UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period
ended:
or
For the transition period from ____________ to _____________
Commission File Number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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).
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 ☐ |
| 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 15, 2024, there were
1847 HOLDINGS LLC
Quarterly Report on Form 10-Q
Period Ended September 30, 2024
TABLE OF CONTENTS
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
1847 HOLDINGS LLC
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30,
2024 |
December 31,
2023 |
|||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | - | |||||||
| Receivables, net | ||||||||
| Contract assets | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Long-term deposits | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | - | |||||||
| Non-current assets of discontinued operations | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Due to related parties | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current portion of notes payable, net | ||||||||
| Current portion of convertible notes payable, net | ||||||||
| Related party note payable | ||||||||
| Derivative liabilities | ||||||||
| Warrant liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Convertible notes payable, net of current portion | ||||||||
| Deferred tax liability, net | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| TOTAL LIABILITIES | ||||||||
| Shareholders’ Deficit | ||||||||
| Series A senior convertible preferred shares, par value, |
||||||||
| Series B senior convertible preferred shares, par value, |
||||||||
| Series C senior convertible preferred shares, par value, |
||||||||
| Series D senior convertible preferred shares, par value, |
||||||||
| Allocation shares, |
||||||||
| Common shares, $ |
||||||||
| Distribution receivable | ( |
) | ( |
) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| TOTAL 1847 HOLDINGS SHAREHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| NON-CONTROLLING INTERESTS | ( |
) | ( |
) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Impairment of goodwill and intangible assets | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Gain on change in fair value of derivative liabilities | ||||||||||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| NET LOSS FROM CONTINUING OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on disposition of subsidiaries | ||||||||||||||||
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS | ( | ) | ||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM CONTINUING OPERATIONS | ||||||||||||||||
| NET (INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO 1847 HOLDINGS | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ( | ) | ||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO 1847 HOLDINGS | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| PREFERRED SHARE DIVIDENDS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DEEMED DIVIDENDS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS - BASIC | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| EARNINGS (LOSS) PER COMMON SHARE FROM DISCONTINUED OPERATIONS - BASIC | ( | ) | ||||||||||||||
| EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS - BASIC | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS - DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| EARNINGS (LOSS) PER COMMON SHARE FROM DISCONTINUED OPERATIONS - DILUTED | ( | ) | ||||||||||||||
| EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS - DILUTED | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC | ||||||||||||||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(UNAUDITED)
Series A Senior Convertible Preferred Shares | Series B Senior Convertible Preferred Shares | Series C Senior Convertible Preferred Shares | Series D Senior Convertible Preferred Shares | Allocation | Common Shares | Distribution | Additional Paid-In | Accumulated | Non- Controlling | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Shares | Amount | Receivable | Capital | Deficit | Interests | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred share dividends | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series B preferred share dividends | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series A preferred shares | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B preferred shares | - | ( | ) | ( | ) | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of convertible notes payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and prefunded warrants in connection with a public offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of prefunded warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B preferred shares | - | ( | ) | ( | ) | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of convertible notes payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with a private debt offering | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of prefunded warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series D preferred shares in connection with a private debt offering | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series D senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of prefunded warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series A preferred shares upon settlement of accrued series A dividends | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series C preferred shares upon settlement of note payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series D preferred shares in connection with a private debt offering | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1847 Manager profit allocation distribution from sale of High Mountain | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series C senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series D senior convertible preferred shares | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | ( | ) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
4
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(UNAUDITED)
| Series
A Senior Convertible Preferred Shares | Series
B Senior Convertible Preferred Shares | Allocation | Common Shares | Distribution | Additional Paid-In | Accumulated | Non-
Controlling | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Shares | Amount | Receivable | Capital | Deficit | Interests | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred shares dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and warrants in connection with a private debt offering | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from issuance of warrants to common shareholders | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred shares dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B preferred shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common shares and prefunded warrants in public offering | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrant liability recognized upon issuance of prefunded warrants | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of prefunded warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of warrant liability upon exercise of prefunded warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with a private debt offering | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series A senior convertible preferred shares | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series B senior convertible preferred shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of promissory notes | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series A preferred share dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of accrued series B preferred share dividends | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from down round provision in warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ( | ) | ||||||
| Gain on disposition of subsidiaries | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| 1847 Manager profit allocation distribution from the sale of High Mountain | ||||||||
| Loss on extinguishment of debt | ||||||||
| Impairment of goodwill and intangible assets | ||||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ||||||
| Loss on change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Deferred taxes | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( | ) | ||||||
| Contract assets | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities from discontinued operations | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from the sale of High Mountain | ||||||||
| Escrow receivable from the sale of High Mountain | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash provided by (used in) investing activities from continuing operations | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds from notes payable | ||||||||
| Net proceeds from issuance of common shares and warrants in connection with a private debt offering | ||||||||
| Net proceeds from issuance of common shares and warrants in connection with a public offering | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Repayments of notes payable and finance lease liabilities | ( | ) | ( | ) | ||||
| Repayments of convertible notes payable | ( | ) | ||||||
| Accrued series B preferred share dividends paid | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash provided by (used in) financing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ||||||||
| Cash from continuing operations at the beginning of the period | ||||||||
| Cash from continuing operations at the end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Net assets acquired in the acquisition of ICU Eyewear | $ | $ | ||||||
| Net assets from the disposition of subsidiaries | $ | $ | ||||||
| Deemed dividend from issuance of warrants to common shareholders | $ | $ | ||||||
| Deemed dividend from down round provision in warrants | $ | $ | ||||||
| Accrued dividends on series A preferred shares | $ | $ | ||||||
| Accrued dividends on series B preferred shares | $ | $ | ||||||
| Accrued dividends on series C preferred shares | $ | $ | ||||||
| Accrued dividends on series D preferred shares | $ | $ | ||||||
| Issuance of common shares upon settlement of accrued series A dividends | $ | $ | ||||||
| Issuance of common shares upon settlement of accrued series B dividends | $ | $ | ||||||
| Issuance of common shares upon conversion of series A shares | $ | $ | ||||||
| Issuance of common shares upon conversion of series B shares | $ | $ | ||||||
| Issuance of common shares upon cashless exercise of warrants | $ | $ | - | |||||
| Debt discount on notes payable | $ | $ | ||||||
| Fair value of derivative liabilities recognized upon issuance of promissory notes | $ | $ | ||||||
| Fair value of warrant liabilities recognized upon issuance of prefunded warrants | $ | $ | ||||||
| Issuance of common shares upon exercise of prefunded warrants | $ | $ | ||||||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | $ | $ | ||||||
| Issuance of common shares upon conversion of convertible notes payable and accrued interest | $ | $ | ||||||
| Issuance of warrants in connection with a private debt offering | $ | $ | ||||||
| Issuance of series D preferred shares in connection with a private debt offering | $ | $ | ||||||
| Settlement of revolving line of credit and accrued interest through the issuance of a new revolving line of credit | $ | $ | ||||||
| Financed purchases of property and equipment | $ | $ | ||||||
| Operating lease right-of-use asset and liability measurement | $ | $ | ||||||
| Fair value of note payable issued for services | $ | $ | ||||||
| Reclassification of accrued interest to convertible notes payable | $ | $ | ||||||
| Reclassification of notes payable to convertible notes payable upon default | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated financial statements of 1847 Holdings LLC (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2023 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K, as filed with the Securities and Exchange Commission on April 25, 2024. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
Discontinued Operations
On February 26, 2024, Asien’s Appliance, Inc. (“Asien’s”), a wholly owned subsidiary of the Company’s subsidiary 1847 Asien Inc. (“1847 Asien”), entered into a general assignment for the benefit of its creditors (the “Assignment Agreement”) with SG Service Co., LLC, pursuant to which Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust.
The
Company is a limited guarantor of an Amended and Restated Credit and Security Agreement (the “ICU Loan Agreement”) that was
entered into on September 11, 2023, between AB Lending SPV I LLC d/b/a Mountain Ridge Capital (the “ICU Lender”), and the
Company’s subsidiaries ICU Eyewear, Inc. (“ICU Eyewear”), ICU Eyewear Holdings, Inc., and 1847 ICU Holdings Inc. (the
“ICU Parties”). Pursuant to the ICU Loan Agreement, the ICU Lender had a security interest in all the assets of ICU Eyewear.
ICU Eyewear was in default under the ICU Loan Agreement and, with the approval of the other ICU Parties, consented to a foreclosure by
the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform
Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California.
On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with the Company, was the successful bidder with a cash
bid of $
On
September 30, 2024, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with BFS Group LLC (“BFS”),
and the Company’s majority owned subsidiary High Mountain Door & Trim Inc. (“High Mountain”), pursuant to which
the Company sold substantially all of the assets of High Mountain to BFS for an aggregate cash only purchase price of $
The results of operations of Asien’s, ICU Eyewear and High Mountain are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate solely to continuing operations and exclude all discontinued operations. See Note 3 for additional information.
7
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
The Company evaluates all disposal transactions to determine whether such disposal qualifies for reporting as discontinued operations in accordance with ASC 205-20, “Discontinued Operations.” A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off). For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for current and all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods.
Reverse Share Splits
On July 8, 2024, the Company effected a 1-for-13 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-13 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion.
On November 11, 2024, the Company effected a 1-for-15 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-15 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion.
All share and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share splits. The total number of authorized common shares did not change. As a result of the reverse common share splits, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.”
Reclassifications
Certain reclassifications within operating expenses have been made to the prior period’s financial statements to conform to the current period financial statement presentation. There is no impact in total to the results of operations and cash flows in all periods presented.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. These amendments are to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to our condensed consolidated financial statements.
8
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
NOTE 2—LIQUIDITY AND GOING CONCERN ASSESSMENT
Management assesses liquidity and going concern uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the financial statements are 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 considered various scenarios, forecasts, projections, estimates and made 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, management made certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As of September 30, 2024, the Company had cash
and cash equivalents of $
The Company has generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cashflows from operations. The Company expects that within the next twelve months, it will not have sufficient cash and other resources on hand to sustain its current operations or meet its obligations as they become due unless it obtains additional financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
An assessment was performed to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year after the condensed consolidated financial statements are issued. Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented. Based on this assessment, substantial doubt exists regarding the Company’s ability to continue as a going concern.
Management plans to address these concerns by securing additional financing through debt and equity offerings. Management assessed the mitigating effect of its plans to determine if it is probable that the plans would be effectively implemented within one year after the consolidated financial statements are issued and when implemented, would mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. These plans are subject to market conditions and reliance on third parties, and there is no assurance that effective implementation of the Company’s plans will result in the necessary funding to continue current operations and satisfy current debt obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern beyond one year from the date the condensed consolidated financial statements are issued.
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
9
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
NOTE 3—DISCONTINUED OPERATIONS
Asien’s Assignment for the Benefit of Creditors
On February 26, 2024, Asien’s entered into the Assignment Agreement, pursuant to which Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust. The Company received no cash consideration related to the assignment. Following the assignment, the Company retained no financial interest in Asien’s.
The
assignment of Asien’s represents a strategic shift and its results are reported as discontinued operations for the three and nine
months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of Asien’s of $
| December 31, 2023 | ||||
| Current assets of discontinued operations | ||||
| Cash and cash equivalents | $ | |||
| Investments | ||||
| Receivables | ||||
| Inventories, net | ||||
| Prepaid expenses and other current assets | ||||
| Total current assets of discontinued operations | ||||
| Non-current assets of discontinued operations | ||||
| Property and equipment, net | ||||
| Total assets of discontinued operations | $ | |||
| Current liabilities of discontinued operations | ||||
| Accounts payable and accrued expenses | $ | |||
| Customer deposits | ||||
| Current portion of notes payable | ||||
| Total current liabilities of discontinued operations | ||||
| Non-current liabilities of discontinued operations | ||||
| Notes payable, net of current portion | ||||
| Total liabilities of discontinued operations | $ | |||
10
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Other Expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss from discontinued operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ||||||||||||||||
| Net loss from discontinued operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) attributable to non-controlling interests from discontinued operations | ( | ) | ||||||||||||||
| Net loss from discontinued operations attributable to 1847 Holdings | $ | ( | ) | ( | ) | ( | ) | |||||||||
11
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| Nine
Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Deferred taxes | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Net cash used in operating activities from discontinued operations | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Investments in certificates of deposit | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Net cash used in financing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents from discontinued operations | $ | ( | ) | $ | ( | ) | ||
ICU Eyewear Foreclosure Sale
As
described above, ICU Eyewear was in default under the ICU Loan Agreement and, with the approval of the other ICU Parties, consented to
a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section
9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect
in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with the Company, was the
successful bidder with a cash bid of $
The
sale of ICU Eyewear’s assets represents a strategic shift and its results are reported as discontinued operations for the three
and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of ICU Eyewear’s assets of $
12
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| December
31, 2023 | ||||
| Current assets of discontinued operations | ||||
| Cash and cash equivalents | $ | |||
| Receivables, net | ||||
| Inventories, net | ||||
| Prepaid expenses and other current assets | ||||
| Total current assets of discontinued operations | ||||
| Non-current assets of discontinued operations | ||||
| Property and equipment, net | ||||
| Operating lease right-of-use assets | ||||
| Long-term deposits | ||||
| Intangible assets, net | ||||
| Goodwill | ||||
| Total assets of discontinued operations | $ | |||
| Current liabilities of discontinued operations | ||||
| Accounts payable and accrued expenses | $ | |||
| Current portion of operating lease liabilities | ||||
| Total current liabilities of discontinued operations | ||||
| Non-current liabilities of discontinued operations | ||||
| Operating lease liabilities, net of current portion | ||||
| Revolving line of credit, net | ||||
| Deferred tax liability | ||||
| Total liabilities of discontinued operations | $ | |||
13
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ( | ) | ||||||||||||||
| Impairment of goodwill and intangible assets | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on bargain purchase | ||||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) from discontinued operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) from discontinued operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
14
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| Nine
Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Deferred taxes | ( | ) | ||||||
| Inventory reserve | ||||||||
| Gain on bargain purchase | ( | ) | ||||||
| Impairment of goodwill and intangible assets | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities from discontinued operations | ||||||||
| Cash flows from investing activities | ||||||||
| Investments in certificates of deposit | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Net proceeds (repayments) of revolving line of credit | ( | ) | ||||||
| Net cash provided by (used in) financing activities from discontinued operations | ( | ) | ||||||
| Net change in cash and cash equivalents from discontinued operations | $ | $ | ||||||
Sale of High Mountain
As
described above, on September 30, 2024, the Company entered into the Purchase Agreement with BFS and High Mountain, pursuant to which
the Company sold substantially all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $
15
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
The purchase price is also subject to a post-closing adjustment. Under this provision, High Mountain delivered to BFS an estimated closing statement forth the estimated closing date payment amount, which included, among other things, High Mountain’s estimate of the net working capital of High Mountain and its business as of the closing date, calculated in accordance with the asset purchase agreement. Within 90 to 120 days following the closing date, BFS must deliver to High Mountain a final closing statement setting forth its determination of the actual closing date payment amount, including, among other things, BFS’ determination of the net working capital as of the closing date. If the actual closing date payment amount exceeds the estimated closing date payment amount, BFS must, within ten business days, pay to High Mountain an amount of cash that is equal to such excess. If the estimated closing date payment amount exceeds the actual closing date payment amount, High Mountain must, within ten business days, pay to BFS an amount in cash equal to such excess. If High Mountain fails to make such payment, BFS will have the right to recover such amount from the Holdback Amount.
