
|
$
|
(1,978,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share from continuing operations: Basic and diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.48
|
)
|
Net Loss Per Common Share from discontinued operations: Basic and diluted
|
|
$
|
(0.98
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(2.61
|
)
|
|
$
|
(0.49
|
)
|
Net Loss Per Common Share: Basic and diluted
|
|
$
|
(1.42
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(2.97
|
)
|
|
$
|
(0.63
|
)
|
Weighted-average number of common shares outstanding: Basic and diluted
|
|
|
3,735,235
|
|
|
|
3,165,100
|
|
|
|
3,440,115
|
|
|
|
3,147,918
|
|
The accompanying notes are an integral
part of these consolidated financial statements
1847 HOLDINGS LLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUIYT (DEFICIT)
(UNAUDITED)
For the Three and Nine Months Ended September 30, 2020
|
|
Allocation
|
|
|
Series
A
Senior
Convertible
Preferred
|
|
|
Subscription
|
|
|
Common
Shares
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Non-
Controlling
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficit
|
|
BALANCE – January 1, 2020
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
3,165,625
|
|
|
$
|
3,165
|
|
|
$
|
442,014
|
|
|
$
|
(4,402,043
|
)
|
|
$
|
(42,930
|
)
|
|
$
|
(3,998,794
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,372,297
|
)
|
|
|
(738,185
|
)
|
|
|
(2,110,482
|
)
|
BALANCE – March
31, 2020
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
3,165,625
|
|
|
$
|
3,165
|
|
|
$
|
442,014
|
|
|
$
|
(5,774,340
|
)
|
|
$
|
(781,115
|
)
|
|
$
|
(6,109,276
|
)
|
Common shares issued in connection
with acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
415,000
|
|
|
|
415
|
|
|
|
1,037,085
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,037,500
|
|
Common shares issued for
service
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
244,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
245,000
|
|
Common shares issued upon
partial conversion of convertible note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
274,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
275,000
|
|
Warrants issued in connection
with convertible note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
448,211
|
|
|
|
-
|
|
|
|
118,500
|
|
|
|
566,711
|
|
Stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
191,386
|
|
|
|
-
|
|
|
|
-
|
|
|
|
191,386
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,542,702
|
)
|
|
|
(1,269,137
|
)
|
|
|
(4,811,839
|
)
|
BALANCE – June 30, 2020
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
3,780,625
|
|
|
$
|
3,780
|
|
|
$
|
2,638,496
|
|
|
$
|
(9,317,042
|
)
|
|
$
|
(1,931,752
|
)
|
|
$
|
(8,605,518
|
)
|
Common shares issued in connection
with acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
700,000
|
|
|
|
700
|
|
|
|
3,674,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,675,000
|
|
Issuance of warrants for
services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,550
|
|
Common shares issued upon
warrant exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230,000
|
|
|
|
230
|
|
|
|
62,270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,500
|
|
Common shares issued upon
option exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77,500
|
|
|
|
78
|
|
|
|
149,922
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
Common shares issued upon
partial conversion of convertible note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
99,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Purchase of common shares
from seller shares, cancellation of common shares held in treasury and common share dividend to non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(394,112
|
)
|
|
|
(394
|
)
|
|
|
(693,314
|
)
|
|
|
(57,442
|
)
|
|
|
-
|
|
|
|
(751,150
|
)
|
Series A senior convertible
preferred shares
|
|
|
-
|
|
|
|
2,404,120
|
|
|
|
(4,160,686
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,756,566
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-controlling interest
– Discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,205,721
|
|
|
|
2,904,583
|
|
|
|
11,110,304
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,904,583
|
)
|
|
|
(1,922,849
|
)
|
|
|
(4,827,432
|
)
|
BALANCE – September
30, 2020
|
|
$
|
1,000
|
|
|
$
|
2,404,120
|
|
|
$
|
(4,160,686
|
)
|
|
|
4,444,013
|
|
|
$
|
4,444
|
|
|
$
|
7,775,740
|
|
|
$
|
(4,073,346
|
)
|
|
$
|
(950,018
|
)
|
|
$
|
1,001,254
|
|
For the Three and Nine Months Ended September 30, 2019
|
|
Allocation
|
|
|
Common Shares
|
|
|
Additional Paid-In
|
|
|
Accumulated
|
|
|
Non-
Controlling
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficit
|
|
BALANCE – January 1, 2019
|
|
$
|
1,000
|
|
|
|
3,115,625
|
|
|
$
|
3,115
|
|
|
$
|
11,891
|
|
|
$
|
(2,155,084
|
)
|
|
$
|
112,011
|
|
|
$
|
(2,027,067
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(368,579
|
)
|
|
|
(266,680
|
)
|
|
|
(635,259
|
)
|
BALANCE – March 31, 2019
|
|
$
|
1,000
|
|
|
|
3,115,625
|
|
|
$
|
3,115
|
|
|
$
|
11,891
|
|
|
$
|
(2,523,663
|
)
|
|
$
|
(154,669
|
)
|
|
$
|
(2,662,326
|
)
|
Common shares and warrants issued in connection with convertible
note payable
|
|
|
-
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
430,123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
430,173
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(824,951
|
)
|
|
|
(430,789
|
)
|
|
|
(1,255,740
|
)
|
BALANCE – June 30, 2019
|
|
$
|
1,000
|
|
|
|
3,165,625
|
|
|
$
|
3,165
|
|
|
$
|
442,014
|
|
|
$
|
(3,348,614
|
)
|
|
$
|
(585,458
|
)
|
|
$
|
(3,487,893
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(784,711
|
)
|
|
|
(395,258
|
)
|
|
|
(1,179,969
|
)
|
BALANCE – September 30, 2019
|
|
$
|
1,000
|
|
|
|
3,165,625
|
|
|
$
|
3,165
|
|
|
$
|
442,014
|
|
|
$
|
(4,133,325
|
)
|
|
$
|
(980,716
|
)
|
|
$
|
(4,667,862
|
)
|
The accompanying notes are an integral
part of these consolidated financial statements
1847 HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,749,747
|
)
|
|
$
|
(3,070,968
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
8,963,738
|
|
|
|
1,624,920
|
|
Gain on sale of property and equipment
|
|
|
(54,748
|
)
|
|
|
(24,224
|
)
|
Depreciation and amortization
|
|
|
999,107
|
|
|
|
938,762
|
|
Stock compensation
|
|
|
523,936
|
|
|
|
-
|
|
Loss on extinguishment of debt
|
|
|
382,681
|
|
|
|
-
|
|
Amortization of financing costs
|
|
|
262,625
|
|
|
|
24,300
|
|
Amortization of original interest discount
|
|
|
-
|
|
|
|
32,813
|
|
Amortization of operating lease right-of-use assets
|
|
|
47,033
|
|
|
|
19,107
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
261,481
|
|
|
|
160,742
|
|
Inventory
|
|
|
(830,456
|
)
|
|
|
242,532
|
|
Prepaid expenses and other assets
|
|
|
(479,684
|
)
|
|
|
(43,068
|
)
|
Accounts payable and accrued expenses
|
|
|
1,456,371
|
|
|
|
(269,638
|
)
|
Other current liabilities
|
|
|
-
|
|
|
|
1,234,143
|
|
Operating lease liability
|
|
|
(47,033
|
)
|
|
|
(19,107
|
)
|
Customer deposits
|
|
|
632,040
|
|
|
|
57,142
|
|
Deferred taxes and uncertain tax position
|
|
|
(159,800
|
)
|
|
|
(572,398
|
)
|
Due to related parties
|
|
|
23,275
|
|
|
|
5,232
|
|
Accrued expense long-term
|
|
|
340,657
|
|
|
|
-
|
|
Net cash provided by operating activities from continuing operations
|
|
|
571,476
|
|
|
|
340,290
|
|
Net cash provided by (used in) operating activities from discontinued operations
|
|
|
7,383,978
|
|
|
|
(1,294,822
|
)
|
Net cash provided by (used in) operating activities
|
|
|
7,955,454
|
|
|
|
(954,532
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash acquired in acquisitions
|
|
|
1,398,285
|
|
|
|
-
|
|
Proceeds from the sale of property and equipment
|
|
|
49,494
|
|
|
|
39,750
|
|
Purchase of property and equipment
|
|
|
(26,081
|
)
|
|
|
(17,076
|
)
|
Net cash provided by investing activities from continuing operations
|
|
|
1,421,698
|
|
|
|
22,674
|
|
Net cash provided by (used in) investing activities from discontinued operations
|
|
|
(51,060
|
)
|
|
|
1,135,368
|
|
Net cash provided by investing activities
|
|
|
1,370,638
|
|
|
|
1,158,042
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayments of short-term borrowings
|
|
|
-
|
|
|
|
(95,192
|
)
|
Proceeds from notes payable
|
|
|
969,697
|
|
|
|
27,000
|
|
Repayment of notes payable
|
|
|
(1,115,841
|
)
|
|
|
(236,832
|
)
|
Repayment of floor plan
|
|
|
(10,581
|
)
|
|
|
-
|
|
Repayment of grid note
|
|
|
(62,500
|
)
|
|
|
-
|
|
Net borrowings from lines of credit
|
|
|
(210,000
|
)
|
|
|
-
|
|
Proceeds from exercise of stock options and warrants
|
|
|
212,500
|
|
|
|
-
|
|
Financing fees
|
|
|
(113,831
|
)
|
|
|
-
|
|
Repayment of financing lease
|
|
|
(659,512
|
)
|
|
|
(363,444
|
)
|
Net cash used in financing activities from continuing operations
|
|
|
(990,068
|
)
|
|
|
(668,468
|
)
|
Net cash provided by financing activities from discontinued operations
|
|
|
4,981,959
|
|
|
|
328,126
|
|
Net cash provided by (used in) financing activities
|
|
|
3,991,891
|
|
|
|
(340,342
|
)
|
NET CHANGE IN CASH – Continuing Operations
|
|
|
1,003,106
|
|
|
|
(305,504
|
)
|
NET CHANGE IN CASH – Discontinuing Operations
|
|
|
12,314,877
|
|
|
|
168,672
|
|
CASH AVAILABLE – Discontinuing Operations
|
|
|
(12,314,877
|
)
|
|
|
(168,672
|
)
|
CASH – Continuing Operations
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
174,290
|
|
|
|
333,880
|
|
End of period
|
|
$
|
1,177,396
|
|
|
$
|
28,376
|
|
The accompanying notes are an integral
part of these consolidated financial statements
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
NOTE 1—ORGANIZATION AND NATURE OF BUSINESS
1847 Holdings LLC (the “Company”)
was formed under the laws of the State of Delaware on January 22, 2013. The Company is in the business of acquiring small
businesses in a variety of different industries.
On March 3, 2017, the Company’s wholly
owned subsidiary 1847 Neese Inc., a Delaware corporation (“1847 Neese”), entered into a stock purchase agreement with
Neese, Inc., an Iowa corporation (“Neese”), and Alan Neese and Katherine Neese, pursuant to which 1847 Neese acquired
all of the issued and outstanding capital stock of Neese on March 3, 2017. As a result of this transaction, 1847 Neese owns 55%
of 1847 Neese, with the remaining 45% held by the sellers.
On March 27, 2020, the Company and the
Company’s wholly owned subsidiary 1847 Asien Inc., a Delaware corporation (“1847 Asien”), entered into a stock
purchase agreement with Asien’s Appliance, Inc., a California corporation (“Asien’s”), and Joerg Christian
Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992, pursuant to which 1847
Asien acquired all of the issued and outstanding stock of Asien’s on May 28, 2020 (see Note 9). As a result of this transaction,
the Company owns 95% of 1847 Asien, with the remaining 5% held by a third party, and 1847 Asien owns 100% of Asien’s.
On August 27, 2020, the Company and the
Company’s wholly owned subsidiary 1847 Cabinet Inc., a Delaware corporation (“1847 Cabinet”), entered into a
stock purchase agreement with Kyle’s Custom Wood Shop, Inc., an Idaho corporation (“Kyle’s”), and Stephen
Mallatt, Jr. and Rita Mallatt, pursuant to which 1847 Cabinet acquired all of the issued and outstanding stock of Kyle’s
on September 30, 2020 (see Note 9). As a result of this transaction, the Company owns 92.5% of 1847 Cabinet, with the remaining
7.5% held by a third party, and 1847 Cabinet owns 100% of Kyle’s.
On January 10, 2019, the Company established
1847 Goedeker Inc. (“Goedeker”) as a wholly owned subsidiary in the State of Delaware in connection with the proposed
acquisition of assets from Goedeker Television Co., a Missouri corporation (“Goedeker Television”). On March 20, 2019,
the Company established 1847 Goedeker Holdco Inc. (“Holdco”) as a wholly owned subsidiary in the State of Delaware
and subsequently transferred all of its shares in Goedeker to Holdco, such that Goedeker became a wholly owned subsidiary of Holdco.
On January 18, 2019, Goedeker entered into
an asset purchase agreement with Goedeker Television and Steve Goedeker and Mike Goedeker, pursuant to which Goedeker acquired
substantially all of the assets of Goedeker Television used in its retail appliance and furniture business on April 5, 2019. As
a result of this transaction, the Company owned 70% of Holdco, with the remaining 30% held by third parties, and Holdco owned 100%
of Goedeker.
On August 4, 2020, Holdco distributed all
of its shares of Goedeker to its stockholders in accordance with their pro rata ownership in Holdco, after which time Holdco was
dissolved. Following this transaction, and the closing of Goedeker’s initial public offering on August 4, 2020 (the “Goedeker
IPO”), the Company owned approximately 54.41% of Goedeker.
On October 23, 2020, the Company distributed
all of the shares of Goedeker that it held to its shareholders (the “Goedeker Spin-Off”). As a result of the Goedeker
Spin-Off, Goedeker is no longer a subsidiary of the Company.
The consolidated financial statements include
the accounts of the Company and its consolidated subsidiaries, 1847 Neese, Neese, 1847 Asien, Asien’s, 1847 Cabinet and Kyle’s.
All significant intercompany balances and transactions have been eliminated in consolidation.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company
have been prepared without audit in accordance with generally accepted accounting principles in the United States of America (“GAAP”)
and are presented in US dollars.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for
the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended
December 31, 2020.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The results of Goedeker are included within
discontinued operations for the nine months ended September 30, 2020 and 2019, respectively. The Company retrospectively updated
the consolidated financial statements as of and for the nine months ended September 30, 2020 and 2019, respectively, to reflect
this change.
These unaudited interim condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained
in the Company’s annual report on Form 10-K for the year ended December 31, 2019.
Accounting Basis
The Company uses the accrual basis of accounting
and GAAP. The Company has adopted a calendar year end.
Segment Reporting
The Financial Accounting Standards Board
(“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment Reporting, requires that an
enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Beginning
with the second quarter of 2019, the Company changed its operating and reportable segments from one segment to two segments - the
Retail and Appliances Segment, which is operated by Asien’s (and was previously operated by Goedeker), and the Land Management
Segment, which is operated by Neese. Commencing with the fourth quarter of 2020, the Company added an additional segment - the
Construction Segment, which is operated by Kyle’s.
The Retail and Appliances Segment
is comprised of the business of Asien’s, which is based in Santa Rosa, California, and provides a wide variety of appliance
services including sales, delivery, installation, service and repair, extended warranties, and financing.
The Land Management Services Segment is
comprised of the business of Neese, which is based in Grand Junction, Iowa, and provides professional services for waste disposal
and a variety of agricultural services, wholesaling of agricultural equipment and parts, local trucking services, various shop
services, and sales of other products and services.
The Construction Segment is comprised
of the business of Kyle’s, which is based in Boise, Idaho, and provides a wide variety of construction services including
custom design and build of kitchen and bathroom cabinetry, delivery, installation, service and repair, extended warranties, and
financing.
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.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with the original maturities of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain Statements of Operations reclassifications
have been made in the presentation of the Company’s prior financial statements and accompanying notes to conform to the presentation
as of and for the three and nine months ended September 30, 2020. The Company reclassified certain operating expense accounts in
the Consolidated Statement of Operations. The reclassification had no impact on financial position, net income, or shareholder’s
equity.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Revenue Recognition and Cost of Revenue
On January 1, 2018, the Company adopted
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes
the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is based on the principle that
revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure
about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant
judgments. The Company’s adoption of this ASU resulted in no change to the Company’s results of operations or
balance sheet.
Retail and Appliances Segment
Asien’s collects 100% of the payment
for special-order models including tax and 50% of the payment for non-special orders from the customer at the time the order is
placed. Asien’s does not incur incremental costs obtaining purchase orders from customers, however, if Asien’s did,
because all Asien’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than
capitalized.
Performance Obligations – The revenue
that Asien’s recognizes arises from orders it receives from customers. Asien’s performance obligations under the customer
orders correspond to each sale of merchandise that it makes to customers under the purchase orders; as a result, each purchase
order generally contains only one performance obligation based on the merchandise sale to be completed. Control of the delivery
transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, Asien’s products,
which generally occurs when the customer assumes the risk of loss. The transfer of control generally occurs at the point of pickup,
shipment, or installation. Once this occurs, Asien’s has satisfied its performance obligation and Asien’s recognizes
revenue.
Transaction Price ‒ Asien’s
agrees with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales
price. In Asien’s contracts with customers, it allocates the entire transaction price to the sales price, which is the basis
for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax that Asien’s
collects concurrently with revenue-producing activities are excluded from revenue.
Cost of revenue includes the cost of purchased
merchandise plus freight and any applicable delivery charges from the vendor to Asien’s. Substantially all Asien’s
sales are to individual retail consumers (homeowners), builders and designers. The large majority of customers are homeowners and
their contractors, with the homeowner being key in the final decisions. Asien’s has a diverse customer base with no one client
accounting for more than 5% of total revenue.
Disaggregated revenue for the Retail and
Appliances Segment by sales type for the three months ended September 30, 2020 and for the period from May 29, 2020 (Asien’s acquisition)
to September 30, 2020 is as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Appliance sales
|
|
$
|
3,138,313
|
|
|
$
|
-
|
|
|
$
|
4,263,619
|
|
|
$
|
-
|
|
Other sales
|
|
|
3,000
|
|
|
|
-
|
|
|
|
63,675
|
|
|
|
-
|
|
Total revenue
|
|
$
|
3,141,313
|
|
|
$
|
-
|
|
|
$
|
4,327,294
|
|
|
$
|
-
|
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Land Management Segment
Neese’s payment terms are due on
demand from acceptance of delivery. Neese does not incur incremental costs obtaining purchase orders from customers, however, if
Neese did, because all of Neese’s contracts are less than a year in duration, any contract costs incurred would be expensed
rather than capitalized.
The revenue that Neese recognizes arises
from orders it receives from customers. Neese’s performance obligations under the customer orders correspond to each service
delivery or sale of equipment that Neese makes to customers under the purchase orders; as a result, each purchase order generally
contains only one performance obligation based on the service or equipment sale to be completed. Control of the delivery transfers
to customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, Neese’s products,
which generally occurs at the later of when the customer obtains title to the equipment or when the customer assumes risk of loss.
The transfer of control generally occurs at a point of delivery. Once this occurs, Neese has satisfied its performance obligation
and Neese recognizes revenue.
Neese also sells equipment by posting it
on auction sites specializing in farm equipment. Neese posts the equipment for sale on a “magazine” site for several
weeks before the auction. When Neese decides to sell, it moves the equipment to the auction site. The auctions are one day. If
Neese accepts a bid, the customer pays the bid price and arranges for pick-up of the equipment.
Transaction Price ‒ Neese agrees
with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon service fee.
In Neese’s contracts with customers, it allocates the entire transaction price to the service fee to the customer, which
is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales
tax, value added tax, and other tax Neese collects concurrently with revenue-producing activities are excluded from revenue.
If Neese continued to apply legacy revenue
recognition guidance for the three and nine months ended September 30, 2020, revenues, gross margin, and net loss would not have
changed.
Substantially all of Neese’s sales
are to businesses, including farmers or municipalities and very little to individuals.
Disaggregated Revenue ‒ Neese disaggregates
revenue from contracts with customers by contract type, as it believes it best depicts how the nature, amount, timing and uncertainty
of revenue and cash flows are affected by economic factors.
Neese’s disaggregated revenue by
sales type for the three and nine months ended September 30, 2020 and 2019 is as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Trucking
|
|
$
|
247,037
|
|
|
$
|
383,709
|
|
|
$
|
766,534
|
|
|
$
|
1,267,550
|
|
Waste hauling
|
|
|
118,637
|
|
|
|
40,781
|
|
|
|
557,687
|
|
|
|
417,138
|
|
Repairs
|
|
|
176,585
|
|
|
|
181,129
|
|
|
|
282,878
|
|
|
|
309,330
|
|
Other
|
|
|
98,436
|
|
|
|
136,422
|
|
|
|
246,622
|
|
|
|
299,747
|
|
Total services
|
|
|
640,695
|
|
|
|
742,041
|
|
|
|
1,853,721
|
|
|
|
2,293,765
|
|
Sales of parts and equipment
|
|
|
1,448,917
|
|
|
|
670,221
|
|
|
|
2,053,964
|
|
|
|
1,523,031
|
|
Total revenue
|
|
$
|
2,089,612
|
|
|
$
|
1,412,262
|
|
|
$
|
3,907,685
|
|
|
$
|
3,816,796
|
|
Performance Obligations ‒ Performance
obligations for the different types of services are discussed below:
|
●
|
Trucking ‒ Revenues for time and material contracts are recognized when the merchandise
or commodity is delivered to the destination specified in the agreement with the customer.
|
|
●
|
Waste Hauling and pumping ‒ Revenues for waste hauling and pumping is recognized when
the hauling, pumping, and spreading are complete.
|
|
●
|
Repairs ‒ Revenues for repairs are recognized upon completion of equipment serviced.
|
|
●
|
Sales of parts and equipment ‒ Revenues for the sale of parts and equipment are recognized
upon the transfer and acceptance by the customer.
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Accounts Receivable, Net ‒ Accounts
receivable, net, are amounts due from customers where there is an unconditional right to consideration. Unbilled receivables of
$0 and $121,989 are included in this balance at September 30, 2020 and December 31, 2019, respectively. The payment of consideration
related to these unbilled receivables is subject only to the passage of time.
Neese reviews accounts receivable on a
periodic basis to determine if any receivables will potentially be uncollectible. Estimates are used to determine the amount of
the allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value. The estimates
are based on an analysis of past due receivables, historical bad debt trends, current economic conditions, and customer specific
information. After Neese has exhausted all collection efforts, the outstanding receivable balance relating to services provided
is written off against the allowance. Additions to the provision for bad debt are charged to expense.
Neese determined that an allowance for
loss of $29,001 was required at September 30, 2020 and December 31, 2019.
Receivables
Receivables consist of credit card transactions
in the process of settlement. Vendor rebates receivable represent amounts due from manufactures from whom the Company purchases
products. Rebates receivable are stated at the amount that management expects to collect from manufacturers, net of accounts payable
amounts due the vendor. Rebates are calculated on product and model sales programs from specific vendors. The rebates are paid
at intermittent periods either in cash or through issuance of vendor credit memos, which can be applied against vendor accounts
payable. Based on the Company’s assessment of the credit history with its manufacturers, it has concluded that there should
be no allowance for uncollectible accounts. The Company historically collects substantially all of its outstanding rebates receivables.
Uncollectible balances are expensed in the period it is determined to be uncollectible.
Allowance for Credit Losses
Provisions for credit losses are charged
to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance for credit losses at an adequate
level to provide for future losses on the Company’s accounts receivable. The Company charges credit losses against the allowance
and credits subsequent recoveries, if any, to the allowance. Historical loss experience and contractual delinquency of accounts
receivables, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting
provision for credit losses. While management uses the best information available to make its evaluation, future adjustments to
the allowance may be necessary if there are significant changes in economic conditions or portfolio performance. This evaluation
is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.
The allowance for credit losses consists
of general and specific components. The general component of the allowance estimates credit losses for groups of accounts receivable
on a collective basis and relates to probable incurred losses of unimpaired accounts receivables. The Company records a general
allowance for credit losses that includes forecasted future credit losses.
Inventory
For Neese, inventory consists of
finished products acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific item
basis. For Asien’s, inventory mainly consists of appliances that are acquired for resale and is valued at the average
cost determined on a specific item basis. Inventory also consists of parts that are used in service and repairs and may or
may not be charged to the customer depending on warranty and contractual relationship. The Company periodically evaluates the
value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The Company
estimated an obsolescence allowance of $38,686 and $26,546 at September 30, 2020 and December 31, 2019, respectively.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Property and Equipment
Property and equipment is stated at cost.
Depreciation of furniture, vehicles and equipment is calculated using the straight-line method over the estimated useful lives
as follows:
|
|
Useful Life (Years)
|
Building and Improvements
|
|
4
|
Machinery and Equipment
|
|
3-7
|
Tractors
|
|
3-7
|
Trucks and Vehicles
|
|
3-6
|
Goodwill and Intangible Assets
In applying the acquisition method of accounting,
amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition,
with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted
valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized
over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite
lives are tested for impairment within one year of acquisitions or annually as of December 1, and whenever indicators of impairment
exist. The fair value of intangible assets are compared with their carrying values, and an impairment loss would be recognized
for the amount by which a carrying amount exceeds its fair value.