Under the Purchase Agreement, BFS must use commercially reasonable efforts in the ordinary course of business to collect accounts receivable in a manner no less rigorous than the collection efforts used its own business operations, but is entitled to compensation for any uncollected accounts from the Holdback Amount. In addition, the Purchase Agreement provides that BFS must use commercially reasonable efforts in the ordinary course of business to finish and sell any special order or custom inventory that was included in the final net working capital, but is entitled to compensation, on the one-year anniversary of the closing, for any unsold special order or custom inventory from the Holdback Amount.
The
sale of High Mountain’s assets represents a strategic shift and its results are reported as discontinued operations for the three
and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of High Mountain’s assets of $
| December
31, 2023 | ||||
| Current assets of discontinued operations | ||||
| Cash and cash equivalents | $ | |||
| Receivables, net | ||||
| Inventories, net | ||||
| Prepaid expenses and other current assets | ||||
| Total current assets of discontinued operations | ||||
| Non-current assets of discontinued operations | ||||
| Property and equipment, net | ||||
| Operating lease right-of-use assets | ||||
| Long-term deposits | ||||
| Intangible assets, net | ||||
| Goodwill | ||||
| Total assets of discontinued operations | $ | |||
| Current liabilities of discontinued operations | ||||
| Accounts payable and accrued expenses | $ | |||
| Contract liabilities | ||||
| Current portion of operating lease liabilities | ||||
| Finance lease liabilities | ||||
| Current portion of notes payable | ||||
| Current portion of convertible notes payable, net | ||||
| Total current liabilities of discontinued operations | ||||
| Non-current liabilities of discontinued operations | ||||
| Operating lease liabilities, net of current portion | ||||
| Notes payable, net of current portion | ||||
| Deferred tax liability | ||||
| Total liabilities of discontinued operations | $ | |||
16
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on disposal of property and equipment | ( | ) | ||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ||||||||||||
| Net income from discontinued operations before income taxes | ||||||||||||||||
| Income tax benefit | ||||||||||||||||
| Net income from discontinued operations | $ | $ | $ | $ | ||||||||||||
| Net income attributable to non-controlling interests from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income from discontinued operations attributable to 1847 Holdings | $ | |||||||||||||||
17
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| Nine
Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Deferred taxes | ( | ) | ||||||
| Loss (gain) on disposal of property and equipment | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Contract liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities from discontinued operations | ||||||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Repayments of notes payable and finance lease liabilities | ( | ) | ( | ) | ||||
| Repayments of convertible notes payable | ( | ) | ||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents from discontinued operations | $ | $ | ||||||
NOTE 4—DISAGGREGATION OF REVENUES AND SEGMENT REPORTING
Following
the divesture of the retail and appliances segment and the retail and eyewear segment, the Company now has
The Construction Segment specializes in designing, building, and installing custom cabinetry and countertops.
The Automotive Supplies Segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment) and vehicle emergency and safety warning lights (cars, trucks, industrial equipment, and emergency vehicles).
The Company reports all other business activities that are not reportable in the Corporate Services Segment. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. The Corporate Services Segment includes costs associated with executive management, financing activities and other public company-related costs.
18
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| For
the Three Months Ended September 30, 2024 | ||||||||||||
| Construction | Automotive Supplies | Total | ||||||||||
| Revenues | ||||||||||||
| Automotive horns | $ | - | $ | $ | ||||||||
| Automotive lighting | - | |||||||||||
| Custom cabinets and countertops | - | |||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| For
the Three Months Ended September 30, 2023 | ||||||||||||
| Construction | Automotive Supplies | Total | ||||||||||
| Revenues | ||||||||||||
| Automotive horns | $ | - | $ | $ | ||||||||
| Automotive lighting | - | |||||||||||
| Custom cabinets and countertops | - | |||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| For
the Nine Months Ended September 30, 2024 | ||||||||||||
| Construction | Automotive Supplies | Total | ||||||||||
| Revenues | ||||||||||||
| Automotive horns | $ | - | $ | $ | ||||||||
| Automotive lighting | - | |||||||||||
| Custom cabinets and countertops | - | |||||||||||
| Total Revenues | $ | $ | $ | |||||||||
| For
the Nine Months Ended September 30, 2023 | ||||||||||||
| Construction | Automotive Supplies | Total | ||||||||||
| Revenues | ||||||||||||
| Automotive horns | $ | - | $ | $ | ||||||||
| Automotive lighting | - | |||||||||||
| Custom cabinets and countertops | - | |||||||||||
| Total Revenues | $ | $ | $ | |||||||||
19
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| For the Three Months Ended September 30, 2024 | ||||||||||||||||
| Construction | Automotive Supplies | Corporate Services | Total | |||||||||||||
| Revenues | $ | $ | $ | - | $ | |||||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | - | |||||||||||||||
| Personnel | ||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Depreciation and amortization | - | |||||||||||||||
| General and administrative | ||||||||||||||||
| General and administrative – management fees | ||||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Professional fees | ||||||||||||||||
| Impairment of goodwill and intangible assets | - | - | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| For
the Three Months Ended September 30, 2023 | ||||||||||||||||
| Construction | Automotive Supplies | Corporate Services | Total | |||||||||||||
| Revenues | $ | $ | $ | - | $ | |||||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | - | |||||||||||||||
| Personnel | ||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Depreciation and amortization | - | |||||||||||||||
| General and administrative | ||||||||||||||||
| General and administrative – management fees | - | |||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Professional fees | ||||||||||||||||
| Impairment of goodwill and intangible assets | - | - | - | - | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| For the Nine Months Ended September 30, 2024 | ||||||||||||||||
| Construction | Automotive Supplies | Corporate Services | Total | |||||||||||||
| Revenues | $ | $ | $ | - | $ | |||||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | - | |||||||||||||||
| Personnel | ||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Depreciation and amortization | - | |||||||||||||||
| General and administrative | ||||||||||||||||
| General and administrative – management fees | ||||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Professional fees | ||||||||||||||||
| Impairment of goodwill and intangible assets | - | - | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
20
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
| For
the Nine Months Ended September 30, 2023 | ||||||||||||||||
| Construction | Automotive Supplies | Corporate Services | Total | |||||||||||||
| Revenues | $ | $ | $ | - | $ | |||||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | - | |||||||||||||||
| Personnel | ||||||||||||||||
| Personnel – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Depreciation and amortization | - | |||||||||||||||
| General and administrative | ||||||||||||||||
| General and administrative – management fees | - | |||||||||||||||
| General and administrative – corporate allocation | ( | ) | ( | ) | - | |||||||||||
| Professional fees | ||||||||||||||||
| Impairment of goodwill and intangible assets | - | - | - | - | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Total assets by operating segment as of September 30, 2024 are as follows:
| As of September 30, 2024 | ||||||||||||||||
| Construction | Automotive Supplies | Corporate Services | Total | |||||||||||||
| Assets | ||||||||||||||||
| Current assets | $ | $ | $ | $ | ||||||||||||
| Long-lived assets | - | |||||||||||||||
| Goodwill | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
NOTE 5—PROPERTY AND EQUIPMENT
September
30, | December 31, 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Office furniture and equipment | ||||||||
| Transportation equipment | ||||||||
| Leasehold improvements | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and nine months ended September 30, 2024 was $
21
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
NOTE 6—INTANGIBLE ASSETS
September
30, | December 31, 2023 | |||||||
| Customer-related | $ | $ | ||||||
| Marketing-related | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
Amortization
expense for the three and nine months ended September 30, 2024 was $
Year Ending December 31, | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total estimated amortization expense | $ | |||
| Amount | ||||
| Balance as of December 31, 2023 | $ | |||
| Impairment | ( | ) | ||
| Balance as of September 30, 2024 | $ | |||
During the three and nine months ended September
30, 2024, the Company recorded goodwill impairment of
NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables
| September
30, 2024 | December 31, 2023 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Factoring reserve holdback | ||||||||
| Retainage | ||||||||
| Total receivables | ||||||||
| Allowance for expected credit losses | ( | ) | ( | ) | ||||
| Total receivables, net | $ | $ | ||||||
22
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
Inventories
| September
30, 2024 | December 31, 2023 | |||||||
| Automotive | $ | $ | ||||||
| Construction | ||||||||
| Total inventories | ||||||||
| Less reserve for obsolescence | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
Prepaid Expenses and Other Current Assets
| September
30, 2024 | December 31, 2023 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid inventory | ||||||||
| Prepaid taxes | ||||||||
| Other current assets | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
On
February 7, 2024, the Company entered into a consulting agreement with TraDigital Marketing Group for consulting services related to
investor relations, digital marketing and advertising, and strategic advisory, totaling $
On
February 8, 2024, the Company entered into a consulting agreement with Alchemy Advisory LLC for consulting services related to business
and investor outreach, totaling $
On
February 8, 2024, the Company entered into a consulting agreement with Reef Digital LLC for consulting services related to investor relations,
IT support, and strategic advisory, totaling $
On
February 8, 2024, the Company entered into a consulting agreement with SeaPath Advisory, LLC for consulting services related to content
marketing and strategic advisory, totaling $
The
Company prepaid these consulting agreements, totaling $
Accounts Payable and Accrued Expenses
| September
30, 2024 | December 31, 2023 | |||||||
| Trade accounts payable | $ | $ | ||||||
| Credit cards payable | ||||||||
| Accrued payroll liabilities | ||||||||
| Accrued interest | ||||||||
| Accrued dividends | ||||||||
| Accrued taxes | ||||||||
| Other accrued liabilities | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
23
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
NOTE 8—LEASES
Operating Leases
| September 30, 2024 | December 31, 2023 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities, current portion | ||||||||
| Operating lease liabilities, long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term (months) | ||||||||
| Weighted average discount rate | % | % | ||||||
Rent
expense for the three and nine months ended September 30, 2024 was $
Year Ending December 31, | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Finance Leases
Year Ending December 31, | Amount | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | ||||
| Less: amount representing interest | ( | ) | ||
| Total finance lease liabilities | $ | |||
As
of September 30, 2024, the weighted-average remaining lease term for all finance leases is
24
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
NOTE 9— FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
| Fair Value Measurements as of September 30, 2024 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Warrant liabilities | ||||||||||||||||
| Total recurring fair value measurements | $ | $ | ||||||||||||||
Derivative Liabilities | Amount | |||
| Balance as of December 31, 2023 | $ | |||
| Initial fair value of derivative liabilities upon issuance | ||||
| Gain on change in fair value of derivative liabilities | ( | ) | ||
| Extinguishment of derivative liabilities upon conversion or settlement | ( | ) | ||
| Balance as of September 30, 2024 | $ | |||
| Warrant Liabilities | Amount | |||
| Balance as of December 31, 2023 | $ | |||
| Fair value of warrant liabilities upon issuance | ||||
| Gain on change in fair value of warrant liabilities | ( | ) | ||
| Extinguishment of warrant liabilities upon exercise of prefunded warrants | ( | ) | ||
| Balance as of September 30, 2024 | $ | |||
NOTE 10—DEBT
Notes Payable
On
July 29, 2020, 1847 Asien entered into a securities purchase agreement with Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees
of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (the “Trust”), pursuant to which 1847 Asien issued a two-year
On
August 22, 2024, the Company and 1847 Asien entered into a settlement and release agreement with the Trust, pursuant to which the Trust
surrendered the note and forgave the entire outstanding balance of the note in the amount of $
Private
Placement of
On
August 11, 2023, the Company entered into a securities purchase agreement in a private placement transaction with certain accredited
investors, pursuant to which the Company issued and sold to the investors
25
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
On
February 11, 2024, the Company and remaining note holders entered into amendments, pursuant to which the parties agreed to extend the
maturity date of these remaining notes to April 11, 2024. As additional consideration for the amendments, the Company agreed to increase
the outstanding principal by
On
April 11, 2024, the Company and remaining note holders entered into amendments to the notes, pursuant to which the parties agreed to
extend the maturity date of these remaining notes to July 10, 2024. As additional consideration for the amendments, the Company agreed
to increase the outstanding principal by
On
July 10, 2024, the Company and the remaining note holders entered into amendments to the notes, pursuant to which the parties agreed
to extend the maturity date of these notes to October 10, 2024. As additional consideration for the amendments, the Company agreed to
increase the outstanding principal by
During
the nine months ended September 30, 2024, the Company made principal payments totaling $
Private
Placement of
On
March 4, 2024, the Company issued a
The Company may voluntarily prepay the note in full at any time. In addition, if the Company consummates any equity or equity-linked or debt securities issuance, or enters into a loan agreement or other financing, other than certain excluded debt (as defined in the note), then the Company must prepay the note in full. The note is unsecured and has priority over all other unsecured indebtedness, except for certain senior indebtedness (as defined in the note). The note contains customary affirmative and negative covenants and events of default for a loan of this type.
The
Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company
determined that the note’s embedded features, specifically that should the Company default on the note, the note holder will receive
a default penalty of
The
fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected
Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of
On
June 4, 2024, an event of default occurred, resulting in a $
On
August 20, 2024, the parties entered into an amendment, pursuant to which the parties agreed to extend the maturity date of the note
to November 30, 2024. As additional consideration for the amendment, the Company agreed to an amendment fee of $
26
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
During
the nine months ended September 30, 2024, the Company recorded $
Private
Placement of
On
May 8, 2024, the Company entered into securities purchase agreement with an accredited investor, pursuant to which the Company issued
to such investor (i) a 20% OID subordinated note in the principal amount of $
Additionally,
the Company issued a -year warrant to the placement agent, Spartan Capital Securities, LLC (“Spartan”), for the purchase
of
The
Company may voluntarily prepay the note in full at any time. In addition, if the Company consummates any sale of a material amount of
assets of the Company or any of its subsidiaries, then the net proceeds thereof shall be applied to the payment or prepayment of the
note. The note is unsecured and has priority over all other unsecured indebtedness of the Company, except for certain senior indebtedness
(as defined in the note). The note contains customary affirmative and negative covenants and events of default for a loan of this type.