Acquired identifiable intangible assets are amortized over the
following periods:
Acquired intangible Asset
|
|
Amortization Basis
|
|
Expected Life
(years)
|
Customer-Related
|
|
Straight-line basis
|
|
5-15
|
Marketing-Related
|
|
Straight-line basis
|
|
5
|
Long-Lived Assets
The Company reviews its property and equipment
and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating
cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Fair Value of Financial Instruments
The Company’s financial instruments
consist of cash and cash equivalents and amounts due to shareholders. The carrying amount of these financial instruments approximates
fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed
in these financial statements.
Derivative Instrument Liability
The Company accounts for derivative
instruments in accordance with ASC 815, Derivatives and Hedging, which establishes accounting and reporting standards
for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial
instruments or contracts, and requires recognition of all derivatives on the balance sheet at fair value, regardless of
hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the
derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Income Taxes
Income taxes are computed using the asset
and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on
the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence,
are not expected to be realized.
Stock-Based Compensation
The Company records stock-based compensation
in accordance with ASC 718, Compensation-Stock Compensation. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the
cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued
and are recognized over the employees required service period, which is generally the vesting period.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated
by dividing the net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted
earnings per share is calculated by dividing the net income available to common shareholders by the diluted weighted average number
of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of
shares adjusted for any potentially dilutive debt or equity. As the Company had a net loss for the three and nine months ended
September 30, 2020, the following 2,189,835 potentially dilutive securities were excluded from diluted loss per share: 2,189,835
for outstanding warrants. As the Company had a net loss for the three and nine months ended September 30, 2019, the following 895,565
potentially dilutive securities were excluded from diluted loss per share: 200,000 for outstanding warrants and 695,565 related
to the convertible note payable and accrued interest.
Going Concern Assessment
Management assesses going concern uncertainty
in the Company’s 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.
The Company has generated losses since
its inception and has relied on cash on hand, external bank lines of credit, issuance of third party and related party debt and
the sale of a note to support cashflow from operations. For the nine months ended September 30, 2020, the Company incurred operating
losses of $2,358,452 (before deducting losses attributable to non-controlling interests and excluding the loss of discontinued
operations), cash flows from operations of $364,375 (excluding the cashflow from discontinued operations) and negative working
capital of $7,256,231 (excluding the negative working capital from discontinued operations). In addition to the estimates of funds
available from operations, the Company has unpledged assets that it believes could provide for $544,000 of additional borrowings.
Management has prepared estimates of
operations for fiscal year 2020 and believes that sufficient funds will be generated from operations to fund its operations,
and to service its debt obligations for one year from the date of the filing of the consolidated financial statements in the
Company’s Quarterly Report on Form 10-Q, indicate improved operations and the Company’s ability to continue
operations as a going concern.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The impact of COVID-19 on the Company’s
business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on
a return to more normal operations. Further, the recently enacted Coronavirus Aid, Relief and Economic Security Act (the “CARES
Act”) provides for economic assistance loans through the United States Small Business Administration (the “SBA”).
On April 10, 2020 and April 28, 2020, Neese and Asien’s received $383,600 and $357,500, respectively, in Paycheck Protection
Program (“PPP”) loans from the SBA under the CARES Act. The PPP provides that the PPP loans may be partially or wholly
forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Neese and Asien’s intend to
use the proceeds from the PPP loans for qualifying expenses and to apply for forgiveness of the PPP loans in accordance with the
terms of the CARES Act.
The accompanying consolidated financial
statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and
satisfy its liabilities in the normal course of business.
Management believes that based on relevant
conditions and events that are known and reasonably knowable that its forecasts, for one year from the date of the filing of the
financial statements in this registration statement, indicate improved operations and the Company’s ability to continue operations
as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve
in the look forward period.
Recent Accounting Pronouncements
Not Yet Adopted
In January 2017, the FASB issued ASU No.
2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement
of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of
a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to
determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on
a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of December 1,
and whenever indicators of impairment exist.
In June 2016, the FASB issued ASU 2016-13
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the
measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing
incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.
ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019.
This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify
as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard
will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard, but
does not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations,
or cash flows.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
NOTE 3—BUSINESS SEGMENTS
Summarized financial information concerning
the Company’s reportable segments is presented below:
|
|
For the Nine Months Ended
September 30, 2020
|
|
|
For the Nine Months Ended
September 30, 2019
|
|
|
|
Retail & Appliances
|
|
|
Land Management Services
|
|
|
Corporate Services
|
|
|
Total
|
|
|
Retail & Appliances
|
|
|
Land Management Services
|
|
|
Corporate Services
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
-
|
|
|
$
|
1,853,721
|
|
|
$
|
-
|
|
|
$
|
1,853,721
|
|
|
$
|
-
|
|
|
$
|
2,293,765
|
|
|
$
|
-
|
|
|
$
|
2,293,765
|
|
Sales of parts and equipment
|
|
|
-
|
|
|
|
2,053,964
|
|
|
|
-
|
|
|
|
2,053,964
|
|
|
|
-
|
|
|
|
1,523,031
|
|
|
|
-
|
|
|
|
1,523,031
|
|
Furniture and appliances revenue
|
|
|
4,327,294
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,327,294
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Revenue
|
|
|
4,327,294
|
|
|
|
3,907,685
|
|
|
|
-
|
|
|
|
8,234,979
|
|
|
|
-
|
|
|
|
3,816,796
|
|
|
|
-
|
|
|
|
3,816,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
3,353,608
|
|
|
|
1,852,621
|
|
|
|
-
|
|
|
|
5,206,229
|
|
|
|
-
|
|
|
|
1,369,440
|
|
|
|
-
|
|
|
|
1,369,440
|
|
Total operating expenses
|
|
|
1,278,285
|
|
|
|
3,460,517
|
|
|
|
648,488
|
|
|
|
5,387,291
|
|
|
|
-
|
|
|
|
4,104,427
|
|
|
|
119,458
|
|
|
|
4,223,885
|
|
Loss from operations
|
|
$
|
(304,599
|
)
|
|
$
|
(1,405,453
|
)
|
|
$
|
(648,488
|
)
|
|
$
|
(2,358,541
|
)
|
|
$
|
-
|
|
|
$
|
(1,657,071
|
)
|
|
$
|
(119,458
|
)
|
|
$
|
(1,776,529
|
)
|
|
|
For the Three Months Ended
September 30, 2020
|
|
|
For the Three Months Ended
September 30, 2019
|
|
|
|
Retail & Appliances
|
|
|
Land Management Services
|
|
|
Corporate Services
|
|
|
Total
|
|
|
Retail & Appliances
|
|
|
Land Management Services
|
|
|
Corporate Services
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
-
|
|
|
$
|
640,695
|
|
|
$
|
-
|
|
|
|
640,695
|
|
|
$
|
-
|
|
|
$
|
742,041
|
|
|
$
|
-
|
|
|
$
|
742,041
|
|
Sales of parts and equipment
|
|
|
-
|
|
|
|
1,448,917
|
|
|
|
-
|
|
|
|
1,448,917
|
|
|
|
-
|
|
|
|
670,221
|
|
|
|
-
|
|
|
|
670,221
|
|
Furniture and appliances revenue
|
|
|
3,141,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,141,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Revenue
|
|
|
3,141,313
|
|
|
|
2,089,612
|
|
|
|
-
|
|
|
|
5,230,925
|
|
|
|
-
|
|
|
|
1,412,262
|
|
|
|
-
|
|
|
|
1,412,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
2,429,714
|
|
|
|
1,323,732
|
|
|
|
-
|
|
|
|
3,753,446
|
|
|
|
-
|
|
|
|
596,286
|
|
|
|
-
|
|
|
|
596,287
|
|
Total operating expenses
|
|
|
843,000
|
|
|
|
1,161,365
|
|
|
|
126,836
|
|
|
|
2,131,201
|
|
|
|
-
|
|
|
|
1,346,937
|
|
|
|
39,5821
|
|
|
|
1,386,518
|
|
Loss from operations
|
|
$
|
(131,401
|
)
|
|
$
|
(395,485
|
)
|
|
$
|
(126,836
|
)
|
|
$
|
(653,722
|
)
|
|
$
|
-
|
|
|
$
|
(530,961
|
)
|
|
$
|
(39,582
|
)
|
|
$
|
(570,543
|
)
|
NOTE 4—DISCONTINUED OPERATIONS
ASC 360-10-45-9 requires that a long-lived
asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met,
including criteria that the sale of the asset (disposal group) is probable and actions required to complete the plan indicate that
it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. This criteria was achieved
on September 10, 2020, when the board approved the Goedeker Spin-Off and subsequently on October 23, 2020, when the Company completed
the Goedeker Spin-Off. Additionally, the discontinued operations are comprised of the entirety of the business of Goedeker. Lastly,
for comparability purposes certain prior period line items relating to the assets held for sale have been reclassified and presented
as discontinued operations for all periods presented in the accompanying consolidated statements of operations, consolidated statements
of cash flows, and the consolidated balance sheets.
In accordance with ASC 205-20-S99, “Allocation
of Interest to Discontinued Operations”, the Company elected to not allocate consolidated interest expense to discontinued
operations where the debt is not directly attributable to or related to discontinued operations.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The following information presents the
major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheet:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Current Assets – discontinued operations:
|
|
|
|
|
|
|
Cash
|
|
$
|
3,466,981
|
|
|
$
|
64,470
|
|
Restricted cash
|
|
|
8,912,367
|
|
|
|
-
|
|
Accounts receivable, net
|
|
|
1,219,455
|
|
|
|
1,862,086
|
|
Vendor deposits
|
|
|
547,648
|
|
|
|
294,960
|
|
Inventories, net
|
|
|
3,086,873
|
|
|
|
1,380,090
|
|
Prepaid expenses and other current assets
|
|
|
1,073,253
|
|
|
|
892,796
|
|
Total current assets – discontinued operations
|
|
$
|
18,306,577
|
|
|
$
|
4,494,402
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Assets – discontinued operations:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
202,402
|
|
|
|
185,606
|
|
Operating lease right of use assets
|
|
|
1,686,423
|
|
|
|
2,000,755
|
|
Goodwill
|
|
|
5,097,752
|
|
|
|
4,976,016
|
|
Intangible assets, net
|
|
|
1,636,195
|
|
|
|
1,878,844
|
|
Deferred tax asset
|
|
|
2,660,432
|
|
|
|
698,303
|
|
Other assets
|
|
|
45,000
|
|
|
|
45,000
|
|
Total noncurrent assets
|
|
$
|
11,328,204
|
|
|
$
|
9,784,524
|
|
|
|
|
|
|
|
|
|
|
Current liabilities – discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,371,204
|
|
|
$
|
2,465,220
|
|
Current portion of operating lease liability
|
|
|
443,469
|
|
|
|
422,520
|
|
Advances, related party
|
|
|
-
|
|
|
|
137,500
|
|
Lines of credit
|
|
|
-
|
|
|
|
1,250,930
|
|
Notes payable – current portion
|
|
|
1,300,579
|
|
|
|
2,068,175
|
|
Warrant liability
|
|
|
-
|
|
|
|
122,344
|
|
Convertible promissory note – current portion
|
|
|
-
|
|
|
|
584,943
|
|
Customer deposits
|
|
|
17,089,826
|
|
|
|
4,164,296
|
|
Total current liabilities – discontinued operations
|
|
$
|
23,205,078
|
|
|
$
|
11,215,928
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities – discontinued operations:
|
|
|
|
|
|
|
|
|
Operating lease liability – long term, net of current portion
|
|
|
1,242,954
|
|
|
|
1,578,235
|
|
Notes payable – long term, net of current portion
|
|
|
2,684,623
|
|
|
|
2,231,469
|
|
Contingent note payable
|
|
|
49,248
|
|
|
|
49,248
|
|
Total long term liabilities – discontinued operations
|
|
$
|
3,976,825
|
|
|
$
|
3,858,952
|
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The following information presents the
major classes of line items constituting the after-tax loss from discontinued operations in the consolidated statements of operations
for the three and nine months ended September 30, 2020 and 2019:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and appliances revenue
|
|
$
|
13,435,095
|
|
|
$
|
12,202,271
|
|
|
$
|
38,397,304
|
|
|
$
|
22,748,151
|
|
TOTAL REVENUE
|
|
|
13,435,095
|
|
|
|
12,202,271
|
|
|
|
38,397,304
|
|
|
|
22,748,151
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
11,264,569
|
|
|
|
10,183,711
|
|
|
|
32,060,897
|
|
|
|
18,886,117
|
|
Personnel costs
|
|
|
2,161,929
|
|
|
|
989,138
|
|
|
|
4,513,602
|
|
|
|
1,875,543
|
|
Depreciation and amortization
|
|
|
93,283
|
|
|
|
11,044
|
|
|
|
276,914
|
|
|
|
21,950
|
|
General and administrative
|
|
|
2,965,345
|
|
|
|
1,571,279
|
|
|
|
6,425,854
|
|
|
|
2,867,714
|
|
TOTAL OPERATING EXPENSES
|
|
|
16,485,126
|
|
|
|
12,755,172
|
|
|
|
43,277,267
|
|
|
|
23,651,324
|
|
NET LOSS FROM OPERATIONS
|
|
|
(3,050,031
|
)
|
|
|
(552,901
|
)
|
|
|
(4,879,963
|
)
|
|
|
(903,173
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs
|
|
|
(488,460
|
)
|
|
|
(165,097
|
)
|
|
|
(757,646
|
)
|
|
|
(324,352
|
)
|
Loss on extinguishment of debt
|
|
|
(807,239
|
)
|
|
|
-
|
|
|
|
(1,756,095
|
)
|
|
|
-
|
|
Interest expense, net
|
|
|
(157,312
|
)
|
|
|
(182,772
|
)
|
|
|
(604,908
|
)
|
|
|
(387,793
|
)
|
Loss on acquisition receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
(809,000
|
)
|
|
|
-
|
|
Change in warrant liability
|
|
|
-
|
|
|
|
54,500
|
|
|
|
(2,127,656
|
)
|
|
|
57,100
|
|
Interest income
|
|
|
1,418
|
|
|
|
|
|
|
|
2,480
|
|
|
|
|
|
Other income (expense)
|
|
|
1,657
|
|
|
|
(10,473
|
)
|
|
|
6,920
|
|
|
|
9,829
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
(1,449,936
|
)
|
|
|
(303,842
|
)
|
|
|
(6,045,905
|
)
|
|
|
(645,216
|
)
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(4,499,967
|
)
|
|
|
(856,743
|
)
|
|
|
(10,925,868
|
)
|
|
|
(1,548,389
|
)
|
INCOME TAX BENEFIT
|
|
|
838,174
|
|
|
|
-
|
|
|
|
1,962,130
|
|
|
|
-
|
|
NET LOSS BEFORE NON-CONTROLLING INTERESTS
|
|
|
(3,661,793
|
)
|
|
|
(856,743
|
)
|
|
|
(8,963,738
|
)
|
|
|
(1,548,389
|
)
|
LESS NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
|
|
|
(1,669,777
|
)
|
|
|
(268,695
|
)
|
|
|
(3,260,362
|
)
|
|
|
(464,517
|
)
|
NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS SHAREHOLDERS
|
|
$
|
(1,992,016
|
)
|
|
$
|
(588,048
|
)
|
|
$
|
(5,703,376
|
)
|
|
$
|
(1,083,872
|
)
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The following information presents the
major classes of line items constituting significant operating, investing and financing cash flow activities in the unaudited consolidated
statements of cash flows relating to discontinued operations:
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities of discontinued operations:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,963,739
|
)
|
|
$
|
(1,548,389
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities of discontinued operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
276,912
|
|
|
|
21,950
|
|
Stock compensation
|
|
|
281,194
|
|
|
|
-
|
|
Amortization of financing costs
|
|
|
829,674
|
|
|
|
324,351
|
|
Loss on extinguishment of debt
|
|
|
1,603,132
|
|
|
|
-
|
|
Write-off of acquisition receivable
|
|
|
809,000
|
|
|
|
-
|
|
Change in fair value of warrant liability
|
|
|
2,127,656
|
|
|
|
(57,100
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
520,895
|
|
|
|
(778,536
|
)
|
Vendor deposits
|
|
|
(252,688
|
)
|
|
|
-
|
|
Inventory
|
|
|
(1,706,783
|
)
|
|
|
190,569
|
|
Prepaid expenses and other assets
|
|
|
(180,457
|
)
|
|
|
(105,397
|
)
|
Change in operating lease right-of-use assets
|
|
|
314,332
|
|
|
|
197,936
|
|
Deposits
|
|
|
(1,962,129
|
)
|
|
|
-
|
|
Accounts payable and accrued expenses
|
|
|
1,884,781
|
|
|
|
(85,192
|
)
|
Customer deposits
|
|
|
12,925,530
|
|
|
|
742,922
|
|
Other current liabilities
|
|
|
-
|
|
|
|
1,234,143
|
|
Operating lease liability
|
|
|
(314,332
|
)
|
|
|
(197,936
|
)
|
Net cash provided by (used in) operating activities from discontinued operations
|
|
|
7,383,978
|
|
|
|
(1,294,681
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities in discontinued operations:
|
|
|
|
|
|
|
|
|
Acquisition of Goedeker Television Co.
|
|
|
-
|
|
|
|
1,135,368
|
|
Purchase of property and equipment
|
|
|
(51,060
|
)
|
|
|
-
|
|
Net cash provided by investing activities in discontinued operations
|
|
|
(51,060
|
)
|
|
|
1,135,368
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities in discontinued operations:
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering
|
|
|
8,602,166
|
|
|
|
-
|
|
Proceeds from notes payable
|
|
|
642,600
|
|
|
|
917,653
|
|
Repayment of notes payable
|
|
|
(2,046,667
|
)
|
|
|
(408,662
|
)
|
Payments on convertible notes payable
|
|
|
(771,431
|
)
|
|
|
-
|
|
Net borrowings (payments) from lines of credit
|
|
|
(1,339,430
|
)
|
|
|
(180,865
|
)
|
Cash paid for financing costs
|
|
|
(105,279
|
)
|
|
|
-
|
|
Net cash used in financing activities
|
|
$
|
4,981,959
|
|
|
$
|
328,126
|
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The following is the financial options
of the discontinued operations:
Lines of Credit
Burnley Capital LLC
On April 5, 2019, Goedeker, as borrower,
and Holdco entered into a loan and security agreement with Burnley Capital LLC (“Burnley”) for revolving loans in an
aggregate principal amount that will not exceed the lesser of (i) the borrowing base (as defined in the loan and security
agreement) or (ii) $1,500,000 minus reserves established Burnley at any time in accordance with the loan and security agreement.
In connection with the closing of the acquisition of Goedeker Television on April 5, 2019, Goedeker borrowed $744,000 under the
loan and security agreement and issued a revolving note to Burnley in the principal amount of up to $1,500,000. As of December
31, 2019, the balance of the line of credit was $571,997.
On August 4, 2020, Goedeker used a portion
of the proceeds from the Goedeker IPO to repay the revolving note in full and the loan and security agreement was terminated. The
total payoff amount was $118,194, consisting of principal of $32,350, interest of $42 and prepayment, legal, and other fees of
$85,802.
Northpoint Commercial Finance LLC
On June 24, 2019, Goedeker, as borrower,
entered into a loan and security agreement with Northpoint Commercial Finance LLC, which was amended on August 2, 2019, for revolving
loans up to an aggregate maximum loan amount of $1,000,000 for the acquisition, financing or refinancing by Goedeker of inventory
at an interest rate of LIBOR plus 7.99%. As of December 31, 2019, the balance of the line of credit was $678,993. Goedeker
terminated the loan and security agreement on May 18, 2020 and there is no outstanding balance as of September 30, 2020.
Notes Payable and Warrant Liability
Arvest Loan
On August 25, 2020, Goedeker entered into
a promissory note and security agreement with Arvest Bank for a loan in the principal amount of $3,500,000. As of September
30, 2020, the outstanding balance of this loan is $3,340,602, comprised of principal of $3,446,126, net of unamortized loan costs
of $103,524. Goedeker classified $657,979 as a current liability and the balance as a long-term liability.
PPP Loan
On April 8, 2020, Goedeker received a $642,600
PPP loan from the United States Small Business Administration under provisions of the CARES Act. The PPP loan has an 18-month term
and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date
of disbursement. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains
events of default and other provisions customary for a loan of this type. The PPP provides that the loan may be partially or wholly
forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The balance of the PPP loan was $642,600
as of September 30, 2020 and was classified as a current liability. On November 2, 2020, Goedeker repaid the PPP loan.
Small Business Community Capital
II, L.P.
On April 5, 2019, Goedeker, as borrower,
and Holdco entered into a loan and security agreement with Small Business Community Capital II, L.P. (“SBCC”) for a
term loan in the principal amount of $1,500,000, pursuant to which Goedeker issued to SBCC a term note in the principal amount
of up to $1,500,000 and a ten-year warrant to purchase shares of the most senior capital stock of Goedeker equal to 5.0% of the
outstanding equity securities of Goedeker on a fully-diluted basis for an aggregate price equal to $100. As of December 31, 2019,
the balance of the note was $999,201.
On August 4, 2020, Goedeker used a portion
of the proceeds from the Goedeker IPO to repay the term note in full and the loan and security agreement was terminated. The total
payoff amount was $1,122,412 consisting of principal of $1,066,640, interest of $11,773 and prepayment, legal, and other fees of
$43,999.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Goedeker classified the warrant as a derivative
liability on the balance sheet at June 30, 2020 of $2,250,000 based on the estimated value of the warrant in the Goedeker IPO.
The increase in the value of the warrant from the estimated value of $122,344 at December 31, 2020 resulted in a charge of $2,127,656
during the nine months ended September 30, 2020. Immediately prior to the closing of the Goedeker IPO on August 4, 2020, SBCC converted
the warrant into 250,000 shares of common stock.
Notes payable, related parties
A portion of the purchase price for the
acquisition of Goedeker Television was paid by the issuance by Goedeker to Steve Goedeker, as representative of Goedeker Television,
of a 9% subordinated promissory note in the principal amount of $4,100,000. As of December 31, 2019, the balance of the note was
$3,300,444.
Pursuant to a settlement agreement, the
parties entered into an amendment and restatement of the note that became effective as of the closing of the Goedeker IPO on August
4, 2020, pursuant to which (i) the principal amount of the existing note was increased by $250,000, (ii) upon the closing of the
Goedeker IPO, Goedeker agreed to make all payments of principal and interest due under the note through the date of the closing,
and (iii) from and after the closing, the interest rate of the note was increased from 9% to 12%. In accordance with the terms
of the amended and restated note, Goedeker used a portion of the proceeds from the Goedeker IPO to pay $1,083,842 of the balance
of the note representing a $696,204 reduction in the principal balance and interest accrued through August 4, 2020 of $387,638.
Goedeker refinanced this note payable with
proceeds from the loan from Arvest Bank. In connection with the refinance, Goedeker recorded a $757,239 loss on extinguishment
of debt consisting of a $250,000 forbearance fee, write-off of unamortized loan discount of $338,873, and write-off of unamortized
debt costs of $168,366.
Convertible Promissory Note
On April 5, 2019, the Company, Holdco and
Goedeker entered into a securities purchase agreement with Leonite Capital LLC, a Delaware limited liability company, pursuant
to which they issued to Leonite Capital LLC a secured convertible promissory note in the aggregate principal amount of $714,286
due April 5, 2020. See Note 13 for further details of the convertible promissory note.
NOTE 5—RECEIVABLES
At September 30, 2020 and December 31,
2019, receivables consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Credit card payments in process of settlement
|
|
$
|
65,675
|
|
|
$
|
-
|
|
Trade receivables from customers
|
|
|
899,669
|
|
|
|
620,370
|
|
Total receivables
|
|
|
965,344
|
|
|
|
620,370
|
|
Allowance for doubtful accounts
|
|
|
(14,614
|
)
|
|
|
(29,001
|
)
|
Accounts receivable, net
|
|
$
|
950,730
|
|
|
$
|
591,369
|
|
NOTE 6—INVENTORIES
At September 30, 2020 and December 31,
2019, the inventory balances are composed of:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Machinery and Equipment
|
|
$
|
653,448
|
|
|
$
|
119,444
|
|
Parts
|
|
|
147,999
|
|
|
|
142,443
|
|
Appliances
|
|
|
1,760,527
|
|
|
|
-
|
|
Subtotal
|
|
|
2,561,974
|
|
|
|
261,887
|
|
Allowance for inventory obsolescence
|
|
|
(38,687
|
)
|
|
|
(26,545
|
)
|
Inventories, net
|
|
$
|
2,523,287
|
|
|
$
|
235,342
|
|
Inventory and accounts receivable are pledged
to secure a loan from Home State Bank described below.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
NOTE 7—DEPOSITS WITH VENDORS
Deposits with vendors represent cash on
deposit with one vendor arising from accumulated rebates paid by the vendor. The deposits are used by the vendor to seek to secure
the Company’s purchases. The deposit can be withdrawn at any time up to the amount of the Company’s credit line with
the vendor. Alternatively, the Company could secure their credit line with a floor plan line from a lender and withdraw all its
deposits. The Company may elect to leave the deposits with the vendor on which it earns interest income.