Upon an event of default, the outstanding balance of the note will be assessed a
The note becomes convertible into common shares
at the option of the holder at any time on or following the date that an event of default (as defined in the note agreement) occurs under
the note at a conversion price equal to
The
Company evaluated the embedded features within this note in accordance with ASC 480 and ASC 815. The Company determined that the embedded
features, specifically (i) the default penalty of
The
initial fair value of the derivative liabilities was determined using a Monte Carlo Simulation valuation model, considering various potential
outcomes and scenarios. The model used the following assumptions: (i) dividend yield of
On
September 26, 2024, the parties entered in an amendment to the note to (i) increase the original issue discount to $
During
the nine months ended September 30, 2024, the Company recorded $
27
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
Private
Placement of
On
May 9, 2024, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company issued
to such investor a promissory note in the principal amount of $
In
addition, if, at any time prior to the full repayment of the note, the Company receives cash proceeds from any source or series of related
or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the issuance of securities
pursuant to an equity line of credit (as defined in the note) or the sale of assets, the investor will have the right in its sole discretion
to require the Company to immediately apply up to
The
fair value of the
The
Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company
determined that the note’s embedded features, specifically should the Company default on the note, the note holder will receive
a default penalty of
The
fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected
Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of
As
of September 30, 2024, the total outstanding principal balance is $
Private Placement of OID Promissory Note and Series D Preferred Shares
On
June 28, 2024, the Company’s subsidiaries 1847 Cabinet Inc. (“1847 Cabinet”), High Mountain, Sierra Homes, LLC d/b/a
Innovative Cabinets & Design and Kyle’s Custom Wood Shop, Inc. (the “Borrowers”) issued an OID promissory note
in the principal amount of up to $
On June 28, 2024, the parties executed tranche
No. 1 in the principal amount of $
28
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
The
note bears interest at a rate per annum equal to the greater of (i)
In connection with the issuance of the note, the Company entered into a memorandum of understanding with the Breadcrumbs, pursuant to which the Company agreed to issue to Breadcrumbs upon the closing of each tranche under the note and (ii) series D senior convertible preferred shares with a stated value equal to the principal amount of such each such tranche (see Note 11 for further details).
The
Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company
determined that the note’s embedded features, specifically that should the Company default on the note, the note holder will receive
a default penalty of
The
fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected
Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of
During
the nine months ended September 30, 2024, the Company made principal payments totaling $
Purchase and Sale of Future Revenues Agreement
On
March 31, 2023, the Company and its subsidiary 1847 Cabinet entered into a non-recourse funding agreement with a third-party for the
sale of future revenues totaling $
On
November 30, 2023, this agreement was amended to increase the sale of future revenues outstanding balance by $
On
July 23, 2024, this agreement was amended to increase the sale of future revenues outstanding balance by $
As
a result of the amendment, the Company recorded a debt discount of $
During
the nine months ended September 30, 2024, the Company made principal payments totaling $
29
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
Convertible Notes Payable
Secured Convertible Promissory Notes
On
October 8, 2021, the Company issued two secured convertible promissory notes in the principal amount of $
On September 30, 2024, the parties entered into an amendment to the
notes, which (i) provided for the terms of the reserve account described above, (ii) changed the maturity date to October 8, 2025, (iii)
changed the interest rate to
As of September 30, 2024, the combined total outstanding principal
balance is $
On
October 8, 2021, 1847 Cabinet issued 6% subordinated convertible promissory notes in the aggregate principal amount of $
NOTE 11—SHAREHOLDERS’ DEFICIT
Series A Senior Convertible Preferred Shares
During
the nine months ended September 30, 2024, the Company accrued dividends of $
On
September 30, 2024, the Company settled $
During
the nine months ended September 30, 2024, an aggregate of
As
of September 30, 2024 and December 31, 2023, the Company had
Series B Senior Convertible Preferred Shares
During
the nine months ended September 30, 2024, the Company accrued dividends of $
During
the nine months ended September 30, 2024, an aggregate of
As
of September 30, 2024 and December 31, 2023, the Company had
30
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
Series C Senior Convertible Preferred Shares
On
August 19, 2024, the Company executed a share designation to designate
Ranking. The series C senior convertible preferred shares rank, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common shares, allocation shares, and each other class or series that is not expressly made senior to or on parity with the series C senior convertible preferred shares; (ii) on parity with the series D senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series C senior convertible preferred shares; and (iii) junior to the series A senior convertible preferred shares, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each other class or series that is expressly made senior to the series C senior convertible preferred shares.
Dividend
Rights. Holders of series C senior convertible preferred shares are entitled to dividends at a rate per annum of
Liquidation
Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined
in the share 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
C senior convertible preferred shares as to the distribution of assets on any liquidation of the Company, including the common shares
and allocation shares, each holder of outstanding series C senior convertible preferred shares shall be entitled to receive an amount
of cash equal to
Voting Rights. The series C senior convertible preferred shares do not have any voting rights; provided that, so long as any series C senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series C senior convertible preferred shares, 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 share designation.
Conversion
Rights. Each series C 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 ($
Redemption Rights. Not redeemable.
On August 22, 2024, the Company issued
31
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
During the nine months ended September 30, 2024,
the Company accrued dividends of $
As of September 30, 2024 and December 31, 2023,
the Company had
Series D Senior Convertible Preferred Shares
On June 27, 2024, the Company executed a share
designation to designate
Ranking. The series D senior convertible preferred shares rank, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common shares, allocation shares, and each other class or series that is not expressly made senior to or on parity with the series D senior convertible preferred shares; (ii) on parity with each other class or series that is not expressly subordinated or made senior to the series D senior convertible preferred shares; and (iii) junior to the Series A senior convertible preferred shares, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each other class or series that is expressly made senior to the series D senior convertible preferred shares.
Dividend Rights. Holders of series D senior
convertible preferred shares are entitled to dividends at a rate per annum of
Liquidation Rights. Subject to the rights
of creditors and the holders of any senior securities or parity securities (in each case, as defined in the share 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 D senior convertible preferred
shares as to the distribution of assets on any liquidation of the Company, including the common shares and allocation shares, each holder
of outstanding series D senior convertible preferred shares shall be entitled to receive an amount of cash equal to
Voting Rights. The series D senior convertible preferred shares do not have any voting rights; provided that, so long as any series D senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series D senior convertible preferred shares, 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 share designation.
32
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
Conversion Rights. Each series D 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
($
Redemption Rights. Not redeemable.
On June 28, 2024, the Company issued
On July 3, 2024, the Company issued
On July 16, 2024, the Company issued
On August 12, 2024, the Company issued
On August 22, 2024, the Company issued
During the nine months ended September 30, 2024,
the Company accrued dividends of $
As of September 30, 2024 and December 31, 2023,
the Company had
Common Shares
On February 9, 2024, the Company entered into
a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to which the Company
agreed to issue and sell to such purchasers an aggregate of
33
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
During the nine months ended September 30, 2024,
the Company issued an aggregate of
During the nine months ended September 30, 2024,
the Company issued an aggregate of
During the nine months ended September 30, 2024,
the Company issued an aggregate of
During the nine months ended September 30, 2024,
the Company issued an aggregate of
Potential Common Stock Equivalents
For the nine months ended September 30, 2024,
there were
Manager’s Profit Allocation (Distribution Receivable)
The Manager owns
Prior to the sale of High Mountain, the last
occurrence of profit allocation distribution to the Manager by the Company was during the fourth quarter of 2020, concurrent with the
spin-off of a former subsidiary. Following the profit allocation distribution to the Manager, the board of directors identified a need
to adjust the distribution to the Manager, which resulted in the recognition of a $
On April 23, 2024, the Company and the Manager
entered into a letter agreement regarding the timing of payment of the Distribution Receivable, pursuant to which the parties agreed
to treat the Distribution Receivable as a $
On September 30, 2024, the Company sold substantially
all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $
34
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
The sale of High Mountain qualified as a Sale Event that entitles the
Manager to receive a
Warrants
Warrants Issued in Public Equity Offering
On February 14, 2024 (as described above), the
Company closed on a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to
which the Company agreed to issue and sell to such purchasers prefunded warrants for the purchase of
The Company evaluated the prefunded warrants
as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the prefunded warrants
and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the prefunded warrants issued failed the indexation
guidance under ASC 815-40, specifically, the prefunded warrants provide for a Black-Scholes value calculation in the event of certain
transactions (“Fundamental Transactions”), which includes a floor on volatility utilized in the value calculation at
The fair value of the warrants deemed to be a
liability, due to certain contingent put features, was determined using the Black-Scholes option pricing model, which was deemed to be
an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price. The assumptions used in the
model were as follows: (i) dividend yield of
Warrants Issued in Private Placement with
On May 8, 2024, the Company issued five-year
warrants for the purchase of
The Company evaluated the warrants as either
equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative
guidance from ASC 480 and ASC 815-40. The Company determined the warrants issued failed the indexation guidance under ASC 815-40, specifically,
the warrants provide for a Black-Scholes value calculation in the event of certain transactions (“Fundamental Transactions”),
which includes a floor on volatility utilized in the value calculation at
The fair value of the warrants deemed to be a
liability, due to certain contingent put features, was determined using the Black-Scholes option pricing model, which was deemed to be
an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price. The assumptions used in the
model were as follows: (i) dividend yield of
35
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
The remaining proceeds were allocated to the
placement agent warrants and note based on their relative fair value using the Black-Scholes option pricing model. The assumptions used
in the model were as follows: (i) dividend yield of
Exercise Price Adjustments to Warrants
As a result of the issuance of common shares
in the offering on February 14, 2024, the exercise price of certain of the Company’s outstanding warrants was adjusted to $
| Warrants | Weighted- Average Exercise Price | |||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised/settled | ( | ) | ( | ) | ||||
| Outstanding at September 30, 2024 | $ | |||||||
| Exercisable at September 30, 2024 | $ | |||||||
As of September 30, 2024, the outstanding warrants
have a weighted average remaining contractual life of
NOTE 12—SUBSEQUENT EVENTS
Public Offering
On October 28, 2024, the Company entered into
a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, as placement agent, relating to
the Company’s public offering of units. Pursuant to the securities purchase agreement and the placement agency agreement, the Company
agreed to issue and sell to the purchasers an aggregate of
On October 30, 2024, the closing of the offering
was completed. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to
36
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
The series A warrants are exercisable at any
time at an exercise price of $
As a result of the 1-for-15 reverse share split completed on August 11, 2024 and the related adjustment described
above, the exercise prices of the series A warrants and the series B warrants was adjusted to $
Subsequent to completion of the offering, purchases have exercised
an aggregate of
Debt Conversions
During October 2024, Mast Hill Fund, LP converted
the remaining balance of the promissory note issued to it on February 9, 2023 into an aggregate of
During October 2024, Mast Hill Fund, LP converted
a portion of the promissory note issued to it on February 22, 2023 into an aggregate of
During October 2024, the Company entered into
cancellation and exchange agreements with the holder of the 20% OID subordinated note originally issued on March 4, 2024 (see Note 10),
pursuant to which an aggregate of $
Debt Repayments
The Company used a portion of the net proceeds from the public offering described above to repay the remaining balance of the promissory note issued to Mast Hill Fund, LP on February 22, 2023 in full.
The Company also used a portion of the net proceeds
from the public offering described above to repay the
The Company also used a portion of the net proceeds
from the public offering described above to repay $
Amendment to 20% OID Subordinated Note
On November 15, 2024, the Company entered into an
amendment to the 20% OID subordinated note originally issued on March 4, 2024 (see Note 10) to (i) reflect the repayment described above,
(ii) increase the principal amount remaining to $
37
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(UNAUDITED)
Signing of Acquisition Agreement
On November 4, 2024, 1847 CMD Inc. (“1847
CMD” ), a newly formed wholly owned subsidiary of the Company, entered into a stock and membership interest purchase agreement
(the “Purchase Agreement”) with the owner (“Seller”) of CMD Inc. (“CMD”) and CMD Finish Carpentry
LLC (“Finish” and together with CMD, the “CMD Companies”), pursuant to which 1847 CMD agreed to acquire from
the Seller all of the issued and outstanding capital stock of CMD and all of the membership interests in Finish for an aggregate cash
purchase price of $
The purchase price is subject to a closing date net working capital adjustment in cash, and a post-closing net working capital adjustment in cash if the adjustment is in favor of 1847 CMD, or in the form of a promissory note if the adjustment is in favor of the Seller. If a working capital promissory note is issued, it will be secured in a subordinate position by the assets of 1847 CMD and the CMD Companies, guaranteed by the Company and the CMD Companies, and by a pledge agreement in the equity of 1847 CMD and the CMD Companies.
The Purchase Agreement contains customary representations,
warranties and covenants, including a covenant that the Seller will not compete with the business of 1847 CMD 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 Seller
with respect to breaches of certain non-fundamental representations and warranties, the Seller will only become liable for indemnified
losses if the amount exceeds an aggregate of $
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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 “our company” refer to 1847 Holdings LLC, a Delaware limited liability company, and its consolidated subsidiaries. References to “our manager” refer to 1847 Partners LLC, a Delaware limited liability company.
Special Note Regarding Forward Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | our ability to effectively integrate and operate the businesses that we acquire; | |
| ● | our ability to successfully identify and acquire additional 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 indebtedness; | |
| ● | our cash flow available for distribution and our ability to make distributions to our common shareholders; | |
| ● | our ability to pay the management fee, profit allocation and put price to our manager when due; | |
| ● | labor disputes, strikes or other employee disputes or grievances; | |
| ● | 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 and our manager’s ability to retain or replace qualified employees of our businesses and our manager; | |
| ● | casualties, condemnation or catastrophic failures with respect to any of our business’ facilities; | |
| ● | costs and effects of legal and administrative proceedings, settlements, investigations and claims; and | |
| ● | extraordinary or force majeure events affecting the business or operations of our businesses. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023 and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. 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.
On September 30, 2020, our subsidiary 1847 Cabinet Inc., or 1847 Cabinet, acquired Kyle’s Custom Wood Shop, Inc., an Idaho corporation, or 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.