NOTE 8—PROPERTY AND EQUIPMENT
Property and equipment consist of the following
at September 30, 2020 and December 31, 2019:
Classification
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Buildings and improvements
|
|
$
|
34,368
|
|
|
$
|
5,338
|
|
Equipment and machinery
|
|
|
3,096,368
|
|
|
|
3,019,638
|
|
Tractors
|
|
|
2,723,296
|
|
|
|
2,694,888
|
|
Trucks and other vehicles
|
|
|
1,334,508
|
|
|
|
1,138,304
|
|
Total
|
|
|
7,188,540
|
|
|
|
6,858,168
|
|
Less: Accumulated depreciation
|
|
|
(4,559,812
|
)
|
|
|
(3,676,347
|
)
|
Property and equipment, net
|
|
$
|
2,628,728
|
|
|
$
|
3,181,821
|
|
Depreciation expense for the nine months
ended September 30, 2020 and 2019 was $947,271 and $1,010,052, respectively.
All property and equipment are pledged
to secure loans from Home State Bank as described below.
NOTE 9—INTANGIBLE ASSETS
The following
provides a breakdown of identifiable intangible assets as of September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Customer Relationships
|
|
|
|
|
|
|
Identifiable intangible assets, gross
|
|
$
|
496,000
|
|
|
$
|
34,000
|
|
Accumulated amortization
|
|
|
(34,635
|
)
|
|
|
(19,267
|
)
|
Customer relationship identifiable intangible assets, net
|
|
|
461,365
|
|
|
|
14,733
|
|
Marketing Related
|
|
|
|
|
|
|
|
|
Identifiable intangible assets, gross
|
|
|
547,000
|
|
|
|
-
|
|
Accumulated amortization
|
|
|
(36,468
|
)
|
|
|
-
|
|
Marketing related identifiable intangible assets, net
|
|
|
510,532
|
|
|
|
-
|
|
Total Identifiable intangible assets, net
|
|
$
|
971,897
|
|
|
$
|
14,733
|
|
In connection
with the acquisitions of Asien and Neese, the Company identified intangible assets of $1,009,000 and $34,000, respectively, representing
trade names and customer relationships. These assets are being amortized on a straight-line basis over their weighted average estimated
useful life of 9.5 years and amortization expense amounted to $51,836 and $5,100 for the nine months ended September 30, 2020 and
2019, respectively.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
As of September
30, 2020, the estimated annual amortization expense for each of the next five fiscal years is as follows:
2020 (remainder)
|
|
$
|
36,752
|
|
2021
|
|
|
147,008
|
|
2022
|
|
|
141,341
|
|
2023
|
|
|
140,208
|
|
2024
|
|
|
140,208
|
|
Thereafter
|
|
|
366,380
|
|
Total
|
|
$
|
971,897
|
|
NOTE 10—ACQUISITIONS
Goedeker
On January 18, 2019, Goedeker entered into
an asset purchase agreement with Goedeker Television and Steve Goedeker and Mike Goedeker (the “Stockholders”), pursuant
to which Goedeker agreed to acquire substantially all of the assets of Goedeker Television used in its retail appliance and furniture
business (the “Goedeker Business”).
On April 5, 2019, Goedeker, 1847 Goedeker,
and the Stockholders entered into an amendment to the asset purchase agreement and closing of the acquisition of substantially
all of the assets of Goedeker Television used in the Goedeker Business was completed (the “Goedeker Acquisition”).
The aggregate purchase price was $6,200,000
consisting of: (i) $1,500,000 in cash, subject to adjustment; (ii) the issuance of a promissory note in the principal amount of
$4,100,000; and (iii) up to $600,000 in earn out payments (as described below). As additional consideration, 1847 Goedeker agreed
to issue to each of the Stockholders a number of shares of its common stock equal to a 11.25% non-dilutable interest (22.5% total)
in all of the issued and outstanding stock of 1847 Goedeker as of the closing date.
The cash portion was decreased by the amount
of outstanding indebtedness of Goedeker Television for borrowed money existing as of the closing. As a result, the cash portion
was adjusted to $478,000.
The asset purchase agreement also provided
for an adjustment to the purchase price based on the difference between actual working capital at closing and Goedeker Television’s
preliminary estimate of closing date working capital. In accordance with the asset purchase agreement, an independent CPA
firm was retained by Goedeker and Goedeker Television to resolve differences in the working capital amounts. The report issued
by that CPA firm determined that Goedeker Television owed Goedeker $809,000, which Goedeker Television has not paid. On or
about March 23, 2020, Goedeker submitted a claim for arbitration to the American Arbitration Association relating to Goedeker Television’s
failure to pay the amount owed. The claim alleges, inter alia, breach of contract, fraud, indemnification and the breach
of the covenant of good faith and fair dealing. Goedeker is alleging damages in the amount of $809,000, plus attorneys’
fees and costs. The $809,000 is included in other assets in the accompanying balance sheet as of December 31, 2019.
On June 1, 2020, Goedeker entered into
a settlement agreement with Goedeker Television, Steve Goedeker, Mike Goedeker and 1847 Goedeker. The settlement agreement and
the related transaction documents that are exhibits to the settlement agreement were all signed on June 1, 2020 but only became
effective upon the closing of the Goedeker IPO. Pursuant to the settlement agreement, the parties entered into an amendment and
restatement of the 9% subordinated promissory note described above (see Note 4). In addition, the parties agreed that the arbitration
action described above would be settled effective upon the closing of the Goedeker IPO and that each party to such arbitration
action would release all claims that it has against the other parties to such action. As part of the settlement of the arbitration
action, Goedeker agreed that the sellers will not have to pay the $809,000 working capital adjustment amount resulting in a loss
on the acquisition receivable in the period ending September 30, 2020.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Goedeker Television is also entitled to
receive the following earn out payments to the extent the Goedeker Business achieves the applicable EBITDA (as defined in the asset
purchase agreement) targets:
|
1.
|
An earn out payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve
(12) month period from the closing date is $2,500,000 or greater;
|
|
2.
|
An earn out payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve
(12) month period from the first anniversary of closing date is $2,500,000 or greater; and
|
|
3.
|
An earn out payment of $200,000 if the EBITDA of the Goedeker Business for the trailing twelve
(12) month period from the second anniversary of the closing date is $2,500,000 or greater.
|
To the extent the EBITDA of the Goedeker
Business for any applicable period is less than $2,500,000 but greater than $1,500,000, Goedeker must pay a partial earn out payment
to Goedeker Television in an amount equal to the product determined by multiplying (i) the EBITDA Achievement Percentage by (ii)
the applicable earn out payment for such period, where the “Achievement Percentage” is the percentage determined by
dividing (A) the amount of (i) the EBITDA of the Goedeker Business for the applicable period less (ii) $1,500,000, by (B) $1,000,000.
For avoidance of doubt, no partial earn out payments shall be earned or paid to the extent the EBITDA of the Goedeker Business
for any applicable period is equal or less than $1,500,000. For the trailing twelve (12) month period from the closing date, EBITDA
for the Goedeker Business was $(2,825,000), so Goedeker Television is not entitled to an earn our payment for that period.
To the extent Goedeker Television is entitled
to all or a portion of an earn out payment, the applicable earn out payment(s) (or portion thereof) shall be paid on the date that
is three (3) years from the closing date, and shall accrue interest from the date on which it is determined Goedeker Television
is entitled to such earn out payment (or portion thereof) at a rate equal to five percent (5%) per annum, computed on the basis
of a 360 day year for the actual number of days elapsed.
The Company determined the fair value of
the earnout on the date of acquisition was $81,494. Such amount was recorded as a contingent consideration liability within the
accounts payable and accrued expense line item on the consolidated balance sheet and is revalued to fair value each reporting period
until settled. The year 1 contingent liability of $32,246 was written-off in the year ended December 31, 2019 as the target was
not met and the balance of the liability at September 30, 2020 is $49,248.
The provisional fair value of the purchase
consideration issued to Goedeker Television was allocated to the net tangible assets acquired. The Company accounted for the Goedeker
Acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities
acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company.
The fair value of the net liabilities assumed was approximately $614,337. The excess of the aggregate fair value of the net tangible
assets has been allocated to goodwill.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The
table below shows the analysis for the Goedeker asset purchase:
Purchase
consideration at final fair value:
|
|
|
|
Note payable, net of $462,102 debt discount and $215,500 of capitalized financing costs
|
|
$
|
3,422,398
|
|
Contingent note payable
|
|
|
81,494
|
|
Non-controlling interest
|
|
|
979,523
|
|
Amount of consideration
|
|
$
|
4,483,415
|
|
|
|
|
|
|
Assets acquired and liabilities assumed at fair value
|
|
|
|
|
Accounts receivable
|
|
$
|
334,446
|
|
Inventories
|
|
|
1,851,251
|
|
Working capital adjustment receivable and other assets
|
|
|
1,104,863
|
|
Property and equipment
|
|
|
216,286
|
|
Customer related intangibles
|
|
|
749,000
|
|
Marketing related intangibles
|
|
|
1,368,000
|
|
Accounts payable and accrued expenses
|
|
|
(3,929,876
|
)
|
Customer deposits
|
|
|
(2,308,307
|
)
|
Net tangible assets acquired (liabilities assumed)
|
|
$
|
(614,337
|
)
|
|
|
|
|
|
Total net assets acquired (liabilities assumed)
|
|
$
|
(614,337
|
)
|
Consideration paid
|
|
|
4,483,415
|
|
Goodwill
|
|
$
|
5,097,752
|
|
On
October 23, 2020, the Company completed a distribution of Goedeker. The common shareholders of the Company received an
aggregate of 2,660,007 shares of the common stock of Goedeker, which were distributed on a pro rata basis at a ratio of
0.710467618568632 shares of Goedeker’s common stock for each common share of the Company held on the record date, and
1847 Partners LLC, the manager of the Company and the sole holder of its allocation shares (the “Manager”),
received 664,993 shares of the common stock of Goedeker, which it then distributed to its members. As a result of this
distribution, Goedeker is no longer a majority-owned subsidiary of the Company. The distribution therefore resulted in the
disposition of the business and assets of Goedeker.
Asien’s
On
March 27, 2020, the Company and 1847 Asien entered into a stock purchase agreement with Asien’s and Joerg Christian Wilhelmsen
and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (the “Asien’s Seller”),
pursuant to which 1847 Asien agreed to acquire all of the issued and outstanding capital stock of Asien’s. The Company acquired Asien’s,
which provides a wide variety of appliance services, including sales, delivery/installation, in-home service and repair, extended
warranties, and financing in the North Bay area of Sonoma County, California to expand into the appliance industry.
On
May 28, 2020, the Company, 1847 Asien, Asien’s and the Asien’s Seller entered into an amendment to the
stock purchase agreement and closing of the acquisition of all of the issued and outstanding capital stock of Asien’s was
completed (the “Asien’s Acquisition”).
The
aggregate purchase price was $2,125,000 consisting of: (i) $233,000 in cash, subject to adjustment; (ii) the issuance of an amortizing
promissory note in the principal amount of $200,000; (iii) the issuance of a demand promissory note in the principal amount of
$655,000; and (iv) 415,000 common shares of the Company, having a mutually agreed upon value of $830,000 and a fair value of $1,037,500,
which may be repurchased by 1847 Asien for a period of one year following the closing at a purchase price of $2.50 per share.
The shares were repurchased by 1847 Asien on July 29, 2020.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The
purchase price is subject to a post-closing working capital adjustment provision based on the difference between actual working
capital at closing and the Asien’s Seller’s preliminary estimate of closing date working capital. If the final
working capital exceeds the preliminary working capital estimate, 1847 Asien must pay to the Asien’s Seller an amount of
cash that is equal to such excess. If the preliminary working capital estimate exceeds the final working capital, the Asien’s
Seller must pay to 1847 Asien an amount in cash equal to such excess.
The
provisional fair value of the purchase consideration issued to the Asien’s Seller was allocated to the net tangible assets
acquired. The Company accounted for the Asien’s Acquisition as the purchase of a business under GAAP under the acquisition
method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair
values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $1,171,272. The
excess of the aggregate fair value of the net tangible assets has been allocated to goodwill.
The
Company is currently in the process of completing the preliminary purchase price allocation as an acquisition of certain assets.
The final purchase price allocation for Asien’s will be included in the Company’s financial statements in future periods.
The table below shows preliminary analysis for the Asien’s Acquisition:
Provisional
Purchase Consideration at preliminary fair value:
|
|
|
|
Common shares
|
|
$
|
1,037,500
|
|
Notes payable
|
|
|
855,000
|
|
Due to seller
|
|
|
233,000
|
|
Amount of consideration
|
|
$
|
2,125,500
|
|
|
|
|
|
|
Assets acquired and liabilities assumed at preliminary fair value
|
|
|
|
|
Cash
|
|
$
|
1,501,285
|
|
Accounts receivable
|
|
|
235,746
|
|
Inventories
|
|
|
1,457,489
|
|
Other current assets
|
|
|
41,427
|
|
Property and equipment
|
|
|
157,052
|
|
Customer related intangibles
|
|
|
462,000
|
|
Marketing related intangibles
|
|
|
547,000
|
|
Accounts payable and accrued expenses
|
|
|
(280,752
|
)
|
Customer deposits
|
|
|
(2,405,703
|
)
|
Notes payable
|
|
|
(509,272
|
)
|
Other liabilities
|
|
|
(35,000
|
)
|
Net assets acquired
|
|
$
|
1,171,272
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
1,171,272
|
|
Consideration paid
|
|
|
2,125,500
|
|
Preliminary goodwill
|
|
$
|
954,228
|
|
The
estimated useful life remaining on the property and equipment acquired is 5 to 13 years.
Kyle’s
On
August 27, 2020, the Company and 1847 Cabinet entered into a stock purchase agreement with Kyle’s and Stephen Mallatt, Jr.
and Rita Mallatt (together, the “Asien’s Seller”), pursuant to which 1847 Cabinet agreed to acquire all of issued
and outstanding capital stock of Kyle’s. The Company acquired Kyle’s, a leading custom cabinetry maker servicing contractors
and homeowners in Boise, Idaho to expand into contracting services.
On
September 30, 2020, the Company, 1847 Cabinet, Kyle’s and the Kyle’s Seller entered into addendum to the stock
purchase and closing of the acquisition of all of the issued and outstanding capital stock of Kyle’s was completed (the
“Kyle’s Acquisition”)
The
aggregate purchase price was $$6,650,000, subject to adjustment as described below. The purchase price consists of (i) $4,200,000
in cash, (ii) an 8% contingent subordinated note in the aggregate principal amount of $1,050,000, and (iii) 700,000 common shares
of the Company, having a mutually agreed upon value of $1,400,000 and a fair value of $3,675,000. The shares were issued on October
16, 2020, immediately following the record date for the Goedeker Spin-Off described above.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The
purchase price is subject to a post-closing working capital adjustment provision based on the difference between actual working
capital at closing and the Kyle’s Seller’s preliminary estimate of closing date working capital. If the final
working capital exceeds the preliminary working capital estimate, 1847 Cabinet must pay to the Kyle’s Seller an amount of
cash that is equal to such excess. If the preliminary working capital estimate exceeds the final working capital, the Kyle’s
Seller must pay to 1847 Cabinet an amount in cash equal to such excess, provided, however, that the Kyle’s Seller may, at
its option, in lieu of paying such excess in cash, deliver and transfer to 1847 Cabinet a number of common shares of the Company
that is equal to such excess divided by $2.00.
In
addition to the post-closing net working capital adjustment described above, there was a target working capital adjustment, pursuant
to which if at the closing the preliminary working capital exceeded a target working capital of $154,000, then the purchase price
would be increased at the closing by the amount of such difference. Accordingly, as a result of the target working capital adjustment,
the cash portion of the purchase price at the closing was $4,356,162.
The
provisional fair value of the purchase consideration issued to the Kyle’s Seller was allocated to the net tangible assets
acquired. The Company accounted for the Kyle’s Acquisition as the purchase of a business under GAAP under the acquisition
method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair
values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $527,618. The excess
of the aggregate fair value of the net tangible assets has been allocated to goodwill.
The
Company is currently in the process of completing the preliminary purchase price allocation as an acquisition of certain assets.
The final purchase price allocation for Kyle’s will be included in the Company’s financial statements in future periods.
The table below shows preliminary analysis for the Kyle’s Acquisition:
Provisional Purchase Consideration at preliminary fair value:
|
|
|
|
Common shares
|
|
$
|
3,675,000
|
|
Notes payable
|
|
|
1,050,000
|
|
Due to seller
|
|
|
4,356,162
|
|
Amount of consideration
|
|
$
|
9,081,162
|
|
|
|
|
|
|
Assets acquired and liabilities assumed at preliminary fair value
|
|
|
|
|
Cash
|
|
$
|
130,000
|
|
Accounts receivable
|
|
|
385,095
|
|
Costs in excess of billings
|
|
|
122,016
|
|
Other current assets
|
|
|
13,707
|
|
Property and equipment
|
|
|
183,825
|
|
Accounts payable and accrued expenses
|
|
|
(263,597
|
)
|
Billings in excess of costs
|
|
|
(43,428
|
)
|
Net tangible assets acquired
|
|
$
|
527,618
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
527,618
|
|
Consideration paid
|
|
|
9,081,162
|
|
Preliminary goodwill
|
|
$
|
8,553,544
|
|
The
estimated useful life remaining on the property and equipment acquired is 3 to 7 years.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Proforma
The
following unaudited proforma results of operations are presented for information purposes only. The unaudited proforma results
of operations are not intended to present actual results that would have been attained had the Asien’s Acquisition and Kyle’s
Acquisition been completed as of January 1, 2019 or to project potential operating results as of any future date or for any future
periods. The revenue and net income before non-controlling interest of Asien’s since the May 28, 2020 acquisition date through
September 30, 2020 included in the consolidated income statement amounted to approximately $4,327,294 and $496,859, respectively.
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues, net
|
|
$
|
17,163,879
|
|
|
$
|
13,196,472
|
|
Net loss allocable to common shareholders
|
|
$
|
(671,350
|
)
|
|
$
|
(544,046
|
)
|
Net loss per share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.13
|
)
|
Weighted average number of shares outstanding
|
|
|
4,309,526
|
|
|
|
4,262,918
|
|
NOTE
11—NOTES PAYABLE
1847
Neese/Neese
Home
State Bank
On
June 13, 2018, Neese entered into a term loan agreement with Home State Bank, pursuant to which Neese issued a promissory note
to Home State Bank in the principal amount of $3,654,074 with an annual interest rate of 6.85% and with covenants to maintain
a minimum debt coverage ratio of 1.00 to 1.25 measured at December 31, 2019. Neese did not comply with this covenant for the year
ended December 31, 2019. The Company has classified the liability as current and long-term upon the renewal of the agreement in
July 2020 and will assess the covenant in the year end December 31, 2020 as required. On July 30, 2020, Neese entered into a change
in terms agreement with Home State Bank to amend the terms of the term loan. Pursuant to the change in terms agreement: (i) the
maturity date was extended to July 30, 2022; (ii) the interest rate was changed to 5.50%; (iii) Neese agreed to pay accrued interest
in the amount of $95,970; (iv) Neese agreed to make payments of $30,000 beginning on September 30, 2020 and continuing thereafter
on a monthly basis until maturity, at which time a final interest payment is due; (v) Neese agreed to make a payment of $260,000.00
on December 30, 2020 and December 30, 2021; (vi) Neese agreed to make two new advances under the note in the amounts $51,068
and $517,529 to repay in full Neese’s capital lease transactions due to Utica Leaseco LLC described below; (vii) Neese agreed
to pay a loan fee of $17,500; and (viii) Home State Bank agreed to make a loan advance to checking for $17,500. The balance of
the note amounts to $3,493,922, comprised of principal of $3,509,364, net of unamortized debt discount of $16,042 as of September
30, 2020.
The
loan agreement contains customary representations and warranties. Pursuant to the terms of the loan agreement and the note, an
“event of default” includes: (i) if Neese fails to make any payment when due under the note; (ii) if Neese fails to
comply with or to perform any other term, obligation, covenant or condition contained in the note or in any of the related documents
or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Home State
Bank and Neese; (iii) if Neese defaults under any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may materially affect any of Home State Bank’s property
or Neese’s ability to repay the note or perform Neese’s obligations under the note or any of the related documents;
(iv) if any warranty, representation or statement made or furnished to Home State Bank by Neese or on Neese’s behalf under
the note or the related documents is false or misleading in any material respect; (v) upon the dissolution or termination of Neese’s
existence as a going business, the insolvency of Neese, the appointment of a receiver for any part of Neese’s property,
any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy
or insolvency laws by or against Neese, (vi) upon commencement of foreclosure or forfeiture proceedings by any creditor of Neese
or by any governmental agency against any collateral securing the loan; and (vii) if a material adverse change occurs in Neese’s
financial condition, or Home State Bank believes the prospect of payment or performance of the note is impaired. If any event
of default occurs, all commitments and obligations of Home State Bank immediately will terminate and, at Home State Bank’s
option, all indebtedness immediately will become due and payable, all without notice of any kind to Neese. Additionally, upon
an event of default, the interest rate on the note will be increased by 3 percentage points. However, in no event will the interest
rate exceed the maximum interest rate limitations under applicable law.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The
loan is secured by inventory, accounts receivable, and certain fixed assets of Neese. The loan agreement limited the payment of
interest on certain promissory notes to $40,000 annually. The Company continues to accrue interest at the contractual amounts.
Such accruals (in excess of $40,000 in interest on the promissory notes) are shown as long-term accrued expenses in the accompanying
balance sheet as of September 30, 2020.
If
the Company sells property, plant, and equipment securing the loan, it must remit the appraised value of the equipment to Home
State Bank. During the nine months ended September 30, 2020 and 2019, $145,690 and $21,500, respectively, was remitted to Home
State Bank pursuant to this requirement.
The
Company adopted ASU 2015-03 by deducting debt issuance costs from the long-term portion of the loan. Amortization of debt issuance
costs totaled $1,458 and $16,200 for the three months ended September 30, 2020 and 2019, respectively.
10%
Promissory Note
A
portion of the purchase price for the acquisition of Neese was paid by the issuance of a promissory note in the principal amount
of $1,025,000 by 1847 Neese and Neese to the sellers of Neese. The note bears interest on the outstanding principal amount at
the rate of ten percent (10%) per annum and was due and payable in full on March 3, 2018; provided, however, that the unpaid principal,
and all accrued, but unpaid, interest thereon shall be prepaid if at any time, and from time to time, the cash on hand of 1847
Neese and Neese exceeds $250,000 and, then, the prepayment shall be equal to the amount of cash in excess of $200,000 until the
unpaid principal and accrued, but unpaid, interest thereon is fully prepaid.
The
note contains customary events of default, including in the event of: (i) non-payment; (ii) a default by 1847 Neese or Neese of
any of their covenants under the stock purchase agreement or any other agreement entered into in connection with the stock purchase
agreement, or a breach of any of their representations or warranties under such documents; or (iii) the bankruptcy of 1847 Neese
or Neese.
The
note has not been repaid; thus, the Company is in default under this note. Under terms of the term loan with Home State Bank described
above, this note may not be paid until the term loan is paid in full. The payees on the note agreed to the modification of its
terms by signing the loan agreement for the Home State Bank term loan. Accordingly, the loan is shown as a long-term liability
as of September 30, 2020. Additionally, Home State Bank limits the payment of interest on this note to $40,000 annually. The Company
continues to accrue interest at the contract rate; however, given the limitations of the term loan, all accrued interest in excess
of $40,000 is included in long-term accrued expenses.
1847
Asien/Asien’s
Arvest
Bank
On
July 10, 2020, Asien’s entered into a promissory note and security agreement with Arvest Bank for a revolving loan for up
to $400,000. The loan matures on July 10, 2021 and bears interest at 5.25% per annum, subject to change in accordance with the
Variable Rate (as defined in the promissory note and security agreement), the calculation for which is the U.S. Prime Rate plus
2%. Pursuant to the terms of the promissory note and security agreement, Asien’s is required to make monthly payments beginning
on August 10, 2020 and until the maturity date, at which time all unpaid principal and interest will be due. There is no balance
outstanding at September 30, 2020.
The
loan is secured by Asien’s inventory and equipment, accounts and other rights of payments, and general intangibles, as such
terms are defined in the Uniform Commercial Code. Asien’s may prepay the loan in full or in part at any time without penalty.
The
promissory note and security agreement contains customary events of default, including the occurrence of the following: (i) a
failure to make a payment in full when due; (ii) insolvency or bankruptcy; (iii) a merger, dissolution, reorganization of Asien’s;
(iv) a consolidation with, or the acquisition of substantially all of the assets of, another entity; and (v) a violation by Asien’s
of any term, condition or covenant in the promissory note and security agreement. The promissory note and security agreement also
contains customary representations, warranties, and affirmative and negative covenants for a loan of this type.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
8%
Subordinated Amortizing Promissory Note
A
portion of the purchase price for acquisition of Asien’s was paid by the issuance of an 8% subordinated amortizing promissory
note in the principal amount of $200,000 by 1847 Asien to the Asien’s Seller. Interest on the outstanding principal amount
will be payable quarterly at the rate of eight percent (8%) per annum. The outstanding principal amount of the note will amortize
on a one-year straight-line basis in accordance with a specified amortization schedule, with all unpaid principal and accrued,
but unpaid interest being fully due and payable on May 28, 2021. The remaining balance of the note at September 30, 2020 is $153,076,
comprised of principal of $151,505 and accrued interest of $1,571.
The
note contains customary events of default, including in the event of (i) non-payment, (ii) a default by 1847 Asien of any of its
covenants under the stock purchase agreement, the note, or any other agreement entered into in connection with the stock purchase
agreement, or a breach of any of its representations or warranties under such documents, or (iii) the bankruptcy of 1847 Asien.
The
right of the Asien’s Seller to receive payments under the note is subordinated to all indebtedness of 1847 Asien to banks,
insurance companies and other financial institutions or funds, and federal or state taxation authorities.
6%
Amortizing Promissory Note
On
July 29, 2020, 1847 Asien entered into a securities purchase agreement with the Asien’s Seller, pursuant to which the Asien’s
Seller sold to 415,000 of the Company’s common shares to 1847 Asien a purchase price of $2.50 per share. As consideration,
1847 Asien issued to the Asien’s Seller a two-year 6% amortizing promissory note in the aggregate principal amount of $1,037,500.
One-half (50%) of the outstanding principal amount of the note ($518,750) and all accrued interest thereon, will be amortized
on a two-year straight-line basis and is payable quarterly. The second-half (50%) of the outstanding principal amount of the note
($518,750) with all accrued, but unpaid interest thereon, is due on the second anniversary of the note. The note is unsecured
and contains customary events of default. The remaining balance of the note at September 30, 2020 is $1,053,361, comprised of
principal of $1,037,500 and accrued interest of $15,861.
Demand
Promissory Note
A
portion of the purchase price for acquisition of Asien’s was paid by the issuance of demand promissory note in the principal
amount of $655,000 by 1847 Asien to the Asien’s Seller. The note accrues interest at a rate of one percent (1%) computed
on the basis of a 360-day year. Principal and accrued interest on the note shall be payable 24 hours after written demand by the
Seller. The note was repaid in June 2020.
Inventory
Financing Agreement
On
September 25, 2020, Asien’s entered into an inventory financing agreement with Wells Fargo Commercial Distribution Finance,
LLC (“Wells Fargo”), pursuant to which Wells Fargo may extend credit to Asien’s from time to time to enable
it to purchase inventory from Wells Fargo-approved vendors. The term of the agreement is one year, and from year to year thereafter,
unless sooner terminated by either party upon 30 days written notice to the other party. As of September 30, 2020, Asien’s
has not borrowed any funds under this agreement.
The
inventory financing agreement contains customary representations, warranties, affirmative and negative covenants and events of
default for a loan of this type. The agreement is secured by all assets of Asien’s and is guaranteed by 1847 Asien and the
Company.
4.5%
Unsecured Promissory Note
On
October 30, 2017, Asien’s entered into a stock repurchase agreement with Paul A. Gwilliam and Terri L. Gwilliam, co-trustees
of the Gwilliam Family Trust, pursuant to which Asien’s issued an unsecured promissory note in the aggregate principal amount
of $540,000 for a term of 5 years or 60 months. The note bears interest at the rate of the 4.25% per annum. The remaining balance
of the note at September 30, 2020 is comprised of principal of $49,848.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Agreement
of Sale of Future Receipts
On
May 28, 2020, 1847 Asien and Asien’s entered into an agreement of sale of future receipts with TVT Direct Funding LLC (“TVT”),
pursuant to which 1847 Asien and Asien’s agreed to sell future receivables with a value of $685,000 to TVT for a purchase
price of $500,000. 1847 Asien and Asien’s agreed to deliver to TVT 20% of its weekly future receipts, or approximately $23,300,
over the course of an estimated seven-month term, or such date when the above amount of receivables has been delivered to TVT.
1847 Asien used the proceeds from this sale to finance the Asien’s Acquisition. In addition to all other sums due to TVT
under this agreement, 1847 Asien and Asien’s agreed to pay to TVT certain additional fees, including a one-time origination
fees of $25,000, as reimbursement of costs incurred by TVT for financial and legal due diligence. The future payments under the
TVT agreement are secured by a subordinated security interest in all of the tangible and intangible assets of 1847 Asien and Asien’s.
There is no remaining balance at September 30, 2020 and the agreement has been terminated.
Loans
on Vehicles
Asien’s
has entered into three retail installment sale contracts pursuant to which Asien’s agreed to finance its delivery trucks
at rates ranging 3.98% to 6.99% with an aggregate remaining principal amount of $97,215 as of September 30, 2020.
1847
Cabinet/Kyle’s
Vesting
Promissory Note
A
portion of the purchase price for the acquisition of Kyle’s on September 30, 2020 was paid by the issuance of a vesting
promissory note by 1847 Cabinet to the Kyle’s Seller in the principal amount of $1,050,000, which increased to a principal
amount of up to $1,260,000 pursuant to the vested percentage calculation described below. Payment of the principal and accrued
interest on the note is subject to vesting as described below. The note bears interest on the vested portion of principal amount
at the rate of eight percent (8%) per annum. To the extent vested, the vested portion of the principal and all accrued but unpaid
interest on such vested portion of the principal shall be paid in one lump sum on the last day of the thirty-sixth (36th) month
following the date of the note.
The
vested principal of the note due at the maturity date shall be calculated each year based on the average annual consolidated EBITDA
(as defined in the note) of 1847 Cabinet for each of the years ended December 31, 2020, 2021 and 2022. The EBITDA for each year
shall be divided by $1.4 million multiplied by 100 to obtain the vested percentage. The vested principal for each year shall be
equal to the vested percentage for that year multiplied by $350,000. To the extent that the vested percentage for the subject
year is less than 80%, no portion of the note for that year shall vest. To the extent that the vested percentage for the subject
year is equal to or greater than 120%, the vested principal shall be equal to $420,000 for that year and no more.
1847
Cabinet will have the right to redeem all but no less than all of the note at any time prior to the maturity date. If 1847 Cabinet
elects to redeem the note, the redemption price will be payable in cash and is equal to the then outstanding vested portion of
the principal plus any remaining unvested principal amount plus accrued but unpaid interest thereon (calculated over 36 months).
For purposes of this redemption calculation, the “unvested principal amount” shall be $350,000 per year.
The
note contains customary events of default. The right of the Kyle’s Seller to receive payments under the note is subordinated
to all indebtedness of 1847 Cabinet, whether outstanding as of the closing date or thereafter created, to banks, insurance companies
and other financial institutions or funds, and federal or state taxation authorities.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Intercompany
Secured Promissory Note
In
connection with the acquisition of Kyle’s, the Company provided 1847 Cabinet with the funds necessary to pay the cash portion
of the purchase price and cover acquisition expenses. In connection therewith, on September 30, 2020, 1847 Cabinet issued a secured
promissory note to the Company in the principal amount of $4,525,000.
The
note bears interest at the rate of 16% per annum. The interest is cumulative and any unpaid accrued interest will compound on
each anniversary date of the note. Interest is due and payable in arrears on January 15, April 15, July 15 and October 15 commencing
January 15, 2021. In the event payment of principal or interest due under the note is not made when due, giving effect to any
grace period which may be applicable, or in the event of any other default (as defined in the note), the outstanding principal
balance shall from the date of default immediately bear interest at the rate of 5% above the then applicable interest rate for
so long as such default continues.
The
Company may demand payment in full of the note at any time, even if 1847 Cabinet has complied with all of the terms of the note;
and the note shall be due in full, without demand, upon a third party sale of all or substantially all the assets and business
of 1847 Cabinet or a third party sale or other disposition of any capital stock of 1847 Cabinet. 1847 Cabinet may prepay the note
at any time without penalty.
The
note contains customary events of default, is guaranteed by Kyle’s and is secured by all of the assets of 1847 Cabinet and
Kyle’s.
PPP
Loans
On
April 10, 2020 and April 28, 2020, Neese and Asien’s received $383,600 and $357,500, respectively, in PPP loans from the
SBA under provisions of the CARES Act. The PPP loans have two-year terms and bear interest at a rate of 1.0% per
annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP
loans may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loans contain events of default
and other provisions customary for loans of this type. The PPP provides that the PPP loans may be partially or wholly forgiven
if the funds are used for certain qualifying expenses as described in the CARES Act. Neese and Asien’s intend to use
the proceeds from the PPP loans for qualifying expenses and to apply for forgiveness of the PPP loans in accordance with the terms
of the CARES Act. The Company has classified $453,307 of the PPP loans as current liabilities and $289,527 as long-term
liabilities pending SBA clarification of the final loan terms.
NOTE
12—FLOOR PLAN LOANS PAYABLE
At
September 30, 2020 and December 31, 2019, $0 and $10,581, respectively, of machinery and equipment inventory of Neese was pledged
to secure a floor plan loan from a commercial lender. Neese must remit proceeds from the sale of the secured inventory to the
floor plan lender and pays a finance charge that can vary monthly at the option of the lender. The balance of the floor plan payable
was repaid in nine months ended September 30, 2020.
NOTE
13—CONVERTIBLE PROMISSORY NOTE
On
April 5, 2019, the Company, 1847 Goedeker and Goedeker (collectively, “1847”) entered into a securities purchase agreement
with Leonite Capital LLC, a Delaware limited liability company (“Leonite”), pursuant to which 1847 issued to Leonite
a secured convertible promissory note in the aggregate principal amount of $714,286 due April 5, 2020. As additional consideration
for the purchase of the note, (i) the Company issued to Leonite 50,000 common shares, (ii) the Company issued to Leonite a five-year
warrant to purchase 200,000 common shares at an exercise price of $1.25 per share (subject to adjustment), which may be exercised
on a cashless basis, and (iii) 1847 Goedeker issued to Leonite shares of common stock equal to a 7.5% non-dilutable interest in
Holdco.
The
note carries an original issue discount of $64,286 to cover Leonite’s legal fees, accounting fees, due diligence fees and/or
other transactional costs incurred in connection with the purchase of the note. Furthermore, the Company issued 50,000 common
shares valued at $137,500 and a debt-discount related to the warrants valued at $292,673. The Company amortized $292,673 of financing
costs related to the shares and warrants in the nine months ended September 30, 2020.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
On
May 11, 2020, 1847 and Leonite entered into a first amendment to secured convertible promissory note, pursuant to which the parties
agreed (i) to extend the maturity date of the note to October 5, 2020, (ii) that 1847’s failure to repay the note on the
original maturity date of April 5, 2020 shall not constitute and event of default under the note and (iii) to increase the principal
amount of the note by $207,145, as a forbearance fee.
In
connection with the amendment, (i) the Company issued to Leonite another five-year warrant to purchase 200,000 common shares at
an exercise price of $1.25 per share (subject to adjustment), which may be exercised on a cashless basis and (ii) upon closing
of the Asien’s acquisition, 1847 Asien issued to Leonite shares of common stock equal to a 5% interest in 1847 Asien. The
amendment represented a prepayment of principal and accrued interest resulting in a debt extinguishment and we recorded an aggregate
extinguishment loss of $773,856.
Under
the note, Leonite had the right at any time at its option to convert all or any part of the outstanding and unpaid principal amount
and accrued and unpaid interest of the note into fully paid and non-assessable common shares or any shares of capital stock or
other securities of the Company into which such common shares may be changed or reclassified.
On
May 4, 2020, Leonite converted $100,000 of the outstanding balance of the note into 100,000 common shares.
On
July 21, 2020, Leonite converted $50,000 of the outstanding balance of the note into 50,000 common shares.
On
August 4, 2020, Goedeker used a portion of the proceeds from the Goedeker IPO to repay the note in full. The total payoff amount
was $780,653, consisting of principal of $771,431 and interest of $9,222.
On
September 2, 2020, the Company entered into amendment to the warrant issued to Leonite on April 5, 2019. Pursuant to the amendment,
the parties amended the warrant to allow for the conversion of the warrant into 180,000 common shares in exchange for Leonite’s
surrender of the remaining 20,000 common shares underlying this warrant, as well as all 200,000 common shares underlying the second
warrant issued to Leonite on May 11, 2020. On September 2, 2020, Leonite exercised the first warrant in accordance with the foregoing
amendment and the Company issued 180,000 common shares to Leonite. As a result of this exercise, both warrants were cancelled.
NOTE
14—FINANCING LEASE
The
cash portion of the purchase price for the acquisition of Neese was financed under a capital lease transaction for Neese’s
equipment with Utica Leaseco, LLC (“Utica”), pursuant to a master lease agreement, dated March 3, 2017, between Utica,
as lessor, and 1847 Neese and Neese, as co-lessees (collectively, the “Lessee”), which was amended on June 14, 2017.
Under the master lease agreement, as amended, Utica loaned an aggregate of $3,240,000 for certain of Neese’s equipment listed
therein, which it leases to the Lessee. A portion of the proceeds from the term loan from Home State Bank (see Note 11) were applied
to reduce the balance of this lease to $475,000. The lease is payable in 46 payments of $12,882 beginning July 3, 2018 and an
end-of-term buyout of $38,000.
On
October 31, 2017, the parties entered into a second equipment schedule to the master lease agreement, pursuant to which Utica
loaned an aggregate of $980,000 for certain of Neese’s equipment listed therein. The term of the second equipment schedule
is 51 months and agreed monthly payments are $25,807.
On
July 29, 2020, the Company paid $568,597 to repay this capital lease transaction with Utica in full.
NOTE
15—OPERATING LEASES
Neese
On
March 3, 2017, Neese entered into an agreement of lease with K&A Holdings, LLC, a limited liability company that is wholly
owned by officers of Neese. The agreement of lease is for a term of ten (10) years and provides for a base rent of $8,333 per
month. In the event of late payment, interest shall accrue on the unpaid amount at the rate of eighteen percent (18%) per annum.
The agreement of lease contains customary events of default, including if Neese shall fail to pay rent within five (5) days after
the due date, or if Neese shall fail to perform any other terms, covenants or conditions under the agreement of lease, and other
customary representations, warranties and covenants. Under terms of the term loan agreement with Home State Bank (Note 11), the
Company may not pay salary or rent to such officers of Neese in excess of $100,000 per year beginning on the date of the term
loan agreement, June 13, 2018. The Company is accruing monthly rent, but because of the limitation in the term loan, $275,000
of accrued rent is classified as a long-term accrued liability.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The
amount accrued for amounts included in the measurement of operating lease liabilities was $75,000 for the nine months ended September
30, 2020.
Future
minimum lease payments under this operating lease as of September 30, 2020 were as follows:
|
|
For the Years
Ended
|
|
2020 (reminder of year)
|
|
$
|
25,000
|
|
2021
|
|
|
100,000
|
|
2022
|
|
|
100,000
|
|
2023
|
|
|
100,000
|
|
2024
|
|
|
100,000
|
|
Thereafter
|
|
|
216,667
|
|
Total lease payments
|
|
|
641,667
|
|
Less imputed interest
|
|
|
(123,620
|
)
|
Maturities of lease liabilities
|
|
$
|
518,047
|
|
Neese
leased a piece of equipment on an operating lease. The lease originated in May 2014 for a five-year term with annual payments
of $11,830 with a final payment in July 2019.
Kyle’s
On
September 1, 2020, Kyle’s entered into an industrial lease agreement with the Kyle’s Seller. 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. In the event of late payment, interest shall accrue
on the unpaid amount at the rate of twelve percent (12%) per annum. The lease agreement contains customary events of default,
representations, warranties and covenants.
Future
minimum lease payments under this operating lease as of September 30, 2020 were as follows:
|
|
For the Years
Ended
|
|
2020 (remainder of year)
|
|
$
|
21,000
|
|
2021
|
|
|
84,840
|
|
2022
|
|
|
86,520
|
|
2023
|
|
|
87,385
|
|
2023
|
|
|
89,116
|
|
2025
|
|
|
59,410
|
|
Total lease payments
|
|
|
428,271
|
|
Less imputed interest
|
|
|
(54,355
|
)
|
Maturities of lease liabilities
|
|
$
|
373,916
|
|
Asien’s
Asien’s
has an office and showroom space that has been leased on a month-by-month basis for $11,665 per month.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
NOTE
16—RELATED PARTIES
Management
Services Agreement
On
April 15, 2013, the Company and 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 nine months
ended September 30, 2020 and 2019.
Offsetting
Management Services Agreements
1847
Neese entered into an offsetting management services agreement with the Manager on March 3, 2017, Goedeker entered into an offsetting
management services agreement with the Manager on April 5, 2019, which is included in discontinued operations, 1847 Asien entered
into an offsetting management services agreement with the Manager on May 28, 2020 and 1847 Cabinet entered into an offsetting
management services agreement with our manager on August 21, 2020. Pursuant to the offsetting management services agreements,
1847 Neese appointed the Manager to provide certain services to it for a quarterly management fee equal to $62,500, Goedeker appointed
the Manager to provide certain services to it for a quarterly management fee equal to $62,500, 1847 Asien 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 $75,000 or 2% of adjusted net assets (as defined in the management services
agreement); provided, however, in each case that (i) pro rated payments shall be made in the first quarter and the last quarter
of the term, (ii) if the aggregate amount of management fees paid or to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet, together
with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with
respect to any fiscal year exceeds, or is expected to exceed, 9.5% of the Company’s gross income with respect to such fiscal
year, then the management fee to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet for any remaining fiscal quarters in such fiscal
year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to the Manager by all of
the subsidiaries of the Company, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, 1847 Asien
or 1847 Cabinet, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager,
in each case, with respect to such fiscal year, does not exceed 9.5% of the Company’s gross income with respect to such
fiscal year, and (iii) if the aggregate amount the management fee paid or to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet,
together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case,
with respect to any fiscal quarter exceeds, or is expected to exceed, the Parent Management Fee with respect to such fiscal quarter,
then the management fee to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet for such fiscal quarter shall be reduced, on a pro
rata basis, until the aggregate amount of the management fee paid or to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet, together
with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with
respect to such fiscal quarter, does not exceed the Parent Management Fee calculated and payable with respect to such fiscal quarter.
Each
of 1847 Neese, 1847 Asien or 1847 Cabinet shall also reimburse the Manager for all of its costs and expenses which are specifically
approved by its board of directors, including all out-of-pocket costs and expenses, which are actually incurred by the Manager
or its affiliates on behalf of 1847 Neese, 1847 Asien or 1847 Cabinet in connection with performing services under the offsetting
management services agreements.
1847
Neese expensed $187,500 in management fees for the nine months ended September 30, 2020 and 2019. Under terms of the term loan
from Home State Bank (see Note 11), no fees may be paid to the Manager without permission of the bank, which the Manager does
not expect to be granted within the forthcoming year. Accordingly, $638,308 due from 1847 Neese to the Manager is classified as
a long-term accrued liability as of September 30, 2020.
1847
Asien expensed $103,022 in management fees for the period from May 29, 2020 to September 30, 2020.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Advances
From
time to time, the Company has received advances from its chief executive officer to meet short-term working capital needs. As
of September 30, 2020 and December 31, 2019, 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 September 30, 2020 and December 31, 2019, the Manager has funded the Company $69,573 and $62,499 in related party advances,
respectively. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.
Grid
Promissory Note
On
January 3, 2018, the Company issued a grid promissory note to the Manager in the initial principal amount of $50,000. The note
provides that the Company may from time to time request additional advances from the Manager up to an aggregate additional amount
of $100,000, which will be added to the note if the Manager, in its sole discretion, so provides. Interest shall accrue on the
unpaid portion of the principal amount and the unpaid portion of all advances outstanding at a fixed rate of 8% per annum, and
along with the outstanding portion of the principal amount and the outstanding portion of all advances, shall be payable in one
lump sum due on the maturity date, January 3, 2021. If all or a portion of the principal amount or any advance under the note,
or any interest payable thereon is not paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate of 12% per annum. In the event the Company completes a financing involving at least $500,000,
the Company must, contemporaneously with the closing of such financing transaction, repay the entire outstanding principal and
accrued and unpaid interest on the note. The note is unsecured and contains customary events of default. As of September 30, 2020
and December 31, 2019, the Manager has advanced $56,900 and $119,400 of the note and the Company has accrued interest of $24,385
and $17,115, respectively.
Building
Lease
On
March 3, 2017, Neese entered into an agreement of lease with K&A Holdings, LLC, a limited liability company that is wholly
owned by officers of Neese. See Note 15 for details regarding this lease.
NOTE
17—SHAREHOLDERS’ DEFICIT
Allocation
Shares
As
of September 30, 2020 and December 31, 2019, the Company had authorized and outstanding 1,000 allocation shares. These allocation
shares do not entitle the holder thereof to vote on any matter relating to the Company other than in connection with amendments
to the Company’s operating agreement and in connection with certain other corporate transactions as specified in the operating
agreement.
The
Manager owns 100% of the allocation shares of the Company, which are a separate class of limited liability company interests that,
together with the common shares, will comprise all of the classes of equity interests of the Company. The Manager received the
allocation shares with its initial capitalization of the Company. The allocation shares generally will entitle the Manager to
receive a twenty percent (20%) profit allocation as a form of incentive designed to align the interests of the Manager with those
of the Company’s shareholders. Profit allocation has two components: an equity-based component and a distribution-based
component. The equity-based component will be paid when the market for the Company’s shares appreciates, subject to certain
conditions and adjustments. The distribution-based component will be paid when the distributions the Company pays to shareholders
exceed an annual hurdle rate of eight percent (8.0%), subject to certain conditions and adjustments. While the equity-based component
and distribution-based component are interrelated in certain respects, each component may independently result in a payment of
profit allocation if the relevant conditions to payment are satisfied.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The
1,000 allocation shares are issued and outstanding and held by the Manager, which is controlled by Mr. Roberts, the Company’s
chief executive officer and controlling shareholder.
Series
A Senior Convertible Preferred Shares
On
September 30, 2020, the Company executed a certificate of designation to designate 3,157,895 of its shares as series A senior
convertible preferred shares. Following is a description of the rights of the series A senior convertible preferred shares.
Dividends.
Dividends at the rate per annum of 14.0% of the stated value ($1.90 per share, subject to adjustment) shall accrue on the
series A senior convertible preferred shares. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative.
Dividends shall be payable quarterly in arrears on each dividend payment date in cash or common shares at the Company’s
discretion. Dividends payable in common shares shall be calculated based on a price equal to eighty percent (80%) of the volume
weighted average price (“VWAP”) 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.
Liquidation.
Subject to the rights of the Company’s creditors and the holders of any senior securities or parity securities (in each
case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment
or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of securities
that are junior to the series A senior convertible preferred shares as to the distribution of assets on any liquidation of the
Company, each holder of outstanding series A senior convertible preferred shares shall be entitled to receive an amount of cash
equal to 115% of the stated value plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether
or not declared) to, but not including the date of final distribution to such holders. If, upon any liquidation of the Company,
the assets of the Company, or proceeds thereof, distributable among the holders of the series A senior convertible preferred shares
shall be insufficient to pay in full the preferential amount payable to the holders of the series A senior convertible preferred
shares and liquidating payments on any other shares of any class or series of parity securities as to the distribution of assets
on any liquidation of the Company, then such assets, or the proceeds thereof, shall be distributed among the holders of series
A senior convertible preferred shares and any such other parity securities ratably in accordance with the respective amounts that
would be payable on such series A senior convertible preferred shares and any such other parity securities if all amounts payable
thereon were paid in full.
Voting
Rights. The series A senior convertible preferred shares do not have any voting rights; provided that, so long as any series
A senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series A senior convertible
preferred shares, which majority must include Leonite so long as Leonite holds any series A senior convertible preferred shares
(the “Requisite Holders”), voting as a separate class, shall be necessary for approving, effecting or validating any
amendment, alteration or repeal of any of the provisions of the certificate of designation. In addition, so long as any series
A senior convertible preferred shares are outstanding, the affirmative vote of the Requisite Holders shall be required prior to
the Company’s or Kyle’s creation or issuance of (i) any parity securities; (ii) any senior securities; and (iii) any
new indebtedness other than intercompany indebtedness by Kyle’s in favor of the Company, except any financing transaction
the use of proceeds of which the Company will use to redeem the series A senior convertible preferred shares and the warrants.
Conversion
Rights. Each series A senior convertible preferred share, plus all accrued and unpaid dividends thereon, shall be convertible,
at the option of the holder thereof, at any time and from time to time into such number of fully paid and nonassessable common
shares determined by dividing the stated value, plus the value of the accrued, but unpaid, dividends thereon, by the conversion
price of $2.00 per share; provided that in no event shall the holder of any series A senior convertible preferred shares be entitled
to convert any number of series A senior convertible preferred shares that upon conversion the sum of (i) the number of common
shares beneficially owned by the holder and its affiliates and (ii) the number of common shares issuable upon the conversion of
the series A senior convertible preferred shares with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common shares of the
Company. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than
sixty-one (61) days’ prior notice to the Company.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Redemption.
The Company may redeem in whole (but not in part) the series A senior convertible preferred shares by paying in cash therefore
a sum equal to 115% of the stated value plus the amount of accrued and unpaid plus any other amounts due pursuant to the terms
of the series A senior convertible preferred shares.
Adjustments.