On March 30, 2021, our subsidiary 1847 Wolo Inc., or 1847 Wolo, acquired Wolo Mfg. Corp., a New York corporation, and Wolo Industrial Horn & Signal, Inc., a New York corporation (which we collectively refer to as Wolo). Headquartered in Deer Park, New York and founded in 1965, Wolo designs and sells 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.
On October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain Door & Trim Inc., a Nevada corporation, or High Mountain, which we subsequently sold on September 30, 2024 (see “—Discontinued Operations” below), and Sierra Homes, LLC d/b/a Innovative Cabinets & Design, a Nevada limited liability company, or Innovative Cabinets. Innovative Cabinets is headquartered in Reno, Nevada and was founded in 2008. It specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners, builders of multi-family homes, as well as commercial clients.
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 make and grow regular distributions to our common shareholders and increase 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 make these businesses our majority-owned subsidiaries and 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
Reverse Share Split
On August 11, 2024, we completed 1-for-15 reverse split of our outstanding common shares. All share and per share data referred to throughout this report have been retroactively adjusted to reflect the reverse share split.
Public Offering
On October 28, 2024, we entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan Capital Securities, LLC, or Spartan, as placement agent, relating to our public offering of units. Pursuant to the securities purchase agreement and the placement agency agreement, we agreed to issue and sell to the purchasers an aggregate of 587,301 units, at a purchase price of $18.9 per unit, for total gross proceeds of approximately $11.1 million, pursuant to our registration statement on Form S-1 (File No. 333-282201) under the Securities Act of 1933, as amended. The units are comprised of (i) 587,301 common shares, (ii) series A warrants to purchase 587,301 common shares at an exercise price of $28.5 per share and (iii) series B warrants to purchase 587,301 common shares at an exercise price of $37.8 per share.
On October 30, 2024, the closing of the offering was completed. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds, a non-accountable expense allowance equal to 1% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these expenses, we received net proceeds of approximately $9.9 million.
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The series A warrants are exercisable at any time at an exercise price of $28.5 per share and will expire five years from the date of issuance. The series B warrants are exercisable at any time at an exercise price of $37.8 per share and will expire five years from the date of issuance. Under an alternate cashless exercise option contained in the series A warrants, the holders of the series A warrants will have the right to receive an aggregate number of shares equal to the product of (i) the aggregate number of common shares that would be issuable upon a cash exercise of the series A warrants and (ii) 2.0. in addition, the series A warrants and the series B warrants contain a reset of the exercise price to a price equal to the lesser of (i) the then exercise price and (ii) lowest volume weighted average price for the five trading days immediately preceding and immediately following the date we effect a reverse share split in the future with a proportionate adjustment to the number of shares underlying the series A warrants and the series B warrants, subject to a floor price of $0.10. Finally, with certain exceptions, the series B warrants provide for an adjustment to the exercise price and number of shares underlying such the series B warrants upon our issuance of common shares or common share equivalents at a price per share that is less than the exercise price of the series B warrants, subject to a floor price of $0.10.
As a result of the 1-for-15 reverse share split completed on August 11, 2024 and the related adjustment described above, the exercise prices of the series A warrants and the series B warrants was adjusted to $1.50 (the floor price following the reverse split), the number of series A warrants was increased to 8,583,969 and the number of series B warrants was increased to 14,799,979.
Subsequent to completion of the offering, purchases have exercised an aggregate of 7,879,430 series A warrants for an aggregate of 15,758,861 common shares in accordance with the alternate cashless exercise provision described above.
Debt Conversions
During October 2024, Mast Hill Fund, LP converted the remaining balance of the promissory note issued to it on February 9, 2023 into an aggregate of 13,353 common shares, which included the conversion of principal of $188,646, interest of $16,211 and conversion fees of $10,500.
During October 2024, Mast Hill Fund, LP converted a portion of the promissory note issued to it on February 22, 2023 into an aggregate of 8,970 common shares, which included the conversion of principal of $135,044, interest of $46,949 and conversion fees of $7,000.
During October 2024, we entered into cancellation and exchange agreements with the holder of the 20% OID subordinated note originally issued on March 4, 2024, pursuant to which an aggregate of $221,575 of the note was exchanged for an aggregate of 11,401 common shares.
Debt Repayments
We used a portion of the net proceeds from the public offering described above to repay the remaining balance of the promissory note issued to Mast Hill Fund, LP on February 22, 2023 in full.
We also used a portion of the net proceeds from the public offering described above to repay the 20% OID subordinated promissory notes originally issued on August 11, 2023 and the 20% OID subordinated promissory note originally issued on May 8, 2024 in full.
We also used a portion of the net proceeds from the public offering described above to repay $2,015,325 of the 20% OID subordinated note originally issued on March 4, 2024, leaving a balance of $2,234,675.
Amendment to 20% OID Subordinated Note
On November 15, 2024, we entered into an amendment to the 20% OID subordinated note originally issued on March 4, 2024 to (i) reflect the repayment described above, (ii) increase the principal amount remaining to $2,681,610 and (iii) extend the maturity date to December 31, 2024.
Signing of Acquisition Agreement
On November 4, 2024, 1847 CMD Inc., or 1847 CMD, a newly formed wholly owned subsidiary of our company, entered into a stock and membership interest purchase agreement, or the Purchase Agreement with the owner, or the Seller, of CMD Inc., or CMD, and CMD Finish Carpentry LLC, or Finish, which we collectively refer to as the CMD Companies, pursuant to which 1847 CMD agreed to acquire from the Seller all of the issued and outstanding capital stock of CMD and all of the membership interests in Finish for an aggregate cash purchase price of $18,750,000, subject to adjustment as described below. Upon the execution of the Purchase Agreement, we paid to the Seller a deposit of $1,000,000, which shall be applied toward the purchase price. The transaction is expected to be completed on or before December 3, 2024.
The purchase price is subject to a closing date net working capital adjustment in cash, and a post-closing net working capital adjustment in cash if the adjustment is in favor of 1847 CMD, or in the form of a promissory note if the adjustment is in favor of the Seller. If a working capital promissory note is issued, it will be secured in a subordinate position by the assets of 1847 CMD and the CMD Companies, guaranteed by our company and the CMD Companies, and by a pledge agreement in the equity of 1847 CMD and the CMD Companies.
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The Purchase Agreement contains customary representations, warranties and covenants, including a covenant that the Seller will not compete with the business of 1847 CMD 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 Seller with respect to breaches of certain non-fundamental representations and warranties, the Seller will only become liable for indemnified losses if the amount exceeds an aggregate of $60,000, whereupon the Seller will be liable for all losses back to the first dollar, provided that the liability of the Seller for breaches of certain non-fundamental representations and warranties shall not exceed $2,512,500. The closing of the transaction contemplated in the Purchase Agreement is subject to customary closing conditions.
Management Fees
On April 15, 2013, we and our manager entered into a management services agreement, pursuant to which we are required to pay our manager a quarterly management fee equal to 0.5% of our adjusted net assets for services performed (which we refer to as 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 our 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) our manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid parent management fees. We did not expense any parent management fees for the three and nine months ended September 30, 2024 and 2023.
Following the assignment of all of the assets of Asien’s Appliance, Inc. on February 26, 2024 as described under “—Discontinued Operations” below, our manager ceased to provide services to 1847 Asien Inc. for quarterly management fees. 1847 Asien Inc. expensed management fees of $0 and $75,000 for the three months ended September 30, 2024 and 2023, respectively, and $50,000 and $225,000 for the nine months ended September 30, 2024 and 2023, respectively, which is included in discontinued operations.
On August 21, 2020, 1847 Cabinet entered into an offsetting management services agreement with our manager, which was amended on October 8, 2021. Pursuant to the amended management services agreement, our manager will provide certain services to 1847 Cabinet in exchange for a quarterly management fee. This fee will be the greater of $125,000 or 2% of adjusted net assets (as defined within the amended management services agreement). 1847 Cabinet expensed management fees of $125,000 for the three months ended September 30, 2024 and 2023 and $375,000 for the nine months ended September 30, 2024 and 2023, of which $41,667 and $125,000 for the three and nine months ended September 30, 2024 and 2023 respectively, is included in discontinued operations.
On March 30, 2021, 1847 Wolo entered into an offsetting management services agreement with our manager. Pursuant to the management services agreement, our manager will provide certain services to 1847 Wolo in exchange for a quarterly management fee. This fee will be the greater of $75,000 or 2% of adjusted net assets (as defined within the management services agreement). 1847 Wolo expensed management fees of $75,000 for the three months ended September 30, 2024 and 2023 and $225,000 for the nine months ended September 30, 2024 and 2023.
Following the foreclosure sale of all of the assets of ICU Eyewear, Inc. on August 5, 2024 as described under “—Discontinued Operations” below, our manager ceased to provide services to 1847 ICU Holdings Inc. for quarterly management fees. 1847 ICU Holdings Inc. expensed management fees of $25,000 and $75,000 for the three months ended September 30, 2024 and 2023, respectively, and $175,000 and $150,000 for the nine months ended September 30, 2024 and 2023, respectively, which is included in discontinued operations.
In addition, if the aggregate amount of management fees paid or to be paid to our manager under the offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of our gross income in any fiscal year or the parent management fee in any fiscal quarter, then the management fee to be paid by such entities shall be reduced, on a pro rata basis determined by reference to the other management fees to be paid to our manager under other offsetting management services agreements.
In addition, the sale of High Mountain qualified as a sale event under our operating agreement that entitles our manager to receive a 20% profit allocation, or $875,000, in accordance with the profit allocation formula outlined in the operating agreement. Additionally, our manager is entitled to receive a transaction fee of 2.0%, or $340,000. The profit allocation and transaction fee was recorded as management fees.
On a consolidated basis, our company expensed total management fees from continued operations and discontinued operations of $1,373,333 and $66,667 for the three months ended September 30, 2024, respectively, and $158,333 and $191,667 for the three months ended September 30, 2023, respectively. Our company expensed total management fees from continued operations and discontinued operations of $1,690,000 and $350,000 for the nine months ended September 30, 2024, respectively, and $475,000 and $500,000 for the nine months ended September 30, 2023, respectively.
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Segments
Following the divestures described under “—Discontinued Operations” below, we now have two reportable segments:
| ● | The construction segment specializes in designing, building, and installing custom cabinetry and countertops. |
| ● | The automotive supplies segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment) and vehicle emergency and safety warning lights (cars, trucks, industrial equipment, and emergency vehicles). |
We report all other business activities that are not reportable in the corporate services segment. We provide general corporate services to our segments; however, these services are not considered when making operating decisions and assessing segment performance. The corporate services segment includes costs associated with executive management, financing activities and other public company-related costs.
Discontinued Operations
On May 28, 2020, our subsidiary 1847 Asien Inc. acquired Asien’s Appliance, Inc., a California corporation, or Asien’s, which provided a wide variety of appliance services. On February 26, 2024, Asien’s entered into a general assignment for the benefit of its creditors with SG Service Co., LLC. Pursuant to the assignment, Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust. Following the assignment, we retained no financial interest in Asien’s. Accordingly, the results of operations of Asien’s are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023.
On February 9, 2023, our subsidiary 1847 ICU Holdings Inc. acquired ICU Eyewear Holdings, Inc., a California corporation, and its subsidiary ICU Eyewear, Inc., a California corporation, or ICU Eyewear, which specialized in the sale and distribution of reading eyewear and sunglasses, blue light blocking eyewear, sun readers, and other outdoor specialty sunglasses, as well as select health and personal care items, including face masks. Our company was a limited guarantor of an amended and restated credit and security agreement, or Loan Agreement, that was entered into on September 11, 2023 between AB Lending SPV I LLC d/b/a Mountain Ridge Capital, or the ICU Lender, and ICU Eyewear, ICU Eyewear Holdings, Inc. and 1847 ICU Holdings Inc. Pursuant to the Loan Agreement, the ICU Lender had a security interest in all the assets of ICU Eyewear. ICU Eyewear was in default under the Loan Agreement and consented to a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with our company, was the successful bidder with a cash bid of $4,250,000. Pursuant to an agreement, dated August 5, 2024, and in consideration for such purchase price, the ICU Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights, title, and interest in all of such assets to ICU Eyecare Solutions Inc. Following the sale, we retained no financial interest in ICU Eyewear. Accordingly, the results of operations of ICU Eyewear are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023.
As noted above, on October 8, 2021, our subsidiary 1847 Cabinet acquired High Mountain, which specialized in all aspects of finished carpentry products and services. On September 30, 2024, we entered into an asset purchase agreement, or the Purchase Agreement, with BFS Group LLC, or BFS, and High Mountain, pursuant to which we sold substantially all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject to certain pre-closing and post-closing adjustments. At closing, the purchase price was subject to a working capital adjustment and was also reduced by the amount of outstanding indebtedness repaid at closing or assumed by BFS, as well as certain transaction expenses. Additionally, the purchase price was reduced by $1,700,000, which may be used for certain post-closing payments. Following the sale, we retained no financial interest in High Mountain. Accordingly, the results of operations of High Mountain are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023.
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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table sets forth key components of our results of continuing operations during the three months ended September 30, 2024 and 2023, both in dollars and as a percentage of our revenues.
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 4,759,090 | 100.0 | % | $ | 4,676,365 | 100.0 | % | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 2,002,772 | 42.1 | % | 1,869,779 | 40.0 | % | ||||||||||
| Personnel | 2,406,855 | 50.6 | % | 1,663,261 | 35.6 | % | ||||||||||
| Depreciation and amortization | 167,004 | 3.5 | % | 331,110 | 7.1 | % | ||||||||||
| General and administrative | 2,205,498 | 46.3 | % | 1,427,256 | 30.5 | % | ||||||||||
| Professional fees | 711,024 | 14.9 | % | 592,202 | 12.7 | % | ||||||||||
| Impairment of goodwill and intangible assets | 679,175 | 14.3 | % | - | - | |||||||||||
| Total operating expenses | 8,172,328 | 171.7 | % | 5,883,608 | 125.8 | % | ||||||||||
| Loss from operations | (3,413,238 | ) | (71.7 | )% | (1,207,243 | ) | (25.8 | )% | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income (expense) | (1,285,055 | ) | (27.0 | )% | 156 | 0.0 | % | |||||||||
| Interest expense | (1,140,526 | ) | (24.0 | )% | (2,116,445 | ) | (45.3 | )% | ||||||||
| Amortization of debt discounts | (2,107,104 | ) | (44.3 | )% | (2,661,260 | ) | (56.9 | )% | ||||||||
| Loss on extinguishment of debt | (1,642,701 | ) | (34.5 | )% | - | - | ||||||||||
| Gain (loss) on change in fair value of warrant liabilities | 81,400 | 1.7 | % | (27,900 | ) | (0.6 | )% | |||||||||
| Gain on change in fair value of derivative liabilities | 3,592,435 | 75.5 | % | 425,977 | 9.1 | % | ||||||||||
| Total other expense | (2,501,551 | ) | (52.6 | )% | (4,379,472 | ) | (93.7 | )% | ||||||||
| Net loss before income taxes | (5,914,789 | ) | (124.3 | )% | (5,586,715 | ) | (119.5 | )% | ||||||||
| Income tax benefit | 357,000 | 7.5 | % | 450,000 | 9.6 | % | ||||||||||
| Net loss from continuing operations | $ | (5,557,789 | ) | (116.8 | )% | $ | (5,136,715 | ) | (109.8 | )% | ||||||
Revenues. Our total revenues were $4,759,090 for the three months ended September 30, 2024, as compared to $4,676,365 for the three months ended September 30, 2023.
The construction segment generates revenue through the sale of custom cabinetry and countertops. Revenues from the construction segment increased by $12,336, or 0.3%, to $3,805,621 for the three months ended September 30, 2024 from $3,793,285 for the three months ended September 30, 2023. The increase in revenues was primarily attributed to an increase in new multi-family projects and an increase in the average customer contract value.
The automotive supplies segment generates revenue through the design and sale of horn and safety products (electric, air, truck, marine, motorcycle and industrial equipment), including vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles. Revenues from the automotive supplies segment increased by $70,389, or 8.0%, to $953,469 for the three months ended September 30, 2024 from $883,080 for the three months ended September 30, 2023. The increase in revenues was primarily attributed to an improved supply chain with manufacturers, although inventory challenges within the supply chain to meet customer demands continue to persist.
Cost of revenues. Our total cost of revenues was $2,002,772 for the three months ended September 30, 2024, as compared to $1,869,779 for the three months ended September 30, 2023.
Cost of revenues for the construction segment consists of finished goods, lumber, hardware and materials and plus direct labor and related costs, net of any material discounts from vendors. Cost of revenues for the construction segment increased by $181,309, or 14.6%, to $1,425,247 for the three months ended September 30, 2024 from $1,243,938 for the three months ended September 30, 2023. Such increase was primarily attributed to the corresponding increase in revenues and increased material costs. As a percentage of construction revenues, cost of revenues for the construction segment was 37.5% and 32.8% for the three months ended September 30, 2024 and 2023, respectively.
Cost of revenues for the automotive supplies segment consists of the costs of purchased finished goods plus freight and tariff costs. Cost of revenues for the automotive supplies segment decreased by $48,316, or 7.7%, to $577,525 for the three months ended September 30, 2024 from $625,841 for the three months ended September 30, 2023. Such decrease was primarily attributed to improved supply chain negotiations leading to better pricing and more efficient procurement. As a percentage of automotive supplies revenues, cost of revenues for the automotive supplies segment was 60.6% and 70.9% for the three months ended September 30, 2024 and 2023, respectively.
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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 total personnel costs were $2,406,855 for the three months ended September 30, 2024, as compared to $1,663,261 for the three months ended September 30, 2023.
Personnel costs for the construction segment increased by $200,933, or 24.2%, to $1,030,488 for the three months ended September 30, 2024 from $829,555 for the three months ended September 30, 2023. Such increase was primarily attributed to increased employee headcount and corporate wage allocations. As a percentage of construction revenue, personnel costs for the construction segment were 27.1% and 21.9% for the three months ended September 30, 2024 and 2023, respectively.
Personnel costs for the automotive supplies segment decreased by $15,126, or 7.2%, to $193,890 for the three months ended September 30, 2024 from $209,016 for the three months ended September 30, 2023. Such decrease was primarily attributed to the implementation of revised compensation policies aimed at enhancing cost efficiency. As a percentage of automotive supplies revenue, personnel costs for the automotive supplies segment were 20.3% and 23.7% for the three months ended September 30, 2024 and 2023, respectively.
Personnel costs for our holding company increased by $557,787, or 89.3%, to $1,182,477 for the three months ended September 30, 2024 from $624,690 for the three months ended September 30, 2023. Such increase was primarily attributed to accrued management bonuses and wages.
Depreciation and amortization. Our total depreciation and amortization expense decreased by $164,106, or 49.6%, to $167,004 for the three months ended September 30, 2024 from $331,041 for the three months ended September 30, 2023. Such decrease was primarily as a result of the impairment of intangible assets during the fourth quarter of the prior period.
General and administrative expenses. Our general and administrative expenses consist primarily of insurance expense, rent expense, management fees, advertising, bank fees, bad debt allowances, and other general expenses incurred in connection with general operations. Our total general and administrative expenses were $2,205,498 for the three months ended September 30, 2024, as compared to $1,427,256 for the three months ended September 30, 2023.
General and administrative expenses for the construction segment decreased by $111,814, or 20.5%, to $433,954 for the three months ended September 30, 2024 from $545,768 for the three months ended September 30, 2023. Such decrease was primarily attributed to decreased office expenditures. As a percentage of construction revenue, general and administrative expenses for the construction segment were 11.4% and 14.4% for the three months ended September 30, 2024 and 2023, respectively.
General and administrative expenses for the automotive supplies segment decreased by $45,864, or 18.9%, to $197,206 for the three months ended September 30, 2024 from $243,070 for the three months ended September 30, 2023. Such decrease was primarily attributed to decreased office expenditures. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 20.7% and 27.5% for the three months ended September 30, 2024 and 2023, respectively.
General and administrative expenses for our holding company increased by $935,920, or 146.6%, to $1,574,338 for the three months ended September 30, 2024 from $638,418 for the three months ended September 30, 2023. Such increase was primarily attributed to management fees from the sale of High Mountain that entitles our manager to receive a 20% profit allocation, or $875,000, and a transaction fee of 2.0%, or $340,000, offset by decreased software and office expenditures.
Professional fees. Our total professional fees were $711,024 for the three months ended September 30, 2024, as compared to $592,202 for the three months ended September 30, 2023.
Professional fees for the construction segment decreased by $18,412, or 43.0%, to $24,403 for the three months ended September 30, 2024 from $42,815for the three months ended September 30, 2023. Such decrease was primarily attributed to decreased consulting fees. As a percentage of construction revenue, professional fees for the construction segment were 0.6% and 1.1% for the three months ended September 30, 2024 and 2023, respectively.
Professional fees for the automotive supplies segment decreased by $21,686, or 49.1%, to $22,474 for the three months ended September 30, 2024 from $44,160 for the three months ended September 30, 2023. Such decrease was primarily attributed to decreased consulting fees. As a percentage of automotive supplies revenue, professional fees for the automotive supplies segment were 2.4% and 5.0% for the three months ended September 30, 2024 and 2023, respectively.
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Professional fees for our holding company increased by $158,920, or 31.5%, to $664,147 for the three months ended September 30, 2024 from $505,227 for the three months ended September 30, 2023. Such increase was primarily attributed to increased consulting fees, investor relations, and other public company related fees.
Impairment of goodwill and intangible assets. For the three months ended September 30, 2024, we recorded goodwill impairments of $679,175, as compared to no impairments for the three months ended September 30, 2023.
Total other income (expense). We had $2,501,551 in total other expense, net, for the three months ended September 30, 2024, as compared to other expense, net, of $4,379,472 for the three months ended September 30, 2023. Other expense, net, for the three months ended September 30, 2024 consisted of other expense of $1,285,055, interest expense of $1,140,526, amortization of debt discounts of $2,107,104 and loss on extinguishment of debt of $1,642,701, offset by a gain on change in fair value of warrant liabilities of $81,400 and gain on change in fair value of derivative liabilities of $3,592,435. Other expense, net, for the three months ended September 30, 2023 consisted of interest expense of $2,116,445, amortization of debt discounts of $2,661,260 and a loss on change in fair value of warrant liabilities of $27,900, offset by other income of $156 and a gain on change in fair value of derivative liabilities of $425,977.
Income tax benefit. We had an income tax benefit of $357,000 and $450,000 for the three months ended September 30, 2024 and 2023, respectively.
Net loss from continuing operations. As a result of the cumulative effect of the factors described above, we had a net loss from continuing operations of $5,557,789 for the three months ended September 30, 2024, as compared to $5,136,715 for the three months ended September 30, 2023.
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table sets forth key components of our results of continuing operations during the nine months ended September 30, 2024 and 2023, both in dollars and as a percentage of our revenues.
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 12,390,797 | 100.0 | % | $ | 11,657,475 | 100.0 | % | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 6,554,871 | 52.9 | % | 6,018,904 | 51.6 | % | ||||||||||
| Personnel | 4,975,516 | 40.2 | % | 3,695,264 | 31.7 | % | ||||||||||
| Depreciation and amortization | 507,324 | 4.1 | % | 993,051 | 8.5 | % | ||||||||||
| General and administrative | 3,798,524 | 30.7 | % | 2,847,779 | 24.4 | % | ||||||||||
| Professional fees | 4,435,727 | 35.8 | % | 1,081,997 | 9.3 | % | ||||||||||
| Impairment of goodwill and intangible assets | 679,175 | 5.5 | % | - | - | |||||||||||
| Total operating expenses | 20,951,137 | 169.1 | % | 14,636,995 | 125.6 | % | ||||||||||
| Loss from operations | (8,560,340 | ) | (69.1 | )% | (2,979,520 | ) | (25.6 | )% | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income (expense) | (1,277,446 | ) | (10.3 | )% | 7,399 | 0.1 | % | |||||||||
| Interest expense | (3,135,373 | ) | (25.3 | )% | (3,973,783 | ) | (34.1 | )% | ||||||||
| Amortization of debt discounts | (7,976,758 | ) | (64.4 | )% | (3,808,269 | ) | (32.7 | )% | ||||||||
| Loss on extinguishment of debt | (2,843,451 | ) | (22.9 | )% | - | - | ||||||||||
| Gain (loss) on change in fair value of warrant liabilities | 1,841,000 | 14.9 | % | (27,900 | ) | (0.2 | )% | |||||||||
| Gain on change in fair value of derivative liabilities | 1,689,410 | 13.6 | % | 425,977 | 3.7 | % | ||||||||||
| Total other expense | (11,702,618 | ) | (94.4 | )% | (7,376,576 | ) | (63.3 | )% | ||||||||
| Net loss before income taxes | (20,262,958 | ) | (163.5 | )% | (10,356,096 | ) | (88.8 | )% | ||||||||
| Income tax benefit | 751,000 | 6.1 | % | 269,000 | 2.3 | % | ||||||||||
| Net loss from continuing operations | $ | (19,511,958 | ) | (157.5 | )% | $ | (10,087,096 | ) | (86.5 | )% | ||||||
Revenues. Our total revenues were $12,390,797 for the nine months ended September 30, 2024, as compared to $11,657,475 for the nine months ended September 30, 2023.
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Revenues from the construction segment increased by $405,788, or 5.0%, to $8,555,880 for the nine months ended September 30, 2024 from $8,150,092 for the nine months ended September 30, 2023. The increase in revenues was primarily attributed to an increase in new multi-family projects and an increase in the average customer contract value.
Revenues from the automotive supplies segment increased by $327,534, or 9.3%, to $3,834,917 for the nine months ended September 30, 2024 from $3,507,383 for the nine months ended September 30, 2023. The increase in revenues was primarily attributed to an improved supply chain with manufacturers, although inventory challenges within the supply chain to meet customer demands continue to persist.
Cost of revenues. Our total cost of revenues was $6,554,871 for the nine months ended September 30, 2024, as compared to $6,018,904 for the nine months ended September 30, 2023.
Cost of revenues for the construction segment increased by $226,798, or 5.9%, to $4,084,493 for the nine months ended September 30, 2024 from $3,857,695 for the nine months ended September 30, 2023. Such increase was primarily attributed to the corresponding increase in revenues, offset by increased material costs. As a percentage of construction revenues, cost of revenues for the construction segment was 47.7% and 47.3% for the nine months ended September 30, 2024 and 2023, respectively.
Cost of revenues for the automotive supplies segment increased by $309,169, or 14.3%, to $2,470,378 for the nine months ended September 30, 2024 from $2,161,209 for the nine months ended September 30, 2023. Such increase was primarily attributed to the corresponding increase in revenues, offset by increased product costs. As a percentage of automotive supplies revenues, cost of revenues for the automotive supplies segment was 64.4% and 61.6% for the nine months ended September 30, 2024 and 2023, respectively.
Personnel costs. Our total personnel costs were $4,975,516 for the nine months ended September 30, 2024, as compared to $3,695,264 for the nine months ended September 30, 2023.
Personnel costs for the construction segment increased by $685,447, or 30.6%, to $2,922,037 for the nine months ended September 30, 2024 from $2,236,590 for the nine months ended September 30, 2023. Such increase was primarily attributed to increased employee headcount as a result of increased revenues and corporate wage allocations. As a percentage of construction revenue, personnel costs for the construction segment were 34.2% and 27.4% for the nine months ended September 30, 2024 and 2023, respectively.
Personnel costs for the automotive supplies segment decreased by $25,142, or 3.6%, to $676,003 for the nine months ended September 30, 2024 from $701,145 for the nine months ended September 30, 2023. Such decrease was primarily attributed the implementation of revised compensation policies aimed at enhancing cost efficiency. As a percentage of automotive supplies revenue, personnel costs for the automotive supplies segment were 17.6% and 20.0% for the nine months ended September 30, 2024 and 2023, respectively.
Personnel costs for our holding company increased by $619,947, or 81.8%, to $1,377,476 for the nine months ended September 30, 2024 from $757,529 for the nine months ended September 30, 2023. Such increase was primarily attributed to accrued management bonuses and wages.
Depreciation and amortization. Our total depreciation and amortization expense decreased by $485,727, or 48.9%, to $507,324 for the nine months ended September 30, 2024 from $993,051 for the nine months ended September 30, 2023. Such decrease was primarily as a result of the impairment of intangible assets during the fourth quarter of the prior period.
General and administrative expenses. Our total general and administrative expenses were $3,798,524 for the nine months ended September 30, 2024, as compared to $2,847,779 for the nine months ended September 30, 2023.
General and administrative expenses for the construction segment increased by $76,272, or 6.5%, to $1,243,886 for the nine months ended September 30, 2024 from $1,167,614 for the nine months ended September 30, 2023. Such increase was primarily attributed to increased revenues, along with increases in rent and office expenditures. As a percentage of construction revenue, general and administrative expenses for the construction segment were 14.5% and 14.3% for the nine months ended September 30, 2024 and 2023, respectively.