In addition to standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications,
dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar
transactions, the certificate of designation contains a provision regarding adjustments to the dividend rate, stated value and
conversion price as follows:
|
●
|
On
the first day of the 12th month following the
issuance date of any series A senior convertible preferred share, the stated dividend
rate shall automatically increase by five percent (5.0%) per annum and the conversion
price shall automatically adjust to the lower of the (i) initial conversion price and
(ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding
such date.
|
|
●
|
On
the first day of the 24th month following the
issuance date of any series A senior convertible preferred, the stated dividend
rate shall automatically increase by an additional five percent (5.0%) per annum, the
stated value shall automatically increase by ten percent (10%) and the conversion price
shall automatically adjust to the lower of the (i) initial conversion price and (ii)
the price equal to the lowest VWAP of the ten (10) trading days immediately preceding
such date.
|
|
●
|
On
the first day of the 36th month following the
issuance date of any series A senior convertible preferred share, the stated dividend
rate shall automatically increase by an additional five percent (5.0%) per annum, the
stated value shall automatically increase by ten percent (10%) and the conversion price
shall automatically adjust to the lower of the (i) initial conversion price and (ii)
the price equal to the lowest VWAP of the ten (10) trading days immediately preceding
the third adjustment date.
|
Additional
Equity Interest. On the third adjustment date set forth above, the Company is required to cause the Acquired Company (as defined
below) to issue to the holders of series A senior convertible preferred shares, on a pro rata basis, a ten percent (10%) equity
stake in any company (in the aggregate) (the “Acquired Company”) acquired with the proceeds from the sale of the series
A senior convertible preferred shares (collectively, the “Additional Equity Interest”). The Company is required to
cause the Acquired Company to grant to the holders of the series A senior convertible preferred shares upon the issuance to them
of the Additional Equity Interest a right to receive an additional number of shares of common stock of the Acquired Company if
the Acquired Company issues to any third party equity securities at a price below the Acquisition Price (as defined below). Such
additional number of shares of common stock of the Acquired Company to be issued in such instance shall be equal to a number of
shares of common stock of the Acquired Company which, when added to the number of shares of Common Stock of the Acquired Company
constituting the Additional Equity Interest, would be equal to the total number of shares of Common Stock which would have been
issued to a holder of series A senior convertible preferred shares if the price per share of Common Stock of the Acquired Company
was equivalent to the price per equity security paid by such third party in the Acquired Company. For purposes of this provision,
“Acquisition Price” means the price per share of the Acquired Company that was paid by the Company upon the acquisition
of the Acquired Company.
On
September 30, 2020, the Company sold an aggregate of 2,189,835 units, at a price of $1.90 per unit, for aggregate gross proceeds
of $4,160,684. Each unit consists of one (1) series A senior convertible preferred share and a three-year warrant to purchase
one (1) common share at an exercise price of $2.50 per common share (subject to adjustment), which may be exercised on a cashless
basis under certain circumstances. The subscription agreement was executed on September 30, 2020 and the shares and warrants were
issued on such day. The funds were received from the investors after the end of the quarter (on October 6, 2020) and thus a subscription
receivable of approximately $4.16 million was recorded within stockholders equity at September 30, 2020. In accordance with ASC
470, if debt or stock is issued with detachable warrants and/or stock, the guidance in ASC 470 requires that the proceeds be allocated
to the instruments based on their relative fair values. The Company applied this guidance and recorded a deemed dividend of $2,404,120
as a result of a beneficial conversion feature. As the Company does not have any retained earnings this deemed dividend was netting
against additional paid-in capital and the net accounting effect was none.
Common
Shares
The
Company is authorized to issue 500,000,000 common shares as of September 30, 2020 and December 31, 2019. As of September 30, 2020
and December 31, 2019, the Company had 4,444,013 and 3,165,625 common shares issued and outstanding, respectively. The common
shares entitle the holder thereof to one vote per share on all matters coming before the shareholders of the Company for a vote.
On
April 5, 2019, the Company issued 50,000 common shares to Leonite pursuant to the securities purchase agreement (see Note 13).
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
On
May 4, 2020, the Company issued 100,000 common shares to Leonite upon conversion of $100,000 of the outstanding balance of the
secured convertible promissory note resulting is a loss on conversion of debt of $175,000 (see Note 13).
On
May 28, 2020, the Company issued 415,000 common shares, having a fair value of $1,037,500, to the Asien’s Seller in connection
with the Asien’s Acquisition, which were subject to repurchase by 1847 Asien for a period of one year following the closing
at a purchase price of $2.50 per share. These shares were repurchased by 1847 Asien on July 29, 2020. On August 28, 2020, 1847
Asien distributed these 415,000 shares to its stockholders, pro rata in accordance with their holdings. The Company, as the holder
of 95% of the outstanding common stock of 1847 Asien, received 394,112 shares in connection with this distribution, which were
then returned to the Company’s treasury and cancelled (see Note 11).
On
June 4, 2020, the Company issued 100,000 common shares to a service provider for services provided to the Company. The fair market
value of the services amounted to $245,000.
On
July 21, 2020, the Company issued 50,000 common shares to Leonite upon conversion of $50,000 of the outstanding balance of the
secured convertible promissory note resulting is a loss on conversion of debt of $50,000 (see Note 13).
On
September 2, 2020, the Company issued 180,000 common shares to Leonite upon exercise of its warrants (see Note 13).
The
Company issued a total of 50,000 warrants to service providers for services provided to the Company. The fair market value of
the services amounted to $87,550. On September 2, 2020, the warrants were exercised at $1.25 per warrant for proceeds of $62,500.
Options
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Contractual
Term in
Years
|
|
Outstanding at January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
90,000
|
|
|
$
|
2.50
|
|
|
|
5.0
|
|
Exercised
|
|
|
77,500
|
|
|
|
2.50
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(12,500
|
)
|
|
|
2.50
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercisable at September 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
On
May 11, 2020, the Company granted options to directors Paul A. Froning and Robert D. Barry to purchase 60,000 and 30,000 common
shares, respectively, each at an exercise price of $2.50 per share. The options vested immediately on the date of grant
and terminate on May 11, 2025. On September 29, 2020, Mr. Barry exercised the options cashless and on September 30, 2020, Mr.
Froning exercised the options for proceeds of $150,000.
Warrants
|
|
Number
of
Common
Stock
Warrants
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
life
(years)
|
|
|
Intrinsic
value
of
Warrants
|
|
Outstanding, January 1, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
200,000
|
|
|
|
1.25
|
|
|
|
5.00
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
200,000
|
|
|
|
1.25
|
|
|
|
4.26
|
|
|
|
|
|
Granted
|
|
|
2,439,835
|
|
|
|
2.37
|
|
|
|
3.20
|
|
|
|
|
|
Exercised
|
|
|
(230,000
|
)
|
|
|
1.25
|
|
|
|
-
|
|
|
|
|
|
Canceled
|
|
|
(220,000
|
)
|
|
|
1.25
|
|
|
|
-
|
|
|
|
|
|
Outstanding, September 30, 2020
|
|
|
2,189,835
|
|
|
$
|
2.50
|
|
|
|
3.00
|
|
|
$
|
6,569,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2020
|
|
|
2,189,835
|
|
|
$
|
2.50
|
|
|
|
3.00
|
|
|
$
|
6,569,505
|
|
On
April 5, 2019, the Company issued a warrant to purchase 200,000 common shares to Leonite pursuant to the securities purchase agreement.
On May 11, 2020, the Company issued another warrant to purchase 200,000 common shares to Leonite pursuant to an amendment to the
securities purchase agreement. The warrants have a term of five years, an exercise price of $1.25 per share (subject to adjustment),
and may be exercised on a cashless basis (see Note 13).
On
September 2, 2020, the Company entered into amendment to the warrant issued to Leonite on April 5, 2019. Pursuant to the amendment,
the parties amended the warrant to allow for the conversion of the warrant into 180,000 common shares in exchange for Leonite’s
surrender of the remaining 20,000 common shares underlying this warrant, as well as all 200,000 common shares underlying the second
warrant issued to Leonite on May 11, 2020. On September 2, 2020, Leonite exercised the first warrant in accordance with the foregoing
amendment and the Company issued 180,000 common shares to Leonite. As a result of this exercise, both warrants were cancelled
(see Note 13).
Accordingly,
a portion of the proceeds was allocated to the warrant based on its relative fair value using the Black Scholes option-pricing
model. The assumptions used in the Black-Scholes model are as follows: (i) dividend yield of 0%; (ii) expected
volatility of 128.52%, (iii) weighted average risk-free interest rate of 0.36%, (iv) expected life of five
years, and (v) estimated fair value of the common shares of $2.50 per share in the amount of $448,211 and recorded as part of
the Loss on Extinguishment of Debt included in discontinued operations in the nine months ended September 30, 2020.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
On
April 5, 2019, Goedeker, as borrower, and Holdco entered into a loan and security agreement with SBCC for a term loan in the principal
amount of $1,500,000, pursuant to which Goedeker issued to SBCC a term note in the principal amount of up to $1,500,000 and
a ten-year warrant to purchase shares of the most senior capital stock of Goedeker equal to 5.0% of the outstanding equity securities
of Goedeker on a fully-diluted basis for an aggregate price equal to $100. At December 31, 2019 the warrants were valued at $122,344.
On August 4, 2020, SBCC converted the warrant
into 250,000 shares of Goedeker’s common stock (see Note 11).
On
September 30, 2020, the Company sold an aggregate of 2,189,835 units, at a price of $1.90 per unit, for aggregate gross proceeds
of $4,160,654. Each unit consists of one (1) series A senior convertible preferred share and one (1) three-year warrant. Accordingly,
a portion of the proceeds were allocated to the warrant based on its 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 63.25%; (iii) weighted average risk-free interest rate of 0.16%; (iv) expected life of three years; (v) estimated fair value
of the common shares of $5.25 per share; and (vi) various probability assumptions related to redemption, calls and price resets.
The ultimate amount allocated to the warrants was $1,756,567, which was recorded as additional paid in capital.
The
warrants allow the holder to purchase one (1) common share at an exercise price of $2.50 per common share (subject to adjustment
including upon any future equity offering with a lower exercise price), which may be exercised on a cashless basis under certain
circumstances. Upon a reduction to the exercise price of such warrants, the number of warrant shares shall increase such that
the aggregate exercise price will remain the same. The warrant has a term of three years and is callable by the Company after
one year if the 30 day average stock price is in excess of $5 and the trading volume in the Company’s shares exceed 100,000
shares a day over such period. The Company can also redeem the warrants during the term for $0.50 a warrant in the first year;
$1.00 a warrant in the second year; and $1.50 a warrant in the third year.
Noncontrolling
Interests
The
Company owns 55.0% of 1847 Neese, 95% of 1847 Asien and 92.5% of 1847 Cabinet.
For financial interests in which the Company owns a controlling financial interest, the Company applies the provisions of ASC
810, which are applicable to reporting the equity and net income or loss attributable to noncontrolling interests. The results
of 1847 Neese and 1847 Asien and are included in the consolidated statement of income as of September 30, 2020. The net loss attributable
to the 45% non-controlling interest of 1847 Neese amounted to $649,818 and $628,210 for the nine months ended September 30, 2020
and 2019, respectively. The net loss attributable to the 5% non-controlling interest of 1847 Asien amounted to $19,993 for the
period from May 29, 2020 to September 30, 2020.
NOTE
18—COMMITMENTS AND CONTINGENCIES
An
office space has been leased on a month-by-month basis.
The
officers and directors are involved in other business activities and most likely will become involved in other business activities
in the future.
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
NOTE
19—SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental
disclosures of cash flow information for the nine months ended September 30, 2020 and 2019 were as follows:
|
|
For the Nine Months
Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Interest paid
|
|
$
|
219,023
|
|
|
$
|
595,000
|
|
Income tax paid
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Business combinations:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,255,480
|
|
|
$
|
-
|
|
Property and equipment
|
|
|
340,877
|
|
|
|
-
|
|
Working capital adjustment receivable
|
|
|
-
|
|
|
|
-
|
|
Assumed liabilities
|
|
|
(3,537,752
|
)
|
|
|
-
|
|
Intangible assets
|
|
|
1,009,000
|
|
|
|
-
|
|
Goodwill
|
|
|
9,507,772
|
|
|
|
-
|
|
Cash acquired in acquisitions
|
|
$
|
1,398,285
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing:
|
|
|
|
|
|
|
|
|
Due to seller (cash paid to seller day after closing)
|
|
$
|
4,589,162
|
|
|
$
|
-
|
|
Debt discount on factoring agreement
|
|
$
|
210,000
|
|
|
$
|
-
|
|
Financed purchases of property and equipment
|
|
$
|
21,968
|
|
|
$
|
-
|
|
Term loan
|
|
$
|
-
|
|
|
$
|
1,500,000
|
|
Debt discount financing costs
|
|
|
-
|
|
|
|
(178,000
|
)
|
Warrant feature upon issuance of term loan
|
|
|
-
|
|
|
|
(229,244
|
|
Term loan, net
|
|
$
|
-
|
|
|
|
1,092,756
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
-
|
|
|
$
|
754,682
|
|
Debt discount on line of credit
|
|
|
-
|
|
|
|
(128,682
|
)
|
Issuance of common shares on promissory note
|
|
|
-
|
|
|
|
(137,500
|
|
Line of credit, net
|
|
$
|
-
|
|
|
$
|
488,500
|
|
|
|
|
|
|
|
|
|
|
Promissory notes
|
|
$
|
2,115,000
|
|
|
$
|
714,286
|
|
Promissory note original issue and debt discount
|
|
|
-
|
|
|
|
(79,286
|
)
|
Warrants issued in conjunction with notes payable
|
|
|
(210,000
|
)
|
|
|
(292,673
|
)
|
Promissory note, net
|
|
$
|
1,905,000
|
|
|
|
342,327
|
|
|
|
|
|
|
|
|
|
|
9% subordinated promissory note
|
|
$
|
-
|
|
|
$
|
4,700,000
|
|
Debt discount financing costs
|
|
|
-
|
|
|
|
(215,500
|
)
|
9% Subordinated promissory note, net
|
|
$
|
-
|
|
|
$
|
4,484,500
|
|
Equity:
|
|
|
|
|
|
|
|
|
Issuance of preferred stock and warrants for subscriptions receivable
|
|
$
|
4,160,686
|
|
|
$
|
-
|
|
Additional Paid in Capital – common shares and warrants issued
|
|
$
|
87,500
|
|
|
$
|
430,173
|
|
|
|
|
|
|
|
|
|
|
Common stock used for business combinations:
|
|
|
|
|
|
|
|
|
Common shares
|
|
$
|
1,115
|
|
|
$
|
-
|
|
Additional paid in capital
|
|
$
|
4,711,385
|
|
|
$
|
-
|
|
Leases:
|
|
|
|
|
|
|
|
|
Operating lease, ROU assets and liabilities
|
|
$
|
373,916
|
|
|
$
|
3,325,558
|
|
1847 HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
NOTE
20—SUBSEQUENT EVENTS
In
accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2020 to the date these financial
statements were issued, and has determined that, except as set forth below, it does not have any material subsequent events to
disclose in these financial statements.
On
October 23, 2020, the Company completed a distribution of Goedeker. The common shareholders of the Company received an
aggregate of 2,660,007 shares of the common stock of Goedeker, which were distributed on a pro rata basis at a ratio of
0.710467618568632 shares of Goedeker’s common stock for each common share of the Company held on the record date, and
the Manager, the manager of the Company and the sole holder of its allocation shares, received 664,993 shares of the common stock
of Goedeker, which it then distributed to its members. As a result of this distribution, Goedeker is no longer a
majority-owned subsidiary of the Company. The distribution therefore resulted in the disposition of the business and assets
of Goedeker.
On
October 26, 2020, the Company completed a final closing of the unit offering, pursuant to which the Company sold an aggregate
of 442,443 units for an aggregate purchase price of $840,640 (See Note 17).
On
November 20, 2020, the Company and the Requisite Holders amended the certificate of designation for the series A senior convertible
preferred shares to provide that, notwithstanding anything to the contrary contained in the certificate of designation, the conversion
price for purposes of the adjustments described under “Adjustments” in Note 17 above shall not be adjusted to a number
that is below $0.0075.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion
and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment
and understanding of our plans and financial condition. The following financial information is derived from our financial
statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context
and for the purposes of this report only, references in this report to “we,” “us,” “our” and
the “Company” refer to 1847 Holdings LLC, a Delaware limited liability company, and its consolidated subsidiaries.
References to the “Manager” refer to 1847 Partners LLC, a Delaware limited liability company.
Special Note Regarding Forward Looking Statements
Certain information contained in this report
includes forward-looking statements. The statements herein which are not historical reflect our current expectations and projections
about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information
currently available to our management and our interpretation of what is believed to be significant factors affecting our businesses,
including many assumptions regarding future events. The following factors, among others, may affect our forward-looking statements:
|
●
|
our
ability to successfully identify and acquire additional businesses, and to operate such
businesses that we may acquire in the future and to effectively integrate and improve
such businesses;
|
|
●
|
our
organizational structure, which may limit our ability to meet our dividend and distribution
policy;
|
|
●
|
our
ability to service and comply with the terms of our indebtedness;
|
|
●
|
our
cash flow available for distribution and our ability to make distributions in the future
to our common shareholders;
|
|
●
|
our
ability to pay the management fee, profit allocation and put price to the Manager when
due;
|
|
●
|
labor
disputes, strikes or other employee disputes or grievances;
|
|
●
|
our
ability to implement our acquisition and management strategies;
|
|
●
|
the
regulatory environment in which our businesses operate under;
|
|
●
|
trends
in the industries in which our businesses operate;
|
|
●
|
the
competitive environment in which our businesses operate;
|
|
●
|
changes
in general economic or business conditions or economic or demographic trends in the United
States including changes in interest rates and inflation;
|
|
●
|
our
ability to retain or replace qualified employees of our businesses;
|
|
●
|
casualties,
condemnation or catastrophic failures with respect to any of our businesses’ facilities;
|
|
●
|
costs
and effects of legal and administrative proceedings, settlements, investigations and
claims; and
|
|
●
|
extraordinary
or force majeure events affecting our business or operations.
|
Forward-looking statements, which involve
assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,”
“should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,”
or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results,
performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied
by, these forward-looking statements as a result of various risks, uncertainties and other factors. Actual events or results may
differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation,
the risks outlined under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December
31, 2019 and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that
the forward-looking statements contained in this report will in fact occur.
Potential investors should not place undue
reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking
to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances
or any other reason.
Overview
We are an acquisition holding company focused
on acquiring and managing a group of small businesses, which we characterize as those that have an enterprise value of less than
$50 million, in a variety of different industries headquartered in North America. To date, we have completed four acquisitions.
In March 2017, our subsidiary 1847 Neese
Inc. (“1847 Neese”) acquired Neese, Inc. (“Neese”). Headquartered in Grand Junction, Iowa and founded in
1991, Neese is an established business specializing in providing a wide range of land application services and selling equipment
and parts, primarily to the agricultural industry, but also to the construction and lawn and garden industries.
In April 2019, our subsidiary 1847 Goedeker
Inc. (“Goedeker”) acquired substantially all of the assets of Goedeker Television Co. (“Goedeker Television”),
a one-stop e-commerce destination for home furnishings, including appliances, furniture, home goods and related products. As a
result of this transaction, Goedeker acquired the former business of Goedeker Television and continues to operate this business.
On October 23, 2020, we distributed all of the shares of Goedeker that we held to our shareholders (the “Goedeker Spin-Off”).
As a result of the Goedeker Spin-Off, Goedeker is no longer a subsidiary of the Company.
In May 2020, our subsidiary 1847 Asien
Inc. (“1847 Asien”) acquired Asien’s Appliance, Inc. (“Asien’s”). Asien’s has been in
business since 1948 serving the North Bay area of Sonoma County, California. It provides a wide variety of appliance services,
including sales, delivery/installation, in-home service and repair, extended warranties, and financing. Its main focus is delivering
personal sales and exceptional service to its customers at competitive prices.
In September 2020, our subsidiary 1847
Cabinet Inc. (“1847 Cabinet”) acquired Kyle’s Custom Wood Shop, Inc. (“Kyle’s”). Kyle’s
is a leading custom cabinetry maker servicing contractors and homeowners since 1976 in Boise, Idaho and the surrounding area. Kyle’s
focuses on designing, building, and installing custom cabinetry primarily for custom and semi-custom builders.
Through our structure, we offer investors
an opportunity to participate in the ownership and growth of a portfolio of businesses that traditionally have been owned and managed
by private equity firms, private individuals or families, financial institutions or large conglomerates. We believe that our management
and acquisition strategies will allow us to achieve our goals to begin making and growing regular distributions to our common
shareholders and increasing common shareholder value over time.
We seek to acquire controlling interests
in small businesses that we believe operate in industries with long-term macroeconomic growth opportunities, and that have positive
and stable earnings and cash flows, face minimal threats of technological or competitive obsolescence and have strong management
teams largely in place. We believe that private company operators and corporate parents looking to sell their businesses will consider
us to be an attractive purchaser of their businesses. We intend to make these future businesses our majority-owned subsidiaries
and intend to actively manage and grow such businesses. We expect to improve our businesses over the long term through organic
growth opportunities, add-on acquisitions and operational improvements.
Recent Developments
Impact of Coronavirus Pandemic
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States.
On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United
States declared a national emergency. Most states and cities have reacted by instituting quarantines, restrictions on travel, “stay
at home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response
to the pandemic and the need to contain it.
Effective March 18, 2020, the County of
Sonoma, California issued a shelter in place order. Pursuant to this order, non-essential businesses were ordered to close. Asien’s
was qualified as an essential business and remained open under a modified service plan whereby customers were allowed access to
the demonstration floor by appointment only with access limited to one customer party (following published guidelines a customer
party was defined as no more than 3 adults and no children). Effective June 6, 2020, Sonoma County modified the retail guidelines
for essential businesses and Asien’s store allowed access for retail customer parties without appointment but with limitations
on the number of individuals allowed in the store. More recently, on July 13, 2020, the state of California issued new restrictions
on business activities in certain counties, including Sonoma County, due to the increase in cases. These new restrictions primarily
relate to indoor activities of certain businesses and do not affect retail stores, such as Asien’s; however, if the spread
of the virus is not contained, we expect that additional restrictions may be imposed. Furthermore, Asien’s is dependent upon
suppliers to provide it with all of the products that its sells. The pandemic has impacted and may continue to impact suppliers
and manufacturers of certain of its products. As a result, Asien’s has faced and may continue to face delays or difficulty
sourcing certain products, which could negatively affect its business and financial results. Even if Asien’s is able to find
alternate sources for such products, they may cost more, which could adversely impact Asien’s profitability and financial
condition.
Idaho, where Kyle’s is located, issued
a “stay at home” order beginning on March 27, 2020. The order was initially in place until April 15, then undergone
several extensions, and was lifted on April 30, 2020. Currently the state of Idaho is under a Department of Health and Welfare
Stay Healthy Order. Kyle’s was in an industry designated as Essential Critical Infrastructure Workforce and remained operational
during the “stay at home” order; as such, Kyle’s remained, and continues to do so, observant to social-distancing
and mask-wearing guidance and all other State, County and City mandates. Therefore, there was minimal disruption to Kyle’s
business operations during the Idaho’s “stay at home” period. However, during the “stay at home”
period, certain key customers of Kyle’s elected to either temporarily stop building homes or delayed their building process,
which adversely affected Kyle’s sales. As a result, Kyle’s generated comparatively lower-than-expected sales. Further,
during the “stay at home” period, several of Kyle’s employees had taken time off because of medical experiences,
and certain of them did not return to employment. Kyle’s has been hiring and training new employees to replace lost productivity
because of the aforementioned loss of employees. Kyle’s did not experience any meaningful business interruption related to
any of its key suppliers. Kyle’s endeavors to best observe guidance from the State of Idaho and to provide a safe working
environment to its employees. If the pandemic is not sufficiently contained, it may continue to negatively affect Kyle’s
ability to generate sales opportunities and to hire productive employees. Therefore, Kyle’s business operations may experience
further delays and experience lost sales opportunities, which could further adversely impact Kyle’s profitability and financial
condition.
In Iowa, where Neese is located, non-essential
businesses in certain counties, include where Neese’s principal office is located, began re-opening on May 1, 2020, but the
pandemic has had a negative effect on business activity throughout Iowa. Neese is also dependent upon suppliers to provide it with
all of the equipment and parts that it sells, and several have notified it of disruptions to their production and/or supply chain
related to the pandemic. Any business disruption or failure of these suppliers to meet delivery requirements and commitments may
cause delays in future shipments and potential lost or delayed revenue.
We have taken steps to take care of our
employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social
distancing techniques for those employees who are not able to work remotely. We have also taken precautions with regard to employee,
facility and office hygiene as well as implementing significant travel restrictions. We are also assessing our business continuity
plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor
and mitigate developments affecting our workforce, our suppliers, our customers, and the public at large to the extent we are able
to do so. We have and will continue to carefully review all rules, regulations, and orders and responding accordingly.
If the current pace of the pandemic
cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted.
We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make
further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee
resources. In addition, our operations could be disrupted if any of our employees were suspected of having the virus, which
could require quarantine of some or all such employees or closure of our facilities for disinfection. The duration of any business
disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result
in additional costs.
The extent to which the pandemic may
impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this
report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain
the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital
markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with
respect to our performance, financial condition, results of operations and cash flows.
Final Closing of Unit Offering
On October 26, 2020, we completed a second
and final closing of the unit offering described in more detail below, pursuant to which we sold an aggregate of 442,443 units
for an aggregate purchase price of $840,640.
Management Fees
On April 15, 2013, the Company and 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 nine months ended September 30, 2020 and 2019.