General and administrative expenses for the automotive supplies segment decreased by $42,411, or 6.0%, to $660,718 for the nine months ended September 30, 2024 from $703,129 for the nine months ended September 30, 2023. Such decrease was primarily attributed to decreased office expenditures. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 17.2% and 20.0% for the nine months ended September 30, 2024 and 2023, respectively.
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General and administrative expenses for our holding company increased by $916,884, or 93.8%, to $1,893,920 for the nine months ended September 30, 2024 from $977,036 for the nine months ended September 30, 2023. Such increase was primarily attributed to management fees from the sale of High Mountain that entitles our manager to receive a 20% profit allocation, or $875,000, and a transaction fee of 2.0%, or $340,000, offset by decreased software and office expenditures.
Professional fees. Our total professional fees were $4,435,727 for the nine months ended September 30, 2024, as compared to $1,081,997 for the nine months ended September 30, 2023.
Professional fees for the construction segment decreased by $33,721, or 30.8%, to $75,830 for the nine months ended September 30, 2024 from $109,551 for the nine months ended September 30, 2023. Such decrease was primarily attributed to decreased consulting fees. As a percentage of construction revenue, professional fees for the construction segment were 0.9% and 1.3% for the nine months ended September 30, 2024 and 2023, respectively.
Professional fees for the automotive supplies segment increased by $52,450, or 34.5%, to $204,608 for the nine months ended September 30, 2024 from $152,158 for the nine months ended September 30, 2023. Such increase was primarily attributed to increased consulting fees. As a percentage of automotive supplies revenue, professional fees for the automotive supplies segment were 5.3% and 4.3% for the nine months ended September 30, 2024 and 2023, respectively.
Professional fees for our holding company increased by $3,335,001, or 406.6%, to $4,155,289 for the nine months ended September 30, 2024 from $820,288 for the nine months ended September 30, 2023. Such increase was primarily attributed to increased consulting fees, investor relations, and other public company related fees. Additionally, during the 2024 period we prepaid $2.5 million in non-recurring consulting and investor relations fees using the proceeds from the public offering described below. Of this amount, $2.4 million was expensed to professional fees for the nine months ended September 30, 2024.
Impairment of goodwill and intangible assets. For the nine months ended September 30, 2024, we recorded goodwill impairments of $679,175, as compared to no impairments for the nine months ended September 30, 2023.
Total other income (expense). We had $11,702,618 in total other expense, net, for the nine months ended September 30, 2024, as compared to other expense, net, of $7,376,576 for the nine months ended September 30, 2023. Other expense, net, for the nine months ended September 30, 2024 consisted of consisted of other expense of $1,277,446, interest expense of $3,135,373, amortization of debt discounts of $7,976,758 and loss on extinguishment of debt of $2,843,451, offset by a gain on change in fair value of warrant liabilities of $1,841,000 and a gain on change in fair value of derivative liabilities of $1,689,410. Other expense, net, for the nine months ended September 30, 2023 consisted of interest expense of $3,973,783, amortization of debt discounts of $3,808,269, and a loss on change in fair value of warrant liabilities of $27,900, offset by other income of $7,399 and a gain on change in fair value of derivative liabilities of 425,977.
Income tax benefit. We had an income tax benefit of $751,000 and $269,000 for the nine months ended September 30, 2024 and 2023, respectively.
Net loss from continuing operations. As a result of the cumulative effect of the factors described above, we had a net loss from continuing operations of $19,511,958 for the nine months ended September 30, 2024, as compared to $10,087,096 for the nine months ended September 30, 2023.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and cash equivalents of $1,517,191 and restricted cash and cash equivalents of $8,700,000. To date, we have financed our operations primarily through revenue generated from operations, cash proceeds from financing activities, borrowings, and equity contributions by our shareholders.
Management plans to address the above as needed by, securing additional bank lines of credit, and obtaining additional financing through debt or equity transactions. Management has implemented tight cost controls to conserve cash.
The ability of our company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and to eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if our company is unable to continue as a going concern. If our company is unable to obtain adequate capital, it could be forced to cease operations.
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We 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 equity in one of our subsidiaries. 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 our manager pursuant to the management services agreement, potential payment of profit allocation to our manager and potential put price to our 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, 2023 for more information concerning the management fee, the profit allocation and put price.
The amount of management fee paid to our manager by us is reduced by the aggregate amount of any offsetting management fees, if any, received by our manager from any of our businesses. As a result, the management fee paid to our manager may fluctuate from quarter to quarter. The amount of management fee paid to our 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.
Our 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 subsidiary, our 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 us 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 us, multiplied by (iii) the subsidiary’s average share (determined based on gross assets, generally) of our consolidated net equity (determined according to U.S. generally accepted accounting principles, or GAAP, with certain adjustments). In certain circumstances, after a subsidiary has been held for at least 5 years, our 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, 2023 for more information on the calculation of the profit allocation.
Prior to the sale of High Mountain, the last occurrence of profit allocation distribution to our manager by our company was during the fourth quarter of 2020, concurrent with the spin-off of a former subsidiary. Following the profit allocation distribution to our manager, our board of directors identified a need to adjust the distribution to our manager, which resulted in the recognition of a $2 million distribution receivable from our manager within shareholders’ equity, with repayment anticipated upon the occurrence of the next qualified profit allocation distribution event.
On April 23, 2024, we and our manager entered into a letter agreement regarding the timing of payment of the distribution receivable, pursuant to which the parties agreed to treat the distribution receivable as a $2,000,000, plus interest accrued thereon at a non-compounding rate equal to the applicable federal rate, unqualified obligation of our manager to be repaid as a credit against all future profit allocations resulting from both a sale event and a holding event payable to our manager, all until the distribution receivable is fully paid, provided that, if the distribution receivable is not fully paid by the application of such credit or otherwise by the first to occur of (i) December 31, 2024 and (ii) the date of the sale of all or substantially all the assets (in a transaction of any form) or the liquidation, dissolution or winding up, voluntary or involuntary, of either party, then upon such date the unpaid balance shall be immediately due, payable and paid by our manager.
The sale of High Mountain qualified as a sale event that entitles our manager to receive a 20% profit allocation, or $875,000, in accordance with the profit allocation formula outlined in the operating agreement. Additionally, our manager is entitled to receive a transaction fee of 2.0%, or $340,000. The profit allocation and transaction fee were applied as a credit to the distribution receivable, leaving a balance of $785,000 as of September 30, 2024.
Our operating agreement also contains a supplemental put provision, which gives our manager the right, subject to certain conditions, to cause us to purchase the allocation shares then owned by our 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 our manager’s resignation, the payment to our 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, 2023 for more information on the calculation of the put price. The put price obligation, if our 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.
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Summary of Cash Flow
The following table provides detailed information about our net cash flows from continuing operations for the periods indicated:
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (11,688,488 | ) | $ | (7,953,559 | ) | ||
| Net cash provided by (used in) investing activities | 17,501,868 | (17,160 | ) | |||||
| Net cash provided by financing activities | 3,730,366 | 7,561,785 | ||||||
| Net change in cash and cash equivalents and restricted cash | 9,543,746 | (408,934 | ) | |||||
| Cash and cash equivalents at the beginning of period | 673,445 | 861,218 | ||||||
| Cash and cash equivalents and restricted cash at the end of period | $ | 10,217,191 | $ | 452,284 | ||||
Net cash used in operating activities from continuing operations was $11,688,488 for the nine months ended September 30, 2024, as compared to $7,953,559 for the nine months ended September 30, 2023. Significant factors affecting the increase in net cash used in operating activities were primarily a result of the net loss during the nine months ended September 30, 2024, decreased contract liabilities and accounts payable, and increased receivables, partially offset by expenses, and decreased inventories and prepaid expenses.
Net cash provided by investing activities from continuing operations was $17,501,868 for the nine months ended September 30, 2024, as compared to net cash used in investing activities of $17,160 for the nine months ended September 30, 2023. The increase in the net cash provided by investing activities was primarily a result of the proceeds received from the sale of High Mountain during the nine months ended September 30, 2024.
Net cash provided by financing activities from continuing operations was $3,730,366 for the nine months ended September 30, 2024, as compared to $7,561,785 for the nine months ended September 30, 2023. The decrease in the net cash provided by financing activities was primarily a result of decreased proceeds in private placements and increased debt repayments, offset by increased proceeds from public offerings.
Public Offering
On February 9, 2024, we entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, as placement agent, pursuant to which we agreed to issue and sell to such purchasers an aggregate of 9,364 common shares and prefunded warrants for the purchase of 16,280 common shares at an offering price of $195.00 per common share and $193.05 per prefunded warrant, pursuant to our effective registration statement on Form S-1 (File No. 333-276670). On February 14, 2024, the closing of this offering was completed. At the closing, the purchasers prepaid the exercise price of the prefunded warrants in full. Therefore, we received total gross proceeds of $5,000,000. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other offering expenses, we received net proceeds of approximately $4,335,000. During the nine months ended September 30, 2024, we issued an aggregate of 16,275 common shares upon the exercise of prefunded warrants.
Debt
The following table shows aggregate figures for our total debt that is coming due in the short and long term as of September 30, 2024. For a complete description of the terms of our outstanding debt, please see Note 10 to our condensed consolidated financial statements above and Notes 10, 12, 13 and 14 to our consolidated financial statements for the years ended December 31, 2023 and 2022 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission, or the SEC, on April 25, 2024.
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| Short-Term | Long-Term | Total Debt | ||||||||||
| Notes Payable | ||||||||||||
| Vehicle loans | $ | 19,939 | $ | 9,700 | $ | 29,639 | ||||||
| 6% Subordinated promissory note | 500,000 | - | 500,000 | |||||||||
| Purchase and sale of future revenues loan | 1,879,850 | - | 1,879,850 | |||||||||
| 12% subordinated promissory note for services | 500,000 | - | 500,000 | |||||||||
| 20% OID subordinated promissory notes | 8,282,810 | - | 8,282,810 | |||||||||
| 25% OID subordinated promissory note | 1,078,230 | - | 1,078,230 | |||||||||
| Total notes payable | 12,260,829 | 9,700 | 12,270,529 | |||||||||
| Less: debt discounts | (971,928 | ) | - | (971,928 | ) | |||||||
| Total notes payable, net | 11,288,901 | 9,700 | 11,298,601 | |||||||||
| Related Party Notes Payable | ||||||||||||
| Related party promissory note | 578,290 | - | 578,290 | |||||||||
| Convertible Notes Payable | ||||||||||||
| Secured convertible promissory notes | - | 24,094,694 | 24,094,694 | |||||||||
| Promissory notes issued in private placements | 724,281 | - | 724,281 | |||||||||
| Total convertible notes payable | 724,281 | 24,094,694 | 24,818,975 | |||||||||
| Less: debt discounts | - | (1,304,637 | ) | (1,307,637 | ) | |||||||
| Total convertible notes payable, net | 724,281 | 22,790,057 | 23,514,338 | |||||||||
| Finance Leases | ||||||||||||
| Financing leases | 179,489 | 470,245 | 649,734 | |||||||||
| Combined total debt | $ | 13,742,889 | $ | 24,574,639 | $ | 38,317,528 | ||||||
| Less: combined debt discounts | (971,928 | ) | (1,304,637 | ) | (2,276,565 | ) | ||||||
| Combined total debt, net | $ | 12,770,961 | $ | 23,270,002 | $ | 36,040,963 | ||||||
Contractual Obligations
Our principal commitments consist mostly of obligations under the loans described above and other contractual commitments described below.
We have engaged our manager to manage our day-to-day operations and affairs. Our relationship with our manager will be governed principally by the following agreements:
| ● | the management services agreement and offsetting management services agreements relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and |
| ● | our operating agreement setting forth our 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 our 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 and Estimates
The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 25, 2024.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result of this evaluation, our chief executive officer and chief financial officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective due to the material weaknesses described below. Notwithstanding the identified material weaknesses, management, including our chief executive officer and chief financial officer, believes the consolidated financial statements included in this report fairly represent, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with GAAP.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure
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, 2024, our management identified the following material weaknesses:
| ● | we do not have written documentation of our internal control policies and procedures, including written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements; |
| ● | we failed to maintain a sufficient complement of personnel in our accounting and reporting department to ensure adequate segregation of duties such that appropriate review and monitoring of its financial records are executed; and |
| ● | we did not design and maintain effective internal controls related to our information technology general controls in the areas of user access and program change-management over certain information technology systems that support our financial reporting processes. |
As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, our management has identified the steps necessary to address the material weaknesses, and in the second quarter of 2024, we continued to implement the following remedial procedures:
| ● | increasing personnel resources and technical accounting expertise within the accounting function; |
| ● | until we have sufficient technical accounting resources, we have engaged external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP; |
| ● | engaging internal control consultants to assist us in performing a financial reporting risk assessment as well as identifying and designing our system of internal controls necessary to mitigate the risks identified; and |
| ● | preparation of written documentation of our internal control policies and procedures. |
We continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility, and accountability to enable remediation of our material weaknesses. We believe that our remediation plan will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting. As we continue to evaluate, and work to improve, our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary.
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 second quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
Except as set forth below, we have not sold any equity securities during the three months ended September 30, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
On June 28, 2024, the parties executed tranche No. 1 in the principal amount of $666,667 for total cash proceeds of $475,000 and we issued 1,966,570 series D senior convertible preferred shares to Breadcrumbs. On July 3, 2024, the parties executed tranche No. 2 in the principal amount of $466,667 for total cash proceeds of $350,000 and we issued 1,376,599 series D senior convertible preferred shares to Breadcrumbs. On July 16, 2024, the parties executed tranche No. 3 in the principal amount of $233,333 for total cash proceeds of $175,000 and we issued 688,298 series D senior convertible preferred shares to Breadcrumbs. On August 12, 2024, the parties executed tranche No. 4 in the principal amount of $466,667 for total cash proceeds of $350,000 and we issued 1,376,599 series D senior convertible preferred shares to Breadcrumbs. On August 22, 2024, the parties executed tranche No. 5 in the principal amount of $300,000 for total cash proceeds of $225,000 and we issued 884,956 series D senior convertible preferred shares to Breadcrumbs.
On August 19, 2024, we and 1847 Asien Inc. entered into a settlement and release agreement with Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992, or the Trust, pursuant to which the Trust surrendered the two-year 6% amortizing promissory note issued by 1847 Asien Inc. to the Trust on July 29, 2020 and forgave the entire outstanding balance of the note in the amount of $831,027 in exchange for which we issued 83,603 series C senior convertible preferred shares to the Trust.
On September 30, 2024, we issued 5,137 series A senior convertible preferred shares in settlement of $12,138 in previously accrued dividends on outstanding series A senior convertible preferred shares.
We did not repurchase any of our common shares during the three months ended September 30, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
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ITEM 6. EXHIBITS.
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| * | Filed herewith |
| ** | Furnished herewith |
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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 19, 2024 |
1847 HOLDINGS LLC |
| /s/ Ellery W. Roberts | |
| Name: Ellery W. Roberts | |
| Title: Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Vernice L. Howard | |
| Name: Vernice L. Howard | |
| Title: Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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Exhibit 10.5
THIRD
AMENDMENT TO NOTE PURCHASE AGREEMENT AND OTHER
TRASNCTION DOCUMENTS
THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT AND OTHER TRSANSACTION DOCUMENTS (this “Amendment”) is dated as of September 30, 2024 (subject to the satisfaction of the conditions set forth in Section 9 below, the “Effective Date”), by and among 1847 HOLDINGS LLC, a Delaware limited liability company (“Company”), each of the parties listed on the signature page as Guarantor (such Guarantors, together with the Company, sometimes referred to collectively herein as the “Obligors” and each individually as an “Obligor”), LEONITE CAPITAL LLC, a Delaware limited liability company (“Agent”), as administrative agent for Purchasers, and Purchasers identified on the signature pages hereof.
W I T N E S S E T H:
WHEREAS, Company, affiliates of Company, Agent and the note purchasers identified therein and/or party thereto from time to time (“Purchasers”) are parties to that certain Note Purchase Agreement, dated as of October 8, 2021, as amended by that certain Amendment to Note Purchase Agreement, effective as of January 22, 2024, as further amended by that certain Second Amendment to Note Purchase Agreement, effective as of February 28, 2024 (the “Existing Purchase Agreement”, and as amended hereby, the “Purchase Agreement”);
WHEREAS, pursuant to the Purchase Agreement, Company issued to Purchasers its Notes, in the original aggregate principal amount of Twenty-Four Million Eight Hundred Sixty Thousand Dollars ($24,860,000) (as amended, individually a “Note”, and collectively the “Notes”);
WHEREAS, Company has requested that (i) Agent and Purchasers agree to High Mountain Door and Trim Inc.’s, an Obligor (“High Mountain”) entry into an asset purchase agreement (the “High Mountain Asset Purchase Agreement”) with BFS Group LLC to sell all of the assets and transfer certain of the liabilities used in the High Mountain’s business, (ii) Agent and Purchasers have consented to the execution, delivery and performance of the High Mountain Asset Purchase Agreement subject to compliance with this Amendment in all respects, as set forth in that certain Waiver and Consent, dated as of the date hereof (the “High Mountain Transaction”); and
WHEREAS, the Company has informed Agent and Purchasers that the Company is pursuing the purchase of all of the outstanding shares of CMD Inc., a Nevada corporation, by a wholly owned and controlled subsidiary of the Company, which will be a Delaware entity (any such entity, “1847 CMD”, and such transaction, the “CMD Transaction”).
NOW, THEREFORE, in consideration of the foregoing and for other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged (and with respect to Agent and Purchasers, additionally in reliance upon the representations and warranties of Company set forth in Section 10 below and upon satisfaction of the conditions to effectiveness set forth in Section 9 below), the parties hereto, intending to be legally bound, hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement.
2. Acknowledgment of Indebtedness. Company hereby acknowledges and agrees that, as of September 27, 2024, Company remains liable to Purchasers for the principal amount of the notes in an amount equal to $24,760,000.00 plus accrued interest and prepayment obligations equal to $2,100,000.
3. Reserves and Escrow Related to the High Mountain Transaction.
| (a) | The net sale proceeds paid to High Mountain, Company or their affiliates in connection with the High Mountain Asset Transaction, in an amount equal to $7,000,000 as shown in the settlement statement attached hereto as Schedule I (the “Settlement Statement”) shall be deposited with Altimir Partners LP and Beaman Special Opportunities Partners, LP in the amounts set forth in the Settlement Statement (it being agreed SILAC Insurance Company, as their contractual representative shall have the right to control such accounts, in such capacity, “Reserve Holder”) in reserve (the “Reserved Funds”). The Reserved Funds shall be held in a non-interest bearing account. Upon the Company delivering Reserve Holder a written notice stating the closing date of the CMD Transaction and reasonably acceptable evidence that the CMD Transaction will close, Reserve Holder shall disburse the Reserved Funds to a reputable third-party in escrow, solely to be used in connection with the consummation of the CMD Transaction. In the event the CMD Transaction does not close as set forth in the written notice, such third-party shall return the Reserved Funds to Reserve Holder. Such arrangement shall be memorialized in writing in form and substance acceptable to Reserve Holder. In the event the CMD Transaction does not close on or before November 15, 2024, Section 4(b) below shall govern. Parties acknowledge and agree that Reserve Holder is only a stakeholder with respect to the Reserved Funds and only acting in a ministerial capacity and shall only be liable for acts solely caused by Reserve Holder’s willful misconduct or gross negligence. In furtherance of the foregoing, Reserve Holder shall not be liable for: (i) any loss or impairment of Reserved Funds while those funds are on deposit in a financial institution, if such loss or impairment results from failure, insolvency or suspension of a financial institution; (ii) the unavailability of FDIC insurance with regard to the Reserved Funds; (iii) legal effect, insufficiency, or validity of any instrument deposited with or delivered by or to Reserve Holder; and (iv) any mistakes of fact, errors of judgment, actions or omissions, unless solely caused by its willful misconduct or gross negligence. |
| (b) | The High Mountain Asset Purchase Agreement provides that $1,700,000 of the purchase price thereunder be retained by purchaser under the High Mountain Asset Purchase Agreement (the “Holdback”) and, subject to the conditions set forth in the High Mountain Asset Purchase Agreement, be released to High Mountain within five (5) Business Days following the date which is twelve (12) months after the closing date of the transactions contemplated in the High Mountain Purchase Agreement (the “Holdback Release Date”). The Company and High Mountain hereby acknowledge and agree that any Holdback amounts paid by purchaser under the High Mountain Asset Purchase Agreement shall, to the extent that Obligations remain due and owing to the Purchasers under the Purchase Agreement and Transaction Documents, solely be the Property of Purchasers and shall be paid to Agent for Purchasers’ pro-rata interest within one (1) Business Day of the Holdback Release Date. If, as of September 30, 2025, such paid Holdback amounts are less than $1,700,000, the Company and Obligors shall remit such shortfall (which may be the entire $1,700,000 if no Holdback have been released as of such date) to Agent for Purchasers’ pro- rata interest to be applied towards the Obligations. Time is of the essence with respect to the obligations set forth herein and the Company’s or Obligors’ failure to remit and release Holdback amounts or make the payments set forth above shall be an immediate Event of Default under the Transaction Documents. In connection with the foregoing, immediately after the Effective Date, High Mountain shall send a notice to purchaser under the High Mountain Asset Purchase Agreement, substantially in the form attached hereto as Exhibit A, directing such purchaser to remit any Holdback to the account set forth therein. Neither the Company nor High Mountain shall rescind or amend such notice unless requested to do so by Agent or no Obligations remain due and owing to the Purchasers under the Purchase Agreement and Transaction Documents. |
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4. CMD Transaction.
| (a) | In accordance with the Purchase Agreement, upon formation of 1847 CMD and in no event no less than at least ten (10) days prior to the acquisition of CMD Inc., the Company shall provide to Agent and Purchasers, copies of favorable UCC, Tax, judgment and fixture lien search reports in all necessary or appropriate jurisdictions and under all legal and trade names of the such Persons. Upon receipt of such information and any other information reasonably requested by Agent and/or any Purchaser and confirmation by Agent and each Purchaser that such Person satisfies “Know-Your-Customer” and Patriot Act requirements of Agent and such Purchaser as applicable, the following shall apply. |
| i. | In accordance with Section 5(f) of the Purchase Agreement, upon its formation, 1847 CMD will become an Obligor and execute and deliver to Agent, a Joinder to the Guaranty Agreement, the Security Agreement and other Transaction Documents, substantially in the form attached hereto as Exhibit B and Agent will file such UCC financing statements and other applicable documents under the laws of all necessary or appropriate jurisdictions with respect to the perfection of the Liens granted under the Transaction Documents with respect to 1847 CMD and/or its assets. |
| ii. | In accordance with Section 5(f) of the Purchase Agreement, upon consummation of the CMD Transaction, CMD Inc. will become an Obligor and execute and deliver to Agent, a Joinder to the Guaranty Agreement, the Security Agreement and other Transaction Documents, substantially in the form attached hereto as Exhibit B, and Agent will file such UCC financing statements and other applicable documents under the laws of all necessary or appropriate jurisdictions with respect to the perfection of the Liens granted under the Transaction Documents with respect to CMD, Inc. and/or its assets. |
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| iii. | In connection with the foregoing, the Company shall deliver updated perfection certificates, officer’s certificates and other reasonably requested documentation with respect to such Persons. |
| (b) | In the event on or before November 15, 2024, (i) the CMD Transaction is not consummated, (ii) 1847 CMD fails to acquire 100% of all Equity Interest and economic interest in CMD Inc., or (iii) requirements of clause (a) above are not satisfied, Reserve Holder will, upon written instruction of Antarctica Investment Advisors, LLC, as attorney-in-fact for SILAC Insurance Company, contractual representative of Required Purchasers, which shall be given at its sole and absolute discretion and without obligation to do so, disburse any portion of or all Reserved Funds to Agent to apply to payment of the Obligations. |
| (c) | Neither 1847 CMD nor CMD Inc. shall incur any New Subsidiary Debt, other than a 6% subordinated unsecured note in the aggregate principal amount of Two Million, Seven Hundred Fifty Thousand Dollars ($2,750,000) made by 1847 CMD to seller of CMD Inc., in form and substance reasonably acceptable to Agent and Purchasers (the “CMD Seller Note”), to evidence 1847 CMD’s obligation to pay such amount unless any set-off for indemnification obligations apply. Such CMD Seller Note shall be subject and subordinate to the Transaction Documents and the Obligations and the payee thereunder shall execute and deliver a Subordination Agreement in form and substance substantially similar to the Seller Note Subordination Agreement delivered in connection with the closing of the initial Purchase Agreement. |
5. Amendment to Purchase Agreement. As of and from the Effective Date, “Permitted Indebtedness” under the Purchase Agreement shall mean only (i) the Indebtedness to the Purchasers under the Transaction Documents, and (ii) the Indebtedness listed on Schedule II attached hereto, provided that upon consummation of the CMD Transaction, Permitted Indebtedness shall also include the CMD Seller Note.
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6. Existing Prepayment Obligations and Prepayment. The Company hereby acknowledges and agrees that it has failed to make payments with respect to its prepayment obligations under the Transaction Documents. Agent and Purchasers hereby agree to waive such failure and replace the existing prepayment obligations with the prepayment obligations set forth in this Amendment. In furtherance of the foregoing, no later than January 31, 2025, Holdings shall remit $4,000,000 (without regard to any other prepayments or payments made with respect to the Obligations) to Agent as a prepayment under the Note Purchase Agreement for Purchasers’ pro-rata interest and failure to make such payment as and when due shall be an immediate Event of Default.
7. Amendment to Notes. As of and from the Effective Date, each of the Notes are hereby further amended as follows:
| (a) | The first paragraph of each Note is hereby amended by deleting “(i) the close of business on October 8, 2026” and replacing the same with “(i) the close of business on October 8, 2025” Section 1(a) of each Note is amended in its entirety as follows: |
| (b) | Section 1(a) of each Note is amended and restated as follows: |
| “(a) “Applicable Rate” means, at any date the same is to be determined, 15%, which shall be calculated on the basis of a 360-day year and actual days elapsed.” |
| (c) | Section 1(b) of each Note is hereby deleted. |
| (d) | Section 2(a) of each Note is amended and restated as follows: |
| “(a) Payments. Payments of Interest only, computed at the Applicable Rate on the outstanding principal amount hereunder, shall be due and payable (i) quarterly in arrears commencing on January 1, 2022, and continuing on the first day of each calendar quarter thereafter through and including October 1, 2024 and (ii) monthly in arrears commencing on the earlier of (y) first of the month following the date which is 30 days after the closing of the CMD Transaction and (z) December 1, 2024 (it being agreed the first such payment shall include all past due Interest at such time, and thereafter continuing on the first day of each calendar month through the Maturity Date. All unpaid principal and any accrued and unpaid interest on this Note shall be due and payable on the Maturity Date. Each payment or prepayment hereunder shall be subject to Section 2(d) of the Note Purchase Agreement.” |
| (e) | Section 2(d)(iii) of each Note is amended and restated as follows: |
| “(iii) Monthly Prepayments. In addition to the interest payments provided for in Section 2(a) above, beginning on and with April 1, 2025, and on the first day of each month thereafter, Company will pay, without Prepayment Fee or premium, $500,000 in principal amount of the Notes. For the avoidance of doubt, Prepayment Fee shall be due and payable in accordance with the existing Note and the Transaction Documents.” |
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| (f) | Section 2 of each Note is amended by inserting a new subsection (f) as below: |
| “(f) Exit Fee. Upon the Maturity Date or upon any other prepayment of the Notes in full prior to the Maturity Date, in addition to the interest payments provided for in Section 2(a) above, monthly prepayments set forth above, the Prepayment Fee, if applicable, and any other fees set forth herein and in any other Transaction Document, Company will pay to Agent as an exit fee for Purchasers’ pro-rata interest, a fee in an amount equal to $250,000. Such amount shall be fully earned upon payment.” |
8. Fees. In consideration of Purchasers’ entering into this Amendment and consenting to the High Mountain Transaction, Company shall pay to Agent for the benefit of Purchasers a fee in the aggregate amount of $250,000 (the “Amendment Fee”). The Amendment Fee shall (i) be fully earned upon the execution of this Amendment, (ii) not be subject to refund or rebate, and (iii) be retained as a fee and not applied in reduction of the principal, interest or other amounts due in connection with the Notes.
9. Conditions. The effectiveness of this Amendment is subject to the following conditions:
(a) the execution and delivery of this Amendment by Obligors, Agent and Purchasers;
(b) after giving effect to this Amendment the representations and warranties set forth herein shall be true and correct in all material respects and there shall be no Event of Default, or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default;
(c) all documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Agent and Purchasers;
(e) Company shall have (i) deposited the Reserved Funds with Reserve Holder, (ii) paid to Agent the Amendment Fee for the account of Purchasers, (iii) paid interest past due under the Notes in an amount equal to $1,635,478.74 as set forth in the Settlement Statement, and (iv) paid to Agent and Purchasers all reasonable fees, costs and expenses of Agent and Purchasers in connection with this Amendment, including, without limitation, reasonable fees, costs and expenses of counsel.