1847 Neese entered into an offsetting management
services agreement with the Manager on March 3, 2017, Goedeker entered into an offsetting management services agreement with the
Manager on April 5, 2019, which is included in the discontinued operations, 1847 Asien entered into an offsetting management services
agreement with the Manager on May 28, 2020 and 1847 Cabinet entered into an offsetting management services agreement with the Manager
on August 21, 2020. Pursuant to the offsetting management services agreements, 1847 Neese appointed the Manager to provide certain
services to it for a quarterly management fee equal to $62,500, Goedeker appointed the Manager to provide certain services to it
for a quarterly management fee equal to $62,500, 1847 Asien 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 $75,000
or 2% of adjusted net assets (as defined in the management services agreement); provided, however, in each case that (i) pro rated
payments shall be made in the first quarter and the last quarter of the term, (ii) if the aggregate amount of management fees paid
or to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet, together with all other management fees paid or to be paid by all other
subsidiaries of the Company to the Manager, in each case, with respect to any fiscal year exceeds, or is expected to exceed, 9.5%
of the Company’s gross income with respect to such fiscal year, then the management fee to be paid by 1847 Neese, 1847 Asien
or 1847 Cabinet for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis determined by reference
to the management fees to be paid to the Manager by all of the subsidiaries of the Company, until the aggregate amount of the management
fee paid or to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet, together with all other management fees paid or to be paid by
all other subsidiaries of the Company to the Manager, in each case, with respect to such fiscal year, does not exceed 9.5% of the
Company’s gross income with respect to such fiscal year, and (iii) if the aggregate amount the management fee paid or to
be paid by 1847 Neese, 1847 Asien or 1847 Cabinet, together with all other management fees paid or to be paid by all other subsidiaries
of the Company to the Manager, in each case, with respect to any fiscal quarter exceeds, or is expected to exceed, the Parent Management
Fee with respect to such fiscal quarter, then the management fee to be paid by 1847 Neese, 1847 Asien or 1847 Cabinet for such
fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the management fee paid or to be paid by 1847
Neese, 1847 Asien or 1847 Cabinet, together with all other management fees paid or to be paid by all other subsidiaries of the
Company to the Manager, in each case, with respect to such fiscal quarter, does not exceed the Parent Management Fee calculated
and payable with respect to such fiscal quarter.
Each of 1847 Neese, 1847 Asien or 1847
Cabinet shall also reimburse the Manager for all of its costs and expenses which are specifically approved by its board of directors,
including all out-of-pocket costs and expenses, which are actually incurred by the Manager or its affiliates on behalf of 1847
Neese, 1847 Asien or 1847 Cabinet in connection with performing services under the offsetting management services agreements.
1847 Neese expensed $187,500 in management
fees for the nine months ended September 30, 2020 and 2019. Under terms of the term loan from Home State Bank described below,
no fees may be paid to the Manager without permission of the bank, which the Manager does not expect to be granted within the forthcoming
year. Accordingly, $638,308 due from 1847 Neese to the Manager is classified as a long-term accrued liability as of September 30,
2020.
1847 Asien expensed $103,022 in management
fees for the period from May 29, 2020 to September 30, 2020.
On a consolidated basis, we expensed total
management fees of $290,522 and $187,500 for the nine months ended September 30, 2020 and 2019, respectively, and $638,308 due
to the Manager is classified as an accrued liability as of September 30, 2020.
Segments
The Financial Accounting Standards Board
(“FASB”) Accounting Standard Codification (“ASC”) Topic 280, Segment Reporting, requires that an
enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Beginning
with the second quarter of 2019, we changed our operating and reportable segments from one segment to two segments - the retail
and appliances segment, which is operated by Asien’s (and was previously operated by Goedeker), and the land management segment,
which is operated by Neese. Commencing with the fourth quarter of 2020, we added an additional segment - the construction segment,
which is operated by Kyle’s.
We provide general corporate services to
our segments; however, these services are not considered when making operating decisions and assessing segment performance. These
include costs associated with executive management, financing activities and public company compliance.
Discontinued Operations
As a result of the Goedeker spin-off, all
financial information previously presented as part of retail and appliance services operations are classified as discontinued operations
and not presented as part of continuing operations.
Results of Operations
Comparison of Three Months Ended
September 30, 2020 and 2019
The following table sets forth key components
of our results of operations during the three months ended September 30, 2020 and 2019, both in dollars and as a percentage of
our revenue.
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
|
Amount
|
|
|
% of
Revenues
|
|
|
Amount
|
|
|
% of
Revenues
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
640,695
|
|
|
|
12.2
|
%
|
|
$
|
742,041
|
|
|
|
52.5
|
%
|
Sales of parts and equipment
|
|
|
1,448,917
|
|
|
|
27.7
|
%
|
|
|
670,221
|
|
|
|
47.5
|
%
|
Furniture and appliances
|
|
|
3,141,313
|
|
|
|
60.1
|
%
|
|
|
-
|
|
|
|
-
|
|
Total revenues
|
|
|
5,230,925
|
|
|
|
100.00
|
%
|
|
|
1,412,262
|
|
|
|
100.00
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,753,446
|
|
|
|
71.8
|
%
|
|
|
596,287
|
|
|
|
42.2
|
%
|
Personnel costs
|
|
|
626,363
|
|
|
|
12.0
|
%
|
|
|
520,808
|
|
|
|
36.9
|
%
|
Depreciation and amortization
|
|
|
371,593
|
|
|
|
7.1
|
%
|
|
|
338,112
|
|
|
|
23,9
|
%
|
Fuel
|
|
|
89,169
|
|
|
|
1.7
|
%
|
|
|
143,658
|
|
|
|
10.2
|
%
|
General and administrative
|
|
|
1,044,076
|
|
|
|
20.0
|
%
|
|
|
383,940
|
|
|
|
27.2
|
%
|
Total operating expenses
|
|
|
5,884,647
|
|
|
|
112.5
|
%
|
|
|
1,982,805
|
|
|
|
140.4
|
%
|
Net loss from operations
|
|
|
(653,722
|
)
|
|
|
(12.5
|
)%
|
|
|
(570,543
|
)
|
|
|
(40.4
|
)%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs
|
|
|
(161,911
|
)
|
|
|
(3.1
|
)%
|
|
|
(8,100
|
)
|
|
|
(0.6
|
)%
|
Loss on extinguishment of debt
|
|
|
(382,681
|
)
|
|
|
(7.3
|
)%
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
(101,306
|
)
|
|
|
(1.9
|
)%
|
|
|
(140,346
|
)
|
|
|
(9.9
|
)%
|
Gain (loss) on sale of property and equipment
|
|
|
16,981
|
|
|
|
0.3
|
%
|
|
|
-
|
|
|
|
-
|
|
Total other income (expense)
|
|
|
(628,917
|
)
|
|
|
(12.0
|
)%
|
|
|
(148,446
|
)
|
|
|
(10.5
|
)%
|
Net loss before income taxes
|
|
|
(1,282,639
|
)
|
|
|
(24.5
|
)%
|
|
|
(718,989
|
)
|
|
|
(50.9
|
)%
|
Income tax benefit
|
|
|
117,000
|
|
|
|
2.2
|
%
|
|
|
395,763
|
|
|
|
28.0
|
%
|
Net loss before non-controlling interests
|
|
|
(1,165,639
|
)
|
|
|
(22.3
|
)%
|
|
|
(323,226
|
)
|
|
|
(22.9
|
)%
|
Less net loss attributable to non-controlling interests
|
|
|
(253,072
|
)
|
|
|
(4.8
|
)%
|
|
|
(126,563
|
)
|
|
|
(9.0
|
)%
|
Net loss from continuing operations
|
|
|
(912,567
|
)
|
|
|
(17.4
|
)%
|
|
|
(196,663
|
)
|
|
|
(13.9
|
)%
|
Net loss from discontinued operations
|
|
|
(1,992,016
|
)
|
|
|
(38.1
|
)%
|
|
|
(588,048
|
)
|
|
|
(41.6
|
)%
|
Net loss attributable to company shareholders
|
|
$
|
(2,904,583
|
)
|
|
|
(55.5
|
)%
|
|
$
|
(784,711
|
)
|
|
|
(55.6
|
)%
|
Total revenues. Our total
revenues were $5,230,925 for the three months ended September 30, 2020, as compared to $1,412,262 for the three months ended September
30, 2019.
The retail and appliances segment generates
revenue through the sales of home furnishings, including appliances and related products. Revenue from the retail and appliances
segment was $3,141,313 for the three months ended September 30, 2020.
The following table summarizes our revenues
by sales type for the three months ended September 30, 2020:
|
|
2020
|
|
Appliance sales
|
|
$
|
3,138,312
|
|
Other sales
|
|
|
3,000
|
|
Total revenues
|
|
$
|
3,141,313
|
|
The land management services segment generates
revenue through the provision of waste disposal and a variety of land application services, wholesaling of agricultural equipment
and parts, local trucking services, various shop services, and sales of other products and services. Revenues from the land management
segment increased by $677,350, or 48.0%, to $2,089,612 for the three months ended September 30, 2020 from $1,412,262 for the three
months ended September 30, 2019. Such increase resulted from an $778,696 increase in sales of parts and equipment. The decrease
in services revenue was primary due to a net decrease in trucking and waste hauling services. The decline in trucking revenue was
primarily attributable to COVID-19 related reduced demand for trucking services.
The following table summarizes our revenues
by type for the three months ended September 30, 2020 and 2019:
|
|
Three Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Services
|
|
|
|
|
|
|
Trucking
|
|
$
|
247,037
|
|
|
$
|
383,709
|
|
Waste hauling
|
|
|
118,637
|
|
|
|
40,781
|
|
Repairs
|
|
|
176,585
|
|
|
|
181,129
|
|
Other
|
|
|
98,436
|
|
|
|
136,422
|
|
Total services
|
|
|
640,695
|
|
|
|
742,041
|
|
Sales of parts and equipment
|
|
|
1,448,917
|
|
|
|
670,221
|
|
Total revenues
|
|
$
|
2,089,612
|
|
|
$
|
1,412,262
|
|
Cost of sales. Cost of sales
for the retail and appliances segment consist of the cost of purchased merchandise plus the cost of delivering merchandise and
where applicable installation, net of promotional rebates and other incentives received from vendors. Cost of sales for the land
management services segment consist of the direct costs of our equipment and parts. Our total cost of sales was $3,753,446 for
the three months ended September 30, 2020, as compared to $596,287 for the three months ended September 30, 2019.
Cost of sales for the retail and appliances
segment was $2,429,715 for the three months ended September 30, 2020. As a percentage of retail and appliances revenues, cost of
sales was 77.3% for the three months ended September 30, 2020.
Cost of sales for the land management services
segment increased by $727,445, or 122.0%, to $1,323,732 for the three months ended September 30, 2020 from $596,287 for the three
months ended September 30, 2019. As a percentage of land management services revenue, cost of sales was 63.3% and 42.2% for the
three months ended September 30, 2020 and 2019, respectively. This 21.1% increase in the percentage of land management services
cost of sales was due to the increase in sales of parts and equipment which results in a lower gross profit margin compared to
services revenue.
Personnel costs. Personnel
costs include employee salaries and bonuses plus related payroll taxes. It also includes health insurance premiums, 401(k) contributions,
and training costs. Our personnel costs were $626,363 for the three months ended September 30, 2020, as compared to $520,808 for
the three months ended September 30, 2019.
Personnel costs for the retail and appliances
segment was $216,903 for the three months ended September 30, 2020. As a percentage of retail and appliances revenue, personnel
costs for the retail and appliances segment was 6.9% for the three months ended September 30, 2020.
Personnel costs for the land management
services segment decreased by $111,349 or 21.4%, to $409,459 for the three months ended September 30, 2020 from $520,808 for the
three months ended September 30, 2019. Such decrease was due to reduction of staff attributable to COVID related reduced demand
for trucking services. As a percentage of land management services revenue, personnel costs for the land management services segment
was 19.6% and 36.8% and for the three months ended September 30, 2020 and 2019, respectively.
Fuel costs. Fuel costs, which
are attributable to our land management services segment, include fuel for our on-road trucking and off-road manure spreading services.
Our fuel costs decreased by $54,489, or 37.9%, to $89,169 for the three months ended September 30, 2020 from $143,658 for the three
months ended September 30, 2019. The decrease in fuel costs is the result of a decline in market prices for fuel purchases and
the decline in trucking services provided.
General and administrative expenses.
Our general and administrative expenses consist primarily of professional advisor fees, stock-based compensation, bad debts reserve,
rent expense, advertising, bank fees, and other expenses incurred in connection with general operations. Our total general and
administrative expenses increased by $660,136 or 171.9%, to $1,044,076 for the three months ended September 30, 2020, from $383,940
for the three months ended September 30, 2019.
General and administrative expenses for
the retail and appliances segment was $566,720 for the three months ended September 30, 2020. As a percentage of retail and appliances
revenue, general and administrative expenses for the retail and appliances segment was 18.0% for the three months ended September
30, 2020.
General and administrative expenses for
the land management services segment increased slightly by $6,162, or 1.8%, to $350,520 for the three months ended September 30,
2020 from $344,358 for the three months ended September 30, 2019. As a percentage of land management services revenue, general
and administrative expenses for the land management services segment was 16.8% and 24.3% for the three months ended September 30,
2020 and 2019, respectively.
General and administrative expenses for
our holding company increased by $87,254, or 220.4%, to $126,836 for the three months ended September 30, 2020, from $39,582 for
the three months ended September 30, 2019. The increase was primarily due to an issuance of stock-based compensation in the current
year of $87,500.
Total other income (expense).
We had $628,917 in total other expense, net, for the three months ended September 30, 2020, as compared to other expense, net,
of $148,446 for the three months ended September 30, 2019. Other expense, net, in the three months ended September 30, 2020 consisted
of financing costs of $161,911, loss on extinguishment of debt of $382,681, interest expense of $101,306 and gain on sale of property
and equipment of $16,981, while other expense, net, for the three months ended September 30, 2019 consisted of financing costs
of $8,100 and interest expense of $140,346.
Net loss from continuing operations.
As a result of the cumulative effect of the factors described above, our net loss from continuing operations increased by $715,904,
or 364.0%, to $912,567 for the three months ended September 30, 2020 from $196,663 for the three months ended September 30, 2019.
Comparison of Nine Months Ended September
30, 2020 and 2019
The following table sets forth key components
of our results of operations during the nine months ended September 30, 2020 and 2019, both in dollars and as a percentage of our
revenue.
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
|
Amount
|
|
|
% of
Revenues
|
|
|
Amount
|
|
|
% of
Revenues
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
1,853,721
|
|
|
|
22.5
|
%
|
|
$
|
2,293,765
|
|
|
|
60.1
|
%
|
Sales of parts and equipment
|
|
|
2,053,964
|
|
|
|
24.9
|
%
|
|
|
1,523,031
|
|
|
|
39.9
|
%
|
Furniture and appliances
|
|
|
4,327,294
|
|
|
|
52,5
|
%
|
|
|
-
|
|
|
|
-
|
|
Total revenues
|
|
|
8,234,979
|
|
|
|
100.0
|
%
|
|
|
3,816,796
|
|
|
|
100.0
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
5,206,229
|
|
|
|
63.2
|
%
|
|
|
1,369,440
|
|
|
|
35.9
|
%
|
Personnel costs
|
|
|
1,565,651
|
|
|
|
19.0
|
%
|
|
|
1,524,033
|
|
|
|
39.9
|
%
|
Depreciation and amortization
|
|
|
999,107
|
|
|
|
12.1
|
%
|
|
|
1,015,152
|
|
|
|
26.6
|
%
|
Fuel
|
|
|
275,368
|
|
|
|
3.3
|
%
|
|
|
503,923
|
|
|
|
13.2
|
%
|
General and administrative
|
|
|
2,547,165
|
|
|
|
30.9
|
%
|
|
|
1,180,777
|
|
|
|
30.9
|
%
|
Total operating expenses
|
|
|
10,593,520
|
|
|
|
128.6
|
%
|
|
|
5,593,325
|
|
|
|
146.5
|
%
|
Net loss from operations
|
|
|
(2,358,541
|
)
|
|
|
(28.6
|
)%
|
|
|
(1,776,529
|
)
|
|
|
(46.5
|
)%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs
|
|
|
(206,686
|
)
|
|
|
(2.5
|
)%
|
|
|
(24,300
|
)
|
|
|
(0.6
|
)%
|
Loss on extinguishment of debt
|
|
|
(382,681
|
)
|
|
|
(4.6
|
)%
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
(337,649
|
)
|
|
|
(4.1
|
)%
|
|
|
(401,587
|
)
|
|
|
(10.5
|
)%
|
Gain (loss) on sale of property and equipment
|
|
|
54,748
|
|
|
|
0.7
|
%
|
|
|
24,224
|
|
|
|
0.6
|
%
|
Total other income (expense)
|
|
|
(872,268
|
)
|
|
|
(10.6
|
)%
|
|
|
(401,663
|
)
|
|
|
(10.5
|
)%
|
Net loss before income taxes
|
|
|
(3,230,809
|
)
|
|
|
(39.2
|
)%
|
|
|
(2,178,192
|
)
|
|
|
(57.1
|
)%
|
Income tax benefit
|
|
|
444,800
|
|
|
|
5.4
|
%
|
|
|
655,613
|
|
|
|
17.2
|
%
|
Net loss before non-controlling interests
|
|
|
(2,786,009
|
)
|
|
|
(33.8
|
)%
|
|
|
(1,522,579
|
)
|
|
|
(39.9
|
)%
|
Less net loss attributable to non-controlling interests
|
|
|
(669,811
|
)
|
|
|
(8.1
|
)%
|
|
|
(628,210
|
)
|
|
|
(16.5
|
)%
|
Net loss from continuing operations
|
|
|
(2,116,198
|
)
|
|
|
(25.7
|
)%
|
|
|
(894,369
|
)
|
|
|
(23.4
|
)%
|
Net loss from discontinued operations
|
|
|
(5,703,377
|
)
|
|
|
(69.3
|
)%
|
|
|
(1,083,872
|
)
|
|
|
(28.4
|
)%
|
Net loss attributable to company shareholders
|
|
$
|
(7,819,575
|
)
|
|
|
(95.0
|
)%
|
|
$
|
(1,978,241
|
)
|
|
|
(51.8
|
)%
|
Total revenues. Our total
revenues were $8,234,979 for the nine months ended September 30, 2020, including $4,327,294 from Asien’s for the period from
May 29, 2020 to September 30, 2020, as compared to $3,816,796 for the nine months ended September 30, 2019.
Revenues from the retail and appliances
segment was $4,327,294 for the period from May 29, 2020 to September 30, 2020. The following table summarizes our revenues by sales
type for the period from May 29, 2020 to September 30, 2020:
|
|
May 29,
2020
to
September 30,
2020
|
|
Appliance sales
|
|
$
|
4,263,619
|
|
Other sales
|
|
|
63,675
|
|
Total revenues
|
|
$
|
4,327,294
|
|
Revenues from the land management segment
increased by $90,889, or 2.4%, to $3,907,685 for the nine months ended September 30, 2020 from $3,816,796 for the nine months ended
September 30, 2019. Such increase resulted from a $530,933 increase in sales of parts and equipment, offset by a $440,044 decrease
in services revenue. There was a $501,016 decline in trucking revenue, primarily attributable to COVID-19 related reduced demand
for trucking services compared to 2019, offset by an increase in waste hauling services revenue of $140,529.
The following table summarizes our revenues
by type for the nine months ended September 30, 2020 and 2019:
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Services
|
|
|
|
|
|
|
Trucking
|
|
$
|
766,534
|
|
|
$
|
1,267,550
|
|
Waste hauling
|
|
|
557,687
|
|
|
|
417,138
|
|
Repairs
|
|
|
282,878
|
|
|
|
309,330
|
|
Other
|
|
|
246,622
|
|
|
|
299,747
|
|
Total services
|
|
|
1,853,721
|
|
|
|
2,293,765
|
|
Sales of parts and equipment
|
|
|
2,053,964
|
|
|
|
1,523,031
|
|
Total revenues
|
|
$
|
3,907,685
|
|
|
$
|
3,816,796
|
|
Cost of sales. Our total
cost of sales was $5,206,229 for the nine months ended September 30, 2020, including $3,353,607 from Asien’s for the period
from May 29, 2020 to September 30, 2020, as compared to $1,369,440 for the nine months ended September 30, 2019.
Cost of sales for the retail and appliances
segment was $3,353,607 for the period from May 29, 2020 to September 30, 2020. As a percentage of retail and appliances revenues,
cost of sales was 77.5% for such period.
Cost of sales for the land management segment
increased by $483,181, or 35.3%, to $1,852,621 for the nine months ended September 30, 2020 from $1,369,440 for the nine months
ended September 30, 2019. Such increase was due to the sale of tractors, net of a decrease in waste hauling costs, in the nine
months ended September 30, 2019. As a percentage of land management services revenue, cost of sales was 47.4% and 35.9% for the
nine months ended September 30, 2020 and 2019, respectively.
Personnel costs. Our total
personnel costs were $1,565,651 for the nine months ended September 30, 2020, including $298,187 from Asien’s for the period
from May 29, 2020 to September 30, 2020, as compared to $1,524,033 for the nine months ended September 30, 2019.
Personnel costs for the retail and appliances
segment was $298,187 for the period from May 29, 2020 to September 30, 2020. As a percentage of retail and appliances revenue,
personnel costs for the retail and appliances segment was 6.9% for such period.
Personnel costs for the land management
services segment decreased by $256,569, or 16.8%, to $1,267,464 for the nine months ended September 30, 2020 from $1,524,033 for
the nine months ended September 30, 2019. Such decrease was due to reduction of staff attributable to COVID-19 related reduced
demand for trucking services. As a percentage of land management services revenue, personnel costs for the land management services
segment was 32.4% and 39.9% and for the nine months ended September 30, 2020 and 2019, respectively.
Fuel costs. Our fuel costs
decreased by $228,555, or 45.4%, to $275,368 for the nine months ended September 30, 2020 from $503,923 for the nine months ended
September 30, 2019. The decrease in fuel costs is the result of a decline in market prices for fuel purchases and the decline in
trucking services provided.
General and administrative expenses.
Our total general and administrative were $2,547,165 for the nine months ended September 30, 2020, including $917,179 from Asien’s
for the period from May 29, 2020 to September 30, 2020, as compared to $1,180,777 for the nine months ended September 30, 2019.
General and administrative expenses for
the retail and appliances segment was $917,179 for the period from May 29, 2020 to September 30, 2020. As a percentage of retail
and appliances revenue, general and administrative expenses for the retail and appliances segment was 21.2% for the nine months
ended September 30, 2020.
General and administrative expenses for
the land management services segment decreased by $79,822, or 7.5%, to $981,497 for the nine months ended September 30, 2020 from
$1,061,319 for the nine months ended September 30, 2019. The decrease primarily resulted from a decrease in maintenance and repairs
of $74,977 and insurance of $33,485, offset by an increase in freight of $21,950. As a percentage of land management services revenue,
general and administrative expenses for the land management services segment was 25.1% and 30.9% for the nine months ended September
30, 2020 and 2019, respectively.
General and administrative expenses for
our holding company increased by $529,029, or 442.9%, to $648,488 for the nine months ended September 30, 2020, from $119,459 for
the nine months ended September 30, 2019. The increase was due to an increase in professional fees compared to the prior year and
issuance of stock-based compensation in the current year of $523,936.
Total other income (expense).
We had $872,268 in total other expense, net, for the nine months ended September 30, 2020, as compared to other expense, net, of
$401,663 for the nine months ended September 30, 2019. Other expense, net, in the nine months ended September 30, 2020 consisted
of financing costs of $206,686, loss on extinguishment of debt of $382,681, and interest expense of $337,649, offset by a gain
on sale of fixed assets of $54,748, while total other expense, net, for the nine months ended September 30, 2019 consisted of financing
costs of $24,300 interest expense of $401,587, offset by a gain on sale of fixed assets of $24,224.
Net loss from continuing operations.
As a result of the cumulative effect of the factors described above, our net loss from continuing operations increased by $1,221,829,
or 136.6%, to $2,116,198 for the nine months ended September 30, 2020 from $894,369 for the nine months ended September 30, 2019.
Liquidity and Capital Resources
As of September 30, 2020, we had cash and
cash equivalents of $1,177,397, including restricted cash of $175,780. To date, we have financed our operations primarily through
cash proceeds from financing activities, borrowings, and equity contributions by our shareholders.
Although we do not believe that we will
require additional cash to continue our operations over the next twelve months (i.e., we do not believe that there is a going concern
issue), we do believe additional funds are required to execute our business plan and our strategy of acquiring additional businesses.
The funds required to execute our business plan will depend on the size, capital structure and purchase price consideration that
the seller of a target business deems acceptable in a given transaction. The amount of funds needed to execute our business plan
also depends on what portion of the purchase price of a target business the seller of that business is willing to take in the form
of seller notes or our equity or in one of our subsidiaries. Given these factors, we believe that the amount of outside additional
capital necessary to execute our business plan on the low end (assuming target company sellers accept a significant portion of
the purchase price in the form of seller notes or our equity or in one of our subsidiaries) ranges between $100,000 to $250,000.
If, and to the extent, that sellers are unwilling to accept a significant portion of the purchase price in seller notes and equity,
then the cash required to execute our business plan could be as much as $5,000,000. We will seek growth as funds become available
from cash flow, borrowings, additional capital raised privately or publicly, or seller retained financing.
Our primary use of funds will be for future
acquisitions, public company expenses including regular distributions to our shareholders, investments in future acquisitions,
payments to the Manager pursuant to the management services agreement, potential payment of profit allocation to the Manager and
potential put price to the Manager in respect of the allocation shares it owns. The management fee, expenses, potential profit
allocation and potential put price are paid before distributions to shareholders and may be significant and exceed the funds we
hold, which may require us to dispose of assets or incur debt to fund such expenditures. See Item 1. “Business—Our
Manager” included in our Annual Report on Form 10-K for the year ended December 31, 2019 for more information concerning
the management fee, the profit allocation and put price.