10. Representations and Warranties. Each Obligor hereby represents and warrants to Agent and Purchasers as follows:
(a) Each Obligor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization;
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(b) Each Obligor has the power and authority to execute and deliver this Amendment and to perform its respective obligations under this Amendment, the Purchase Agreement, the Notes, the Guaranty, the Security Agreement and the other Transaction Documents;
(c) the execution, delivery and performance by each Obligor of this Amendment, the Purchase Agreement, the Notes, the Guaranty, the Security Agreement and the other Transaction Documents have been duly authorized by all necessary company action and does not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any governmental agency);
(d) this Amendment, the Purchase Agreement, the Notes, the Guaranty, the Security Agreement and the other Transaction Documents, as may have been or may further be amended, constitute the legal, valid and binding obligation of each Obligor, enforceable against such Obligor in accordance with its terms;
(e) after giving effect to this Amendment, no Event of Default, or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default exists or shall exist immediately following the consummation of the transactions contemplated hereby;
(f) after giving effect to this Amendment, all representations and warranties by each Obligor contained in the Transaction Documents are true and correct in all material respects as of the date hereof, except to the extent made as of a specific date, in which case each such representation and warranty shall be true and correct as of such date; and
(g) by its signature below, each Obligor agrees that it shall constitute an Event of Default if any representation or warranty made herein is untrue or incorrect in any material respect as of the date when made or deemed made.
11. Agreement in Full Force and Effect as Amended. Except as specifically amended, consented and/or waived hereby, the Existing Purchase Agreement and other Transaction Documents shall remain in full force and effect and are hereby ratified and confirmed as so amended. Except as expressly set forth herein, this Amendment shall not be deemed to be a waiver, amendment or modification of any provisions of the Existing Purchase Agreement or any other Transaction Document or any right, power or remedy of Agent or Purchasers, nor constitute a waiver of any provision of the Existing Purchase Agreement or any other Transaction Document, or any other document, instrument and/or agreement executed or delivered in connection therewith or of any Event of Default under any of the foregoing, in each case, whether arising before or after the date hereof or as a result of performance hereunder or thereunder. This Amendment also shall not preclude the future exercise of any right, remedy, power, or privilege available to Agent or Purchasers whether under the Existing Purchase Agreement, the other Transaction Documents, at law or otherwise and nothing contained herein shall constitute a course of conduct or dealing among the parties hereto. This Amendment shall not constitute a novation or satisfaction and accord of the Existing Purchase Agreement and/or other Transaction Documents, but shall constitute an amendment thereof. The parties hereto agree to be bound by the terms and conditions of the Existing Purchase Agreement and Transaction Documents as amended by this Amendment, as though such terms and conditions were set forth herein. Each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Existing Purchase Agreement as amended by this Amendment. All references to the Purchase Agreement in any Transaction Document shall be deemed to mean the Existing Purchase Agreement as modified hereby and all references to the Notes in any Transaction Document shall be deemed to mean the Notes as modified hereby.
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12. Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, each of which when so executed, shall be deemed an original and all said counterparts when taken together shall be deemed to constitute but one and the same instrument.
13. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Obligors and their successors and assigns and Agent and Purchasers and their respective successors and assigns.
14. Further Assurances. Company hereby agrees from time to time, as and when requested by Agent, to execute and deliver or cause to be executed and delivered, all such documents, instruments and agreements and to take or cause to be taken such further or other action as Agent may reasonably deem necessary or desirable in order to carry out the intent and purposes of this Amendment, the Purchase Agreement and the other Transaction Documents.
15. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
16. Severability. Wherever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Amendment.
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17. Reaffirmation. Each Obligor as debtor, grantor, pledgor, guarantor, assignor, or in other any other similar capacity in which such Obligor grants liens or security interests in its property or otherwise acts as accommodation party or guarantor, as the case may be, hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under each of the Transaction Documents to which it is a party (after giving effect hereto) and (ii) to the extent such Obligor granted liens on or security interests in any of its property pursuant to any such Transaction Document as security for or otherwise guaranteed the Obligations under or with respect to the Transaction Documents, ratifies and reaffirms such guarantee and grant of security interests and liens and confirms and agrees that such security interests and liens hereafter secure all of the Obligations as amended hereby. Each Obligor hereby consents to this Amendment and acknowledges that each of the Transaction Documents remains in full force and effect and is hereby ratified and reaffirmed. Except as expressly set forth herein, the execution of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or Purchasers, constitute a waiver of any provision of any of the Transaction Documents or serve to effect a novation of the Obligations.
18. Waiver of Claims. Each Obligor hereby acknowledges and agrees that it has no offsets, defenses, causes of action, suits, damages, claims, or counterclaims against Agent, any Purchaser, or any of their respective officers, directors, employees, attorneys, agents, representatives, subsidiaries, affiliates, predecessors, successors, and assigns (collectively, the “Released Parties”) with respect to the Obligations, the Transaction Documents, any Collateral for the Obligations, or any contracts, promises, commitments or other agreements related to the Transaction Documents, and that if any Obligor now has, or ever did have, any offsets, defenses, causes of action, suits, damages, claims, or counterclaims against one or more of the Released Parties, whether known or unknown, at law or in equity, from the beginning of the world through this date and through the time of execution of this Amendment, all of them are hereby expressly WAIVED, and each Obligor and the Company hereby RELEASES the Released Parties from any liability therefor.
[Remainder of Page Intentionally Left Blank; Signature Page Follow]
9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
| AGENT: | ||
| Leonite Capital LLC | ||
| By: | /s/ Avi Geller | |
| Name: | Avi Geller | |
| Title: | Chief Investment Officer | |
| PURCHASERS: | ||
| ALTIMIR PARTNERS LP | ||
| By: | SILAC INSURANCE COMPANY | |
| By: | /s/ Chandra Patel | |
| Name: | Chandra Patel | |
| Title: | Authorized Signatory of Antarctica Investment Advisors, LLC, as attorney-in-fact for SILAC Insurance Company | |
| BEAMAN SPECIAL OPPORTUNITIES PARTNERS, LP | ||
| By: | SILAC INSURANCE COMPANY | |
| By: | /s/ Chandra Patel | |
| Name: | Chandra Patel | |
| Title: | Authorized Signatory of Antarctica Investment Advisors, LLC, as attorney-in-fact for SILAC Insurance Company | |
| Leonite Capital LLC | ||
| By: | /s/ Avi Geller | |
| Name: | Avi Geller | |
| Title: | Chief Investment Officer | |
[Signature Page to Third Amendment to Note Purchase Agreement]
| COMPANY: | ||
| 1847 HOLDINGS LLC | ||
| By: | /s/ Ellery W. Roberts | |
| Name: | Ellery W. Roberts | |
| Title: | Chief Executive Officer | |
| GUARANTORS: | ||
| 1847 WOLO INC. | ||
| 1847 Cabinet Inc. | ||
| Kyle’s Custom Wood Shop, Inc. High Mountain Door & Trim Inc. Sierra Homes LLC | ||
| Wolo Industrial Horn & Signal, Inc. Wolo Mfg. Corp. | ||
| By: | /s/ Ellery W. Roberts | |
| Name: | Ellery W. Roberts | |
| Title: | Executive Chairman | |
Exhibit 31.1
CERTIFICATIONS
I, Ellery W. Roberts, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of 1847 Holdings LLC; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 19, 2024 | |
| /s/ Ellery W. Roberts | |
| Ellery W. Roberts | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Vernice L. Howard, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of 1847 Holdings LLC; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 19, 2024 | |
| /s/ Vernice L. Howard | |
| Vernice L. Howard | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Executive Officer of 1847 HOLDINGS LLC (the “Company”), DOES HEREBY CERTIFY that:
| 1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this statement on November 19, 2024.
| /s/ Ellery W. Roberts | |
| Ellery W. Roberts | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to 1847 Holdings LLC and will be retained by 1847 Holdings LLC and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Financial Officer of 1847 HOLDINGS LLC (the “Company”), DOES HEREBY CERTIFY that:
| 1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this statement on November 19, 2024
| /s/ Vernice L. Howard | |
| Vernice L. Howard | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to 1847 Holdings LLC and will be retained by 1847 Holdings LLC and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Basis of Presentation and Other Information |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Basis of Presentation and Other Information [Abstract] | |
| BASIS OF PRESENTATION AND OTHER INFORMATION | NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated financial statements of 1847 Holdings LLC (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2023 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K, as filed with the Securities and Exchange Commission on April 25, 2024. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
Discontinued Operations
On February 26, 2024, Asien’s Appliance, Inc. (“Asien’s”), a wholly owned subsidiary of the Company’s subsidiary 1847 Asien Inc. (“1847 Asien”), entered into a general assignment for the benefit of its creditors (the “Assignment Agreement”) with SG Service Co., LLC, pursuant to which Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust.
The Company is a limited guarantor of an Amended and Restated Credit and Security Agreement (the “ICU Loan Agreement”) that was entered into on September 11, 2023, between AB Lending SPV I LLC d/b/a Mountain Ridge Capital (the “ICU Lender”), and the Company’s subsidiaries ICU Eyewear, Inc. (“ICU Eyewear”), ICU Eyewear Holdings, Inc., and 1847 ICU Holdings Inc. (the “ICU Parties”). Pursuant to the ICU Loan Agreement, the ICU Lender had a security interest in all the assets of ICU Eyewear. ICU Eyewear was in default under the ICU Loan Agreement and, with the approval of the other ICU Parties, consented to a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with the Company, was the successful bidder with a cash bid of $4,250,000. Pursuant to an agreement dated, August 5, 2024, and in consideration for such purchase price, the ICU Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights, title, and interest in all of such assets to ICU Eyecare Solutions Inc.
On September 30, 2024, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with BFS Group LLC (“BFS”), and the Company’s majority owned subsidiary High Mountain Door & Trim Inc. (“High Mountain”), pursuant to which the Company sold substantially all of the assets of High Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject to certain pre-closing and post-closing adjustments.
The results of operations of Asien’s, ICU Eyewear and High Mountain are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate solely to continuing operations and exclude all discontinued operations. See Note 3 for additional information.
The Company evaluates all disposal transactions to determine whether such disposal qualifies for reporting as discontinued operations in accordance with ASC 205-20, “Discontinued Operations.” A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off). For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for current and all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods.
Reverse Share Splits
On July 8, 2024, the Company effected a 1-for-13 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-13 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion.
On November 11, 2024, the Company effected a 1-for-15 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-15 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion.
All share and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share splits. The total number of authorized common shares did not change. As a result of the reverse common share splits, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.”
Reclassifications
Certain reclassifications within operating expenses have been made to the prior period’s financial statements to conform to the current period financial statement presentation. There is no impact in total to the results of operations and cash flows in all periods presented.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. These amendments are to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to our condensed consolidated financial statements. |
Liquidity and Going Concern Assessment |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Liquidity and Going Concern Assessment [Abstract] | |
| LIQUIDITY AND GOING CONCERN ASSESSMENT | NOTE 2—LIQUIDITY AND GOING CONCERN ASSESSMENT
Management assesses liquidity and going concern uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the financial statements are 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 considered various scenarios, forecasts, projections, estimates and made 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, management made certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As of September 30, 2024, the Company had cash and cash equivalents of $1,517,191, restricted cash of $8,700,000 and total working capital deficit of $5,848,670. For the nine months ended September 30, 2024, the Company incurred an operating loss of $8,560,340 and used cash flows in operating activities from continuing operations of $11,688,488.
The Company has generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cashflows from operations. The Company expects that within the next twelve months, it will not have sufficient cash and other resources on hand to sustain its current operations or meet its obligations as they become due unless it obtains additional financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
An assessment was performed to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year after the condensed consolidated financial statements are issued. Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented. Based on this assessment, substantial doubt exists regarding the Company’s ability to continue as a going concern.
Management plans to address these concerns by securing additional financing through debt and equity offerings. Management assessed the mitigating effect of its plans to determine if it is probable that the plans would be effectively implemented within one year after the consolidated financial statements are issued and when implemented, would mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. These plans are subject to market conditions and reliance on third parties, and there is no assurance that effective implementation of the Company’s plans will result in the necessary funding to continue current operations and satisfy current debt obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern beyond one year from the date the condensed consolidated financial statements are issued.
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. |
Discontinued Operations |
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| Discontinued Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCONTINUED OPERATIONS | NOTE 3—DISCONTINUED OPERATIONS
Asien’s Assignment for the Benefit of Creditors
On February 26, 2024, Asien’s entered into the Assignment Agreement, pursuant to which Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust. The Company received no cash consideration related to the assignment. Following the assignment, the Company retained no financial interest in Asien’s.
The assignment of Asien’s represents a strategic shift and its results are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of Asien’s of $1,060,095, as a separate line item in discontinued operations in the consolidated statements of operations for the nine months ended September 30, 2024.
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of Asien’s in the consolidated balance sheet as of December 31, 2023:
The following information presents the major classes of line items constituting the loss from discontinued operations of Asien’s in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
The following information presents the major classes of line items constituting significant operating, investing and financing cash flow activities from discontinued operations of Asien’s in the unaudited consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023:
ICU Eyewear Foreclosure Sale
As described above, ICU Eyewear was in default under the ICU Loan Agreement and, with the approval of the other ICU Parties, consented to a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with the Company, was the successful bidder with a cash bid of $4,250,000. Pursuant to an agreement dated, August 5, 2024, and in consideration for such purchase price, the ICU Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights, title, and interest in all of such assets to ICU Eyecare Solutions Inc. The Company received no cash consideration related to the sale. Following the sale, the Company retained no financial interest in ICU Eyewear.
The sale of ICU Eyewear’s assets represents a strategic shift and its results are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of ICU Eyewear’s assets of $4,841,735, as a separate line item in discontinued operations in the consolidated statements of operations for the three and nine months ended September 30, 2024.
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of ICU Eyewear in the consolidated balance sheet as of December 31, 2023:
The following information presents the major classes of line items constituting the loss from discontinued operations of ICU Eyewear in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
The following information presents the major classes of line items constituting significant operating, investing and financing cash flow activities from discontinued operations of ICU Eyewear in the unaudited consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023:
Sale of High Mountain
As described above, on