The amount of management fee paid to the
Manager by us is reduced by the aggregate amount of any offsetting management fees, if any, received by the Manager from any of
our businesses. As a result, the management fee paid to the Manager may fluctuate from quarter to quarter. The amount of management
fee paid to the Manager may represent a significant cash obligation. In this respect, the payment of the management fee will reduce
the amount of cash available for distribution to shareholders.
The Manager, as holder of 100% of our allocation
shares, is entitled to receive a twenty percent (20%) profit allocation as a form of preferred equity distribution, subject to
an annual hurdle rate of eight percent (8%), as follows. Upon the sale of a company subsidiary, the Manager will be paid a profit
allocation if the sum of (i) the excess of the gain on the sale of such subsidiary over a high water mark plus (ii) the subsidiary’s
net income since its acquisition by the Company exceeds the 8% hurdle rate. The 8% hurdle rate is the product of (i) a 2% rate
per quarter, multiplied by (ii) the number of quarters such subsidiary was held by the Company, multiplied by (iii) the subsidiary’s
average share (determined based on gross assets, generally) of our consolidated net equity (determined according to generally accepted
accounting principles in the United States of America (“GAAP”) with certain adjustments). In certain circumstances,
after a subsidiary has been held for at least 5 years, the Manager may also trigger a profit allocation with respect to such subsidiary
(determined based solely on the subsidiary’s net income since its acquisition). The amount of profit allocation may represent
a significant cash payment and is senior in right to payments of distributions to our shareholders. Therefore, the amount of profit
allocation paid, when paid, will reduce the amount of cash available to us for our operating and investing activities, including
future acquisitions. See Item 1. “Business—Our Manager—Our Manager as an Equity Holder—Manager’s
Profit Allocation” included in our Annual Report on Form 10-K for the year ended December 31, 2019 for more information on
the calculation of the profit allocation.
Our operating agreement also contains a
supplemental put provision, which gives the Manager the right, subject to certain conditions, to cause us to purchase the allocation
shares then owned by the Manager upon termination of the management services agreement. The amount of put price under the supplemental
put provision is determined by assuming all of our subsidiaries are sold at that time for their fair market value and then calculating
the amount of profit allocation would be payable in such a case. If the management services agreement is terminated for any reason
other than the Manager’s resignation, the payment to the Manager could be as much as twice the amount of such hypothetical
profit allocation. As is the case with profit allocation, the calculation of the put price is complex and based on many factors
that cannot be predicted with any certainty at this time. See Item 1. “Business—Our Manager—Our Manager as an
Equity Holder—Supplemental Put Provision” included in our Annual Report on Form 10-K for the year ended December 31,
2019 for more information on the calculation of the put price. The put price obligation, if the Manager exercises its put right,
will represent a significant cash payment and is senior in right to payments of distributions to our shareholders. Therefore, the
amount of put price will reduce the amount of cash available to us for our operating and investing activities, including future
acquisitions.
Summary of Cash Flow
The following table provides detailed information
about our net cash flow for the period indicated:
Cash Flow
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash provided by operating activities from continuing operations
|
|
$
|
571,476
|
|
|
$
|
340,290
|
|
Net cash provided by investing activities from continuing operations
|
|
|
1,421,698
|
|
|
|
22,674
|
|
Net cash used in financing activities from continuing operations
|
|
|
(990,068
|
)
|
|
|
(668,468
|
)
|
Net decrease in cash and cash equivalents from continuing operations
|
|
|
1,003,106
|
|
|
|
(305,504
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
174,290
|
|
|
|
333,880
|
|
Cash and cash equivalent at end of period
|
|
$
|
1,177,396
|
|
|
$
|
28,376
|
|
Net cash provided by operating activities
from continuing operations was $571,476 for the nine months ended September 30, 2020, as compared to net cash used in operating
activities from continuing operations of $340,290 for the nine months ended September 30, 2019. For the nine months ended September
30, 2020, the net loss from continuing operations of $2,786,009, an increase in inventory of $830,456, a decrease in prepaids and
other costs of $479,684 and a decrease in uncertain tax position and deferred taxes of $159,800, offset by an increase in accounts
receivable of $261,481, an increase in accounts payable and accrued expenses of $1,456,371, an increase in customer deposits of
$632,040, non-cash depreciation and amortization of $999,107, stock compensation of $523,936 and loss on extinguishment of debt
of $382,681, were the primary drivers of the net cash provided by operating activities. For the nine months ended September 30,
2019, the net loss from continuing operations of $1,446,048, a decrease in accounts payable and accrued expenses of $269,638, and
a decrease in uncertain tax position and deferred taxes of $572,398, offset by an decrease in accounts receivable of $160,742,
an increase in other current liabilities of $1,234,143, depreciation and amortization of $938,762, and an increase in customer
deposits of $57,142 and a decrease in inventory of $242,532, were the primary drivers of the net cash used in operating activities.
Net cash provided by investing activities
from continuing operations was $1,421,698 for the nine months ended September 30, 2020, as compared to $22,674 for the nine months
ended September 30, 2019. For the nine months ended September 30, 2020, net cash provided by investing activities consisted of
net cash acquired from the acquisitions of Asien’s and Kyle’s of $1,398,285 and proceeds from sale of property and
equipment of $49,494, offset by the purchase of equipment in the amount of $26,081, while net cash used in investing activities
for the nine months ended September 30, 2019 consisted of proceeds from sale of property and equipment of $39,750 and offset by
the purchase of equipment in the amount of $17,076.
Net cash used in financing activities from
continuing operations was $990,068 for the nine months ended September 30, 2020, as compared to $668,468 for the nine months ended
September 30, 2019. For the nine months ended September 30, 2020, net cash used in financing activities consisted of proceeds of
note payable of $969,697 and proceeds from the exercise of stock options and warrants of $212,500, offset by net payments on notes
payable of $1,115,841, grid note payments of $62,500, repayment of floor plan of $10,581, repayments on capital lease obligations
of $695,512 and financing fees of $113,831, while net cash used in financing activities for the nine months ended September 30,
2019 consisted of proceeds of notes payable of $27,000 and, offset by net payments on notes payable of $236,832, repayment of short
term borrowings of $95,192 and repayments on capital lease obligations of $363,444.
Unit Offering
On September 30, 2020, we sold an aggregate
of 2,189,835 units, at a price of $1.90 per unit, for aggregate gross proceeds of $4,160,684. Each unit consists of one (1) series
A senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $2.50 per
common share (subject to adjustment), which may be exercised on a cashless basis under certain circumstances.
Debt
1847 Holdings
On January 3, 2018, the Company issued
a grid promissory note to the Manager in the initial principal amount of $50,000. The note provides that the Company may from time
to time request additional advances from the Manager up to an aggregate additional amount of $100,000, which will be added to the
note if the Manager, in its sole discretion, so provides. Interest shall accrue on the unpaid portion of the principal amount and
the unpaid portion of all advances outstanding at a fixed rate of 8% per annum, and along with the outstanding portion of the principal
amount and the outstanding portion of all advances, shall be payable in one lump sum due on the maturity date, January 3, 2021.
If all or a portion of the principal amount or any advance under the note, or any interest payable thereon is not paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate of 12% per annum.
In the event the Company completes a financing involving at least $500,000, the Company must, contemporaneously with the closing
of such financing transaction, repay the entire outstanding principal and accrued and unpaid interest on the note. The note is
unsecured and contains customary events of default. As of September 30, 2020 and December 31, 2019, the Manager has advanced $56,900
and $119,400 of the note and the Company has accrued interest of $24,385 and $17,115, respectively.
1847 Neese/Neese
Home State Bank
On June 13, 2018, Neese entered into a
term loan agreement with Home State Bank, pursuant to which Neese issued a promissory note to Home State Bank in the principal
amount of $3,654,074 with an annual interest rate of 6.85% and with covenants to maintain a minimum debt coverage ratio of 1.00
to 1.25 measured at December 31, 2019. Neese did not comply with this covenant for the year ended December 31, 2019. The Company
has classified the liability as current and long-term upon the renewal of the agreement in July 2020 and will assess the covenant
in the year end December 31, 2020 as required. On July 30, 2020, Neese entered into a change in terms agreement with Home State
Bank to amend the terms of the term loan. Pursuant to the change in terms agreement: (i) the maturity date was extended to July
30, 2022; (ii) the interest rate was changed to 5.50%; (iii) Neese agreed to pay accrued interest in the amount of $95,970.42;
(iv) Neese agreed to make payments of $30,000.00 beginning on September 30, 2020 and continuing thereafter on a monthly basis until
maturity, at which time a final interest payment is due; (v) Neese agreed to make a payment of $260,000.00 on December 30, 2020
and December 30, 2021; (vi) Neese agreed to make two new advances under the note in the amounts $51,068.19 and $517,528.86
to repay in full Neese’s capital lease transactions due to Utica Leaseco LLC described below; (vii) Neese agreed to pay a
loan fee of $17,500.00; and (viii) Home State Bank agreed to make a loan advance to checking for $17,500.00. The balance of the
note amounts to $3,493,922, comprised of principal of $3,509,364, net of unamortized debt discount of $15,442 as of September 30,
2020.
The loan agreement contains customary representations
and warranties. Pursuant to the terms of the loan agreement and the note, an “event of default” includes: (i) if Neese
fails to make any payment when due under the note; (ii) if Neese fails to comply with or to perform any other term, obligation,
covenant or condition contained in the note or in any of the related documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Home State Bank and Neese; (iii) if Neese defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Home State Bank’s property or Neese’s ability to repay the note or perform
Neese’s obligations under the note or any of the related documents; (iv) if any warranty, representation or statement made
or furnished to Home State Bank by Neese or on Neese’s behalf under the note or the related documents is false or misleading
in any material respect; (v) upon the dissolution or termination of Neese’s existence as a going business, the insolvency
of Neese, the appointment of a receiver for any part of Neese’s property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Neese, (vi)
upon commencement of foreclosure or forfeiture proceedings by any creditor of Neese or by any governmental agency against any collateral
securing the loan; and (vii) if a material adverse change occurs in Neese’s financial condition, or Home State Bank believes
the prospect of payment or performance of the note is impaired. If any event of default occurs, all commitments and obligations
of Home State Bank immediately will terminate and, at Home State Bank’s option, all indebtedness immediately will become
due and payable, all without notice of any kind to Neese. Additionally, upon an event of default, the interest rate on the note
will be increased by 3 percentage points. However, in no event will the interest rate exceed the maximum interest rate limitations
under applicable law.
The loan is secured by inventory, accounts
receivable, and certain fixed assets of Neese. The loan agreement limited the payment of interest on certain promissory notes to
$40,000 annually. The Company continues to accrue interest at the contractual amounts. Such accruals (in excess of $40,000 in interest
on the promissory notes) are shown as long-term accrued expenses in the accompanying balance sheet as of September 30, 2020.
If the Company sells property, plant, and
equipment securing the loan, it must remit the appraised value of the equipment to Home State Bank. During the nine months ended
September 30, 2020 and 2019, $145,690 and $21,500, respectively, was remitted to Home State Bank pursuant to this requirement.
The Company adopted ASU 2015-03 by deducting
debt issuance costs from the long-term portion of the loan. Amortization of debt issuance costs totaled $2,058 and $16,200 for
the three months ended September 30, 2020 and 2019, respectively.
10% Promissory Note
A portion of the purchase price for the
acquisition of Neese was paid by the issuance of a promissory note in the principal amount of $1,025,000 by 1847 Neese and Neese
to the sellers of Neese (the “Neese Sellers”). The note bears interest on the outstanding principal amount at the rate
of ten percent (10%) per annum and was due and payable in full on March 3, 2018; provided, however, that the unpaid principal,
and all accrued, but unpaid, interest thereon shall be prepaid if at any time, and from time to time, the cash on hand of 1847
Neese and Neese exceeds $250,000 and, then, the prepayment shall be equal to the amount of cash in excess of $200,000 until the
unpaid principal and accrued, but unpaid, interest thereon is fully prepaid.
The note contains customary events of default,
including in the event of: (i) non-payment; (ii) a default by 1847 Neese or Neese of any of their covenants under the stock purchase
agreement or any other agreement entered into in connection with the stock purchase agreement, or a breach of any of their representations
or warranties under such documents; or (iii) the bankruptcy of 1847 Neese or Neese.
The note has not been repaid; thus, the
Company is in default under this note. Under terms of the term loan with Home State Bank described above, this note may not be
paid until the term loan is paid in full. The Neese Sellers agreed to the modification of its terms by signing the loan agreement
for the Home State Bank term loan. Accordingly, the loan is shown as a long-term liability as of September 30, 2020. Additionally,
Home State Bank limits the payment of interest on this note to $40,000 annually. The Company continues to accrue interest at the
contract rate; however, given the limitations of the term loan, all accrued interest in excess of $40,000 is included in long-term
accrued expenses.
1847 Asien/Asien’s
Arvest Bank
On July 10, 2020, Asien’s entered
into a promissory note and security agreement with Arvest Bank for a revolving loan for up to $400,000. The loan matures on July
10, 2021 and bears interest at 5.25% per annum, subject to change in accordance with the Variable Rate (as defined in the promissory
note and security agreement), the calculation for which is the U.S. Prime Rate plus 2%. Pursuant to the terms of the promissory
note and security agreement, Asien’s is required to make monthly payments beginning on August 10, 2020 and until the maturity
date, at which time all unpaid principal and interest will be due. There is no balance outstanding at September 30, 2020.
The loan is secured by Asien’s inventory
and equipment, accounts and other rights of payments, and general intangibles, as such terms are defined in the Uniform Commercial
Code. Asien’s may prepay the loan in full or in part at any time without penalty.
The promissory note and security agreement
contains customary events of default, including the occurrence of the following: (i) a failure to make a payment in full when due;
(ii) insolvency or bankruptcy; (iii) a merger, dissolution, reorganization of Asien’s; (iv) a consolidation with, or the
acquisition of substantially all of the assets of, another entity; and (v) a violation by Asien’s of any term, condition
or covenant in the promissory note and security agreement. The promissory note and security agreement also contains customary representations,
warranties, and affirmative and negative covenants for a loan of this type.
8% Subordinated Amortizing Promissory
Note
A portion of the purchase price for acquisition
of Asien’s was paid by the issuance of an 8% subordinated amortizing promissory note in the principal amount of $200,000
by 1847 Asien to the seller of Asien’s (the “Asien’s Seller”). Interest on the outstanding principal amount
will be payable quarterly at the rate of eight percent (8%) per annum. The outstanding principal amount of the note will amortize
on a one-year straight-line basis in accordance with a specified amortization schedule, with all unpaid principal and accrued,
but unpaid interest being fully due and payable on May 28, 2021. The remaining balance of the note at September 30, 2020 is $153,076,
comprised of principal of $151,505 and accrued interest of $1,571.
The note contains customary events of default,
including in the event of (i) non-payment, (ii) a default by 1847 Asien of any of its covenants under the stock purchase agreement,
the note, or any other agreement entered into in connection with the stock purchase agreement, or a breach of any of its representations
or warranties under such documents, or (iii) the bankruptcy of 1847 Asien.
The right of the Asien’s Seller to
receive payments under the note is subordinated to all indebtedness of 1847 Asien to banks, insurance companies and other financial
institutions or funds, and federal or state taxation authorities.
6% Amortizing Promissory Note
On July 29, 2020, 1847 Asien entered into
a securities purchase agreement with the Asien’s Seller, pursuant to which the Asien’s Seller sold to 415,000 of the
Company’s common shares to 1847 Asien a purchase price of $2.50 per share. As consideration, 1847 Asien issued to the Asien’s
Seller a two-year 6% amortizing promissory note in the aggregate principal amount of $1,037,500. One-half (50%) of the outstanding
principal amount of the note ($518,750) and all accrued interest thereon, will be amortized on a two-year straight-line basis and
is payable quarterly. The second-half (50%) of the outstanding principal amount of the note ($518,750) with all accrued, but unpaid
interest thereon, is due on the second anniversary of the note. The note is unsecured and contains customary events of default.
The remaining balance of the note at September 30, 2020 is $1,053,361, comprised of principal of $1,037,500 and accrued interest
of $15,861.
4.5% Unsecured Promissory Note
On October 30, 2017, Asien’s entered
into a stock repurchase agreement with Paul A. Gwilliam and Terri L. Gwilliam, co-trustees of the Gwilliam Family Trust, pursuant
to which Asien’s issued an unsecured promissory note in the aggregate principal amount of $540,000 for a term of 5 years
or 60 months. The note bears interest at the rate of the 4.25% per annum. The remaining balance of the note at September 30, 2020
is comprised of principal of $49,848.
Loans on Vehicles
Asien’s has entered into three retail
installment sale contracts pursuant to which Asien’s agreed to finance its delivery trucks at rates ranging 3.98% to 6.99%
with an aggregate remaining principal amount of $97,215 as of September 30, 2020.
1847 Cabinet/Kyle’s
Vesting Promissory Note
A portion of the purchase price for the
acquisition of Kyle’s on September 30, 2020 was paid by the issuance of a vesting promissory note by 1847 Cabinet to the
seller of Kyle’s (the “Kyle’s Seller”) in the principal amount of $1,050,000, which increased to a principal
amount of up to $1,260,000 pursuant to the vested percentage calculation described below. Payment of the principal and accrued
interest on the note is subject to vesting as described below. The note bears interest on the vested portion of principal amount
at the rate of eight percent (8%) per annum. To the extent vested, the vested portion of the principal and all accrued but unpaid
interest on such vested portion of the principal shall be paid in one lump sum on the last day of the thirty-sixth (36th) month
following the date of the note.
The vested principal of the note due at
the maturity date shall be calculated each year based on the average annual consolidated EBITDA (as defined in the note) of 1847
Cabinet for each of the years ended December 31, 2020, 2021 and 2022. The EBITDA for each year shall be divided by $1.4 million
multiplied by 100 to obtain the vested percentage. The vested principal for each year shall be equal to the vested percentage for
that year multiplied by $350,000. To the extent that the vested percentage for the subject year is less than 80%, no portion of
the note for that year shall vest. To the extent that the vested percentage for the subject year is equal to or greater than 120%,
the vested principal shall be equal to $420,000 for that year and no more.
1847 Cabinet will have the right to redeem
all but no less than all of the note at any time prior to the maturity date. If 1847 Cabinet elects to redeem the note, the redemption
price will be payable in cash and is equal to the then outstanding vested portion of the principal plus any remaining unvested
principal amount plus accrued but unpaid interest thereon (calculated over 36 months). For purposes of this redemption calculation,
the “unvested principal amount” shall be $350,000 per year.
The note contains customary events of default.
The right of the Kyle’s Seller to receive payments under the note is subordinated to all indebtedness of 1847 Cabinet, whether
outstanding as of the closing date or thereafter created, to banks, insurance companies and other financial institutions or funds,
and federal or state taxation authorities.
Intercompany Secured Promissory Note
In connection with the acquisition of Kyle’s,
the Company provided 1847 Cabinet with the funds necessary to pay the cash portion of the purchase price and cover acquisition
expenses. In connection therewith, on September 30, 2020, 1847 Cabinet issued a secured promissory note to the Company in the principal
amount of $4,525,000.
The note bears interest at the rate of
16% per annum. The interest is cumulative and any unpaid accrued interest will compound on each anniversary date of the note. Interest
is due and payable in arrears on January 15, April 15, July 15 and October 15 commencing January 15, 2021. In the event payment
of principal or interest due under the note is not made when due, giving effect to any grace period which may be applicable, or
in the event of any other default (as defined in the note), the outstanding principal balance shall from the date of default immediately
bear interest at the rate of 5% above the then applicable interest rate for so long as such default continues.
The Company may demand payment in full
of the note at any time, even if 1847 Cabinet has complied with all of the terms of the note; and the note shall be due in full,
without demand, upon a third party sale of all or substantially all the assets and business of 1847 Cabinet or a third party sale
or other disposition of any capital stock of 1847 Cabinet. 1847 Cabinet may prepay the note at any time without penalty.
The note contains customary events of default,
is guaranteed by Kyle’s and is secured by all of the assets of 1847 Cabinet and Kyle’s.
PPP Loans
On April 10, 2020 and April 28, 2020, Neese
and Asien’s received $383,600 and $357,500, respectively, in PPP loans from the SBA under provisions of the CARES Act. The
PPP loans have two-year terms and bear interest at a rate of 1.0% per annum. Monthly principal and interest payments are
deferred for six months after the date of disbursement. The PPP loans may be prepaid at any time prior to maturity with no
prepayment penalties. The PPP loans contain events of default and other provisions customary for loans of this type.
The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as
described in the CARES Act. Neese and Asien’s intend to use the proceeds from the PPP loans for qualifying expenses
and to apply for forgiveness of the PPP loans in accordance with the terms of the CARES Act. The Company has classified $453,307
of the PPP loans as current liabilities and $289,527 as long-term liabilities pending SBA clarification of the final loan terms.
Total Debt
The following table shows aggregate figures
for the total debt described above that is coming due in the short and long term as of September 30, 2020. See the above disclosures
for more details regarding these loans.
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total Debt
|
|
Grid Promissory Note
|
|
$
|
56,900
|
|
|
$
|
-
|
|
|
$
|
56,900
|
|
Term Loan – Home State Bank
|
|
|
438,891
|
|
|
|
3,055,031
|
|
|
|
3,493,922
|
|
10% Promissory Note – Neese Sellers
|
|
|
-
|
|
|
|
1,025,000
|
|
|
|
1,025,000
|
|
8% Subordinated Amortizing Promissory Note – Asien’s Seller
|
|
|
251,654
|
|
|
|
785,846
|
|
|
|
1,037,500
|
|
6% Amortizing Promissory Note – Asien’s Seller
|
|
|
153,076
|
|
|
|
-
|
|
|
|
153,076
|
|
4.5% Unsecured Promissory Note – Gwilliam Family Trust
|
|
|
48,418
|
|
|
|
-
|
|
|
|
48,418
|
|
Vehicle loans (Asien’s)
|
|
|
30,309
|
|
|
|
68,337
|
|
|
|
98,646
|
|
Vesting Promissory Note – Kyle’s Seller
|
|
|
-
|
|
|
|
1,050,000
|
|
|
|
1,050,000
|
|
PPP loans
|
|
|
453,307
|
|
|
|
289,527
|
|
|
|
742,834
|
|
Total
|
|
$
|
1,432,555
|
|
|
$
|
6,273,741
|
|
|
$
|
7,706,296
|
|
Contractual Obligations
We have engaged the Manager to manage
our day-to-day operations and affairs. Our relationship with the Manager will be governed principally
by the following agreements:
|
●
|
the
management services agreement and offsetting management services agreements relating
to the management services the Manager will perform for us and the businesses we own
and the management fee to be paid to the Manager in respect thereof; and
|
|
●
|
the
Company’s operating agreement setting forth the Manager’s rights with respect
to the allocation shares it owns, including the right to receive profit allocations from
us, and the supplemental put provision relating to the Manager’s right to cause
us to purchase the allocation shares it owns.
|
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The following discussion relates to critical
accounting policies for our consolidated company. The preparation of financial statements in conformity with GAAP requires our
management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the
preparation of our financial statements. These accounting policies are important for an understanding of our financial condition
and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition
and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial statements and because of the possibility that
future events affecting the estimate may differ significantly from management’s current judgments. We believe the following
critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
Revenue Recognition and Cost of Revenue
On January 1, 2018, the Company adopted
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes
the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is based on the principle that
revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure
about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant
judgments. The Company’s adoption of this ASU resulted in no change to the Company’s results of operations or
balance sheet.
Retail and Appliances Segment
Asien’s collects 100% of the payment
for special-order models including tax and 50% of the payment for non-special orders from the customer at the time the order is
placed. Asien’s does not incur incremental costs obtaining purchase orders from customers, however, if Asien’s did,
because all Asien’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than
capitalized.
Performance Obligations – The revenue
that Asien’s recognizes arises from orders it receives from customers. Asien’s performance obligations under the customer
orders correspond to each sale of merchandise that it makes to customers under the purchase orders; as a result, each purchase
order generally contains only one performance obligation based on the merchandise sale to be completed. Control of the delivery
transfers to customers when the customer can direct the use of, and obtain substantially all the benefits from, Asien’s products,
which generally occurs when the customer assumes the risk of loss. The transfer of control generally occurs at the point of pickup,
shipment, or installation. Once this occurs, Asien’s has satisfied its performance obligation and Asien’s recognizes
revenue.
Transaction Price ‒ Asien’s
agrees with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon sales
price. In Asien’s contracts with customers, it allocates the entire transaction price to the sales price, which is the basis
for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax that Asien’s
collects concurrently with revenue-producing activities are excluded from revenue.
Cost of revenue includes the cost of purchased
merchandise plus freight and any applicable delivery charges from the vendor to Asien’s. Substantially all Asien’s
sales are to individual retail consumers (homeowners), builders and designers. The large majority of customers are homeowners and
their contractors, with the homeowner being key in the final decisions. Asien’s has a diverse customer base with no one client
accounting for more than 5% of total revenue.
Land Management Segment
Neese’s payment terms are due on
demand from acceptance of delivery. Neese does not incur incremental costs obtaining purchase orders from customers, however, if
Neese did, because all of Neese’s contracts are less than a year in duration, any contract costs incurred would be expensed
rather than capitalized.
The revenue that Neese recognizes arises
from orders it receives from customers. Neese’s performance obligations under the customer orders correspond to each service
delivery or sale of equipment that Neese makes to customers under the purchase orders; as a result, each purchase order generally
contains only one performance obligation based on the service or equipment sale to be completed. Control of the delivery transfers
to customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, Neese’s products,
which generally occurs at the later of when the customer obtains title to the equipment or when the customer assumes risk of loss.
The transfer of control generally occurs at a point of delivery. Once this occurs, Neese has satisfied its performance obligation
and Neese recognizes revenue.
Neese also sells equipment by posting it
on auction sites specializing in farm equipment. Neese posts the equipment for sale on a “magazine” site for several
weeks before the auction. When Neese decides to sell, it moves the equipment to the auction site. The auctions are one day. If
Neese accepts a bid, the customer pays the bid price and arranges for pick-up of the equipment.
Transaction Price ‒ Neese agrees
with customers on the selling price of each transaction. This transaction price is generally based on the agreed upon service fee.
In Neese’s contracts with customers, it allocates the entire transaction price to the service fee to the customer, which
is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales
tax, value added tax, and other tax Neese collects concurrently with revenue-producing activities are excluded from revenue.
If Neese continued to apply legacy revenue
recognition guidance for the three and nine months ended September 30, 2020, revenues, gross margin, and net loss would not have
changed.
Substantially all of Neese’s sales
are to businesses, including farmers or municipalities and very little to individuals.
Performance Obligations
‒ Performance obligations for the different types of services are discussed below:
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●
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Trucking
‒ Revenues for time and material contracts are recognized when the merchandise
or commodity is delivered to the destination specified in the agreement with the customer.
|
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●
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Waste
Hauling and pumping ‒ Revenues for waste hauling and pumping is recognized
when the hauling, pumping, and spreading are complete.
|
|
●
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Repairs
‒ Revenues for repairs are recognized upon completion of equipment serviced.
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●
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Sales
of parts and equipment ‒ Revenues for the sale of parts and equipment are recognized
upon the transfer and acceptance by the customer.
|
Receivables
Receivables consist of credit card transactions
in the process of settlement. Vendor rebates receivable represent amounts due from manufactures from whom the Company purchases
products. Rebates receivable are stated at the amount that management expects to collect from manufacturers, net of accounts payable
amounts due the vendor. Rebates are calculated on product and model sales programs from specific vendors. The rebates are paid
at intermittent periods either in cash or through issuance of vendor credit memos, which can be applied against vendor accounts
payable. Based on the Company’s assessment of the credit history with its manufacturers, it has concluded that there should
be no allowance for uncollectible accounts. The Company historically collects substantially all of its outstanding rebates receivables.
Uncollectible balances are expensed in the period it is determined to be uncollectible.
Allowance for Credit Losses
Provisions for credit losses are charged
to income as losses are estimated to have occurred and in amounts sufficient to maintain an allowance for credit losses at an adequate
level to provide for future losses on the Company’s accounts receivable. The Company charges credit losses against the allowance
and credits subsequent recoveries, if any, to the allowance. Historical loss experience and contractual delinquency of accounts
receivables, and management’s judgment are factors used in assessing the overall adequacy of the allowance and the resulting
provision for credit losses. While management uses the best information available to make its evaluation, future adjustments to
the allowance may be necessary if there are significant changes in economic conditions or portfolio performance. This evaluation
is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.
The allowance for credit losses consists
of general and specific components. The general component of the allowance estimates credit losses for groups of accounts receivable
on a collective basis and relates to probable incurred losses of unimpaired accounts receivables. The Company records a general
allowance for credit losses that includes forecasted future credit losses.
Inventory
For Neese, inventory consists of finished
products acquired for resale and is valued at the lower-of-cost-or-market with cost determined on a specific item basis. For Asien’s,
inventory mainly consists of appliances that are acquired for resale and is valued at the average cost determined on a specific
item basis. Inventory also consists of parts that are used in service and repairs and may or may not be charged to the customer
depending on warranty and contractual relationship. The Company periodically evaluates the value of items in inventory and provides
write-downs to inventory based on its estimate of market conditions. The Company estimated an obsolescence allowance of $38,686
and $26,546 at September 30, 2020 and December 31, 2019, respectively.
Property and Equipment
Property and equipment is stated at cost.
Depreciation of furniture, vehicles and equipment is calculated using the straight-line method over the estimated useful lives
as follows:
|
|
Useful Life
(Years)
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|
Building and Improvements
|
|
4
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|
Machinery and Equipment
|
|
3-7
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|
Tractors
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3-7
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|
Trucks and Vehicles
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3-6
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|
Goodwill and Intangible Assets
In applying the acquisition method of accounting,
amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition,
with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted
valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized
over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite
lives are tested for impairment within one year of acquisitions or annually as of December 1, and whenever indicators of impairment
exist. The fair value of intangible assets are compared with their carrying values, and an impairment loss would be recognized
for the amount by which a carrying amount exceeds its fair value.
Acquired identifiable intangible assets are amortized over the
following periods:
Acquired intangible Asset
|
|
Amortization Basis
|
|
Expected Life
(years)
|
|
Customer-Related
|
|
Straight-line basis
|
|
|
5-15
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Marketing-Related
|
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Straight-line basis
|
|
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5
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|
Long-Lived Assets
The Company reviews its property and equipment
and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating
cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Fair Value of Financial Instruments
The Company’s financial instruments
consist of cash and cash equivalents and amounts due to shareholders. The carrying amount of these financial instruments approximates
fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed
in these financial statements.
Derivative Instrument Liability
The Company accounts for derivative instruments
in accordance with ASC 815, Derivatives and Hedging, which establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts,
and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation.
Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships
and the types of relationships designated are based on the exposures hedged.
Stock-Based Compensation
The Company records stock-based compensation
in accordance with ASC 718, Compensation-Stock Compensation. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the
cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued
and are recognized over the employees required service period, which is generally the vesting period.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No.
2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement
of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of
a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to
determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on
a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of December 1,
and whenever indicators of impairment exist.
In June 2016, the FASB issued ASU 2016-13
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the
measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing
incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.
ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019.
This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify
as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard
will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard, but does
not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash
flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure
controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in
the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding
required disclosure.
As required by Rule 13a-15(e) of the Exchange
Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer
and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of
September 30, 2020. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer
determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, which we are still in the process of remediating as of September 30,
2020, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form
10-K for the fiscal year ended December 31, 2019 for the description of these weaknesses.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal
control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more
efficient systems, consolidating activities, and migrating processes.
During its evaluation of the effectiveness
of our internal control over financial reporting as of September 30, 2020, our management
identified the following material weaknesses:
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We
did not have appropriate policies and procedures in place to evaluate the proper accounting
and disclosures of key documents and agreements.
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●
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We
do not have adequate segregation of duties with our limited accounting personnel and
rely upon outsourced accounting services.
|
As disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2019, our management has identified the steps necessary to address the material weaknesses,
and in the third quarter of 2020, we continued to implement the following remedial
procedures:
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●
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We
are currently evaluating candidates with the financial experience necessary to serve
as our Chief Financial Officer.
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We
plan to make necessary changes by providing training to our financial team and our other
relevant personnel on the GAAP accounting guidelines applicable to financial reporting
requirements.
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●
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We
have engaged the outsourced accounting and financial reporting services of Carrollton
Partners, LLC and will continue to use its services and those of other outsourced financial
professionals for corporate and subsidiary financial reporting.
|
We
intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no
assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous
effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to
devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The
remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified,
and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions,
we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Other than in connection with the implementation
of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third
quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business,
financial condition or operating results.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any equity securities
during three months ended September 30, 2020 that were not previously disclosed in a current report on Form 8-K that was filed
during the quarter.
We did not repurchase any of our common
shares during the three months ended September 30, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that
was required to be in a report on Form 8-K during the third quarter of fiscal 2020 but was not reported.
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
ITEM
6. EXHIBITS.
Exhibit
No.
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|
Description of Exhibit
|
3.1
|
|
Certificate
of Formation of 1847 Holdings LLC (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed
on February 7, 2014)
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3.2
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Second
Amended and Restated Operating Agreement of 1847 Holdings LLC, dated January 19, 2018 (incorporated by reference to Exhibit
3.1 to the Current Report on Form 8-K filed on January 22, 2018)
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4.1
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Certificate
of Designation of Series A Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K filed on October 7, 2020)
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4.2
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Common
Share Purchase Warrant issued by 1847 Holdings LLC to Leonite Capital LLC on April 5, 2019 (incorporated by reference to Exhibit
10.22 to the Current Report on Form 8-K filed April 8, 2019)
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4.3
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Common
Share Purchase Warrant issued by 1847 Holdings LLC to Leonite Capital LLC on May 11, 2020 (incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K filed May 14, 2020)
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4.4
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|
Form
of Common Share Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on October
7, 2020)
|
10.1
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|
Management
Services Agreement, dated August 21, 2020, by and between 1847 Cabinet Inc. and 1847 Partners LLC (incorporated by reference
to Exhibit 10.4 to the Current Report on Form 8-K filed on October 7, 2020)
|
10.2
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|
Securities
Purchase Agreement, dated July 29, 2020, between 1847 Asien Inc. and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen,
as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed August 4, 2020)
|
10.3
|
|
Stock
Purchase Agreement, dated August 27, 2020, among 1847 Cabinet Inc., 1847 Holdings LLC, Kyle’s Custom Wood Shop, Inc.,
and Stephen Mallatt, Jr. and Rita Mallatt (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
on September 2, 2020)
|
10.4
|
|
Addendum
to Stock Purchase Agreement, dated as of September 30, 2020, among 1847 Cabinet Inc., Kyle’s Custom Wood Shop, Inc.,
Stephen Mallatt, Jr. and Rita Mallatt, and 1847 Holdings LLC (incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K filed on October 7, 2020)
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10.5
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|
Change
in Terms Agreement, dated July 30, 2020, between Neese, Inc. and Home State Bank (incorporated by reference to Exhibit 10.4
to the Current Report on Form 8-K filed on August 5, 2020)
|
10.6
|
|
Promissory
Note and Security Agreement, dated July 10, 2020, by Asien’s Appliance, Inc. in favor of Arvest Bank (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed July 21, 2020)
|
10.7
|
|
6%
Amortizing Promissory Note issued by 1847 Asien Inc. to Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of
the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992, on July 29, 2020 (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed August 4, 2020)
|
10.8
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|
Inventory
Financing Agreement, dated September 25, 2020, between Wells Fargo Commercial Distribution Finance, LLC and Asien’s
Appliance, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 1, 2020)
|
10.9
|
|
Guaranty,
dated September 25, 2020, by 1847 Asien Inc. and 1847 Holdings LLC (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed on October 1, 2020)
|
10.10
|
|
8%
Vesting Promissory Note, dated September 30, 2020, issued by 1847 Cabinet Inc. to Stephen Mallatt, Jr. and Rita Mallatt (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on October 7, 2020)
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10.11
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|
Secured
Promissory Note, dated September 30, 2020, issued by 1847 Holdings LLC to 1847 Cabinet Inc. (incorporated by reference to
Exhibit 10.5 to the Current Report on Form 8-K filed on October 7, 2020)
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10.12
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|
Form
of Securities Purchase Agreement (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on October
7, 2020)
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31.1*
|
|
Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1*
|
|
Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
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101.INS*
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|
XBRL Instance Document
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document
|
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: November 23, 2020
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1847 HOLDINGS LLC
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/s/ Ellery W. Roberts
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Name:
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Ellery W. Roberts
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Title:
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Chief Executive Officer and Chief Financial Officer
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(Principal Executive Officer and Principal Financial and Accounting Officer)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 27, 2020 (November 20, 2020)
1847 HOLDINGS LLC
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(Exact name of registrant as specified in its charter)
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Delaware
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333-193821
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38-3922937
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
|
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(IRS Employer
Identification No.)
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590 Madison Avenue, 21st Floor, New York, NY
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10022
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(Address of principal executive offices)
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(Zip Code)
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(212) 417-9800
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(Registrant’s telephone number, including area code)
|
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(Former name or former address, if changed since last report)
|
Check the appropriate box below if the Form
8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
☐
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
☐
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
☐
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging Growth Company ☐
If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01
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Entry into a Material Definitive Agreement.
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As
previously disclosed, on September 30, 2020, 1847 Holdings LLC (the “Company”) entered into several securities purchase
agreements with certain purchasers, pursuant to which the Company sold an aggregate of 2,189,835 units, at a price of $1.90 per
unit, for an aggregate purchase price of $4,160,684. Each unit consists of (i) one (1) series A senior convertible preferred share
of the Company, and (ii) a three-year warrant to purchase one (1) common share of the Company at an exercise price of $2.50 per
share (subject to adjustment), which may be exercised on a cashless basis under certain circumstances.
As previously disclosed, on October
26, 2020, the Company entered into several securities purchase agreements, in the same form as those entered into on September
30, 2020, with additional purchasers, pursuant to which the Company sold an aggregate of 442,443 units, at a price of $1.90 per
unit, to such purchasers for an aggregate purchase price of $840,640.
As previously disclosed, the terms of
the series A senior convertible preferred shares are governed by a share designation, dated September 30, 2020 (the “Designation”).
The Designation contains a provision regarding adjustments to the dividend rate, stated value and conversion price of the series
A senior convertible preferred shares as follows:
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●
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On the first day of the 12th month following the
issuance date of any series A senior convertible preferred share, the stated dividend rate shall automatically increase
by five percent (5.0%) per annum and the conversion price shall automatically adjust to the lower of the (i) initial conversion
price and (ii) the price equal to the lowest volume weighted average price (“VWAP”) of the ten (10) trading days immediately
preceding such date.
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●
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On the first day of the 24th month following the
issuance date of any series A senior convertible preferred, the stated dividend rate shall automatically increase by an
additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion
price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of
the ten (10) trading days immediately preceding such date.
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●
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On the first day of the 36th
month following the issuance date of any series A senior convertible preferred share,
the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically
increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price
and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding the third adjustment date.
|
On November 20, 2020, the Company and
the holders of a majority of the series A senior convertible preferred shares entered into Amendment No. 1 to the Designation (the
“Designation Amendment”) to amend the Designation to provide that, notwithstanding anything to the contrary contained
in the Designation, the conversion price for purposes of the adjustments described above shall not be adjusted to a number that
is below $0.0075.
The foregoing description of the Designation
Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Designation Amendment
filed as Exhibit 4.2 to this Form 8-K, which is incorporated herein by reference.
|
Item 9.01
|
Financial Statements and Exhibits.
|
(d) Exhibits
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 27, 2020
|
1847 HOLDINGS LLC
|
|
|
|
/s/ Ellery W. Roberts
|
|
Name: Ellery W. Roberts
|
|
Title: Chief Executive Officer
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): December 11, 2020 (December 7, 2020)
1847
HOLDINGS LLC
|
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
333-193821
|
|
38-3922937
|
(State
or other jurisdiction
of incorporation)
|
|
(Commission
File Number)
|
|
(IRS
Employer
Identification No.)
|
590
Madison Avenue, 21st Floor, New York, NY
|
|
10022
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(212)
417-9800
|
(Registrant’s
telephone number, including area code)
|
|
(Former
name or former address, if changed since last report)
|
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
|
☐
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
☐
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
☐
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
☐
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Securities
registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule
12b-2 of the Securities Exchange Act of 1934.
Emerging
Growth Company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
|
Item
1.01
|
Entry
into a Material Definitive Agreement.
|
Amendment
and Restatement of Intercompany Secured Promissory Note
As
previously disclosed, on September 30, 2020, 1847 Cabinet Inc. (“1847 Cabinet”), a subsidiary of 1847 Holdings LLC
(the “Company”), issued a secured promissory note in the principal amount of up to $4,525,000 to provide it with the
funds necessary to acquire Kyle’s Custom Wood Shop, Inc. (“KCWS”), which was amended and restated as of December
11, 2020 (as so amended and restated, the “Company Note”).
The
Company Note bears interest at the rate of 16% per annum. Interest on the Company Note is cumulative and any unpaid accrued interest
will compound on each anniversary date of the Company Note. Interest is due and payable in arrears to the Company on January 15,
April 15, July 15 and October 15 commencing January 15, 2021. In the event payment of principal or interest due under the Company
Note is not made when due, giving effect to any grace period which may be applicable, or in the event of any other Default (as
defined in the Company Note), the outstanding principal balance shall from the date of Default immediately bear interest at the
rate of 5% above the then applicable interest rate for so long as such Default continues.
The Company may demand payment in full of the
Company Note, at any time, even if 1847 Cabinet has complied with all of the terms of the Company Note, and the Company Note shall
be due in full, without demand, upon the third party sale of all or substantially all the assets and business of 1847 Cabinet or
the third party sale or other disposition of any capital stock of 1847 Cabinet. 1847 Cabinet may prepay the Company Note at any
time without penalty.
As
previously disclosed, in connection with the acquisition of KCWS and to, in part, fund the Company Note, the Company entered into
several securities purchase agreements (the “Unit Purchase Agreements”), with certain purchasers (the “Purchasers”),
pursuant to which the Company sold an aggregate of 2,632,278 Units at a price of $1.90 per Unit, to the Purchasers for an aggregate
purchase price of $5,001,324. Each Unit consists of (i) one (1) share of Series A Senior Convertible Preferred Shares of the Company
with a stated value of $2.00 per share (each a “Series A Shares” and collectively, the “Series A Shares”),
and (ii) a three-year warrant to purchase one (i) Common Share of the Company at an exercise price of $2.50 per Common Shares
(subject to adjustment), which may be exercised on a cashless basis under certain circumstances (the “Warrants” and,
together with the Series A Shares, the “Units”). The final closing of the sale by the Company of the Units was completed
on October 26, 2020.
If
and to the extent any amounts are owing under the Unit Purchase Agreements or the Units (together, the “Unit Documents”)
due to a default or redemption pursuant to the terms of the Unit Documents (the “Unit Payments”), in addition to payment
obligations due under the Company Note, 1847 Cabinet is required to immediately make payments to the Company so that the Company
may make the Unit Payments in compliance with the terms of the Unit Documents.
The
due and punctual payment, observance, performance and discharge of all of the obligations of 1847 Cabinet under the Company Note
are guaranteed by KCWS, which guaranty is secured by all of the assets of KCWS. KCWS shall pay, reimburse and indemnify the Company
for any and all reasonable attorneys’ fees arising or resulting from 1847 Cabinet’s failure to perform, satisfy or
observe any of the terms of the Company Note. As security for the obligations under the Company Note and the guarantee, each of
1847 Cabinet and KCWS pledged to the Company and granted to the Company a security interest in and to the all of the assets owned
by it.
The
Company Note contains customary events of default, including any of the following events by 1847 cabinet or KCWS, after any applicable
cure period: (i) non-payment of amounts due under the Company Note or other indebtedness, (ii) a breach of any of the representation,
warranties or covenants under the Company Note, or (iii) commencement of any proceeding in bankruptcy.
Amendment
and Restatement of Grid Note
As
previously disclosed, on January 3, 2018, the Company issued a grid promissory note to the Company’s manager, 1847 Partners
LLC (the “Manager”), in the initial principal amount of $50,000. The note provides that the Company may from time
to time request advances from the Manager up to an aggregate amount of $150,000, which will be added to the note if the Manager,
in its sole discretion, so provides.
On
December 7, 2020, parties amended and restated the note (as so amended and restated, the “Grid Note”), under which
$56,900 from the original note remains outstanding and which has accrued interest of $24,385 as of September 30, 2020. Interest
on the Grid Note accrues on the unpaid portion of the principal amount and the outstanding portion of all advances at a fixed
rate of 8% per annum, and along with the outstanding portion of the principal amount and the outstanding portion of all advances,
shall be payable in one lump sum due on the maturity date, which is the first anniversary of the date of the Grid Note. If all
or a portion of the principal amount or any advance under the Note, or any interest payable thereon is not paid when due (whether
at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate of 12% per annum.
The
Grid Note provides that, in the event the Company completes a financing that includes an uplisting of its Common Shares to a national
exchange, the Company must, contemporaneously with the closing of such financing transaction, repay the entire outstanding principal,
outstanding advances, and accrued and unpaid interest on the Grid Note.
The
Grid Note contains customary events of default. Subject to the terms and conditions of the Grid Note, if one or more events of
defaults shall have occurred and be continuing, the holder may at its option by written note to the Company declare the principal
amount and all advances and unpaid interest thereon to be immediately due and payable.
The
foregoing description of the Company Note and the Grid Note does not purport to be complete and is qualified in its entirety by
reference to the full text of those agreements filed as Exhibits 10.1 and 10.2, respectively, to this Form 8-K, which is incorporated
herein by reference.
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Item
2.03
|
Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
of
|
The
information set forth under Item 1.01 is incorporated by reference into this Item 2.03.
|
Item
9.01
|
Financial
Statements and Exhibits.
|
(d)
Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date:
December 11, 2020
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1847
HOLDINGS LLC
|
|
|
|
/s/
Ellery W. Roberts
|
|
Name:
|
Ellery W. Roberts
|
|
Title:
|
Chief Executive Officer
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 29, 2020 (December 22, 2020)
1847 Holdings LLC
|
(Exact name of registrant as specified in its charter)
|
Delaware
|
|
333-193821
|
|
38-3922937
|
(State or other jurisdiction
of incorporation)
|
|
(Commission File Number)
|
|
(IRS Employer
Identification No.)
|
590 Madison Avenue, 21st Floor, New York, NY
|
|
10022
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(212) 417-9800
|
(Registrant’s telephone number, including area code)
|
|
(Former name or former address, if changed since last report.)
|
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
|
☐
|
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
☐
|
Soliciting material pursuant
to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
☐
|
Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
☐
|
Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Securities registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark whether the registrant is an emerging
growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement.
Stock Purchase Agreement
On December 22, 2020, 1847 Wolo Inc. (“1847 Wolo”),
a subsidiary of 1847 Holdings LLC (the “Company”), entered into a Stock Purchase Agreement (the “Purchase Agreement”)
among 1847 Wolo, the Company, Wolo Manufacturing Corp., a New York corporation and Wolo Industrial Horn & Signal, Inc., a New
York corporation (together, “Wolo”), and the sellers named therein (together, the “Sellers”), pursuant
to which 1847 Wolo agreed to acquire all of the issued and outstanding capital stock of Wolo (the “Shares”) for an
aggregate cash purchase price of $7,300,000, subject to adjustment as described below. Headquartered in Deer Park, NY and founded
in 1965, Wolo designs and manufactures 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 purchase price is subject to a post-closing working capital
adjustment provision. Under this provision, the Sellers shall deliver to 1847 Wolo at the closing of the acquisition an unaudited
balance sheet of Wolo as of that date (the Preliminary Balance Sheet”). On or before the 75th day following the
closing of the acquisition 1847 Wolo shall deliver to the Sellers an audited balance sheet as of the closing date (the “Final
Balance Sheet”). If the net working capital reflected on the Final Balance Sheet (the “Final Working Capital”)
exceeds the net working capital reflected on the Preliminary Balance Sheet (the “Preliminary Working Capital”), 1847
Wolo shall, within seven days, pay to the Sellers an amount of cash that is equal to such excess. If the Preliminary Working Capital
exceeds the Final Working Capital, the Sellers shall, within seven days, pay to 1847 Wolo an amount in cash equal to such excess.
In addition to the post-closing working capital adjustment described
above, there is a target working capital adjustment. “Net Working Capital Target” is defined in the Purchase Agreement
as $4,250,000. At the closing, if Preliminary Working Capital exceeds the Net Working Capital Target, then the purchase price will
be increased at the closing by the amount of such difference. Similarly, if the Net Working Capital Target exceeds the Preliminary
Working Capital, then the purchase price will be reduced at the closing by the amount of such difference. The purchase price will
also be reduced by the amount of outstanding indebtedness of Wolo existing as of the closing date and the deducted amount will
be used to pay off any such indebtedness.
If the closing of the acquisition occurs after December 31,
2020, 1847 Wolo will indemnify and hold harmless Sellers for any amounts in respect of taxes payable by Sellers in connection with
the acquisition that are in excess of the amounts of taxes that would have been payable by Sellers in connection with the acquisition
if the closing had occurred on or prior to December 31, 2020.
The Purchase Agreement contains customary representations, warranties
and covenants, including a covenant that the Sellers will not compete with the business of Wolo for a period of three (3) years
following closing.
The Purchase Agreement also contains mutual indemnification
for breaches of representations or warranties and failure to perform covenants or obligations contained in the Purchase Agreement.
In the case of the indemnification provided by the Sellers with respect to breaches of certain non-fundamental representations
and warranties, the Sellers will only become liable for indemnified losses if the amount exceeds an aggregate of $10,000, whereupon
the Sellers will be liable for all losses that exceed the $100,000 threshold, provided that the liability of the Sellers for breaches
of certain non-fundamental representations and warranties shall not exceed $1,825,000.
The closing of the Purchase Agreement is subject to customary
closing conditions, including, without limitation, the completion of accounting and legal due diligence investigations; the receipt
of all authorizations, consents and approvals of all governmental authorities or agencies; the receipt of any required consents
of any third parties; the release of any security interests; and 1847 Wolo obtaining the requisite acquisition financing.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
1847 HOLDINGS LLC
|
|
|
Date: December 29, 2020
|
/s/ Ellery W. Roberts
|
|
Name: Ellery W. Roberts
|
|
Title: Chief Executive Officer
|
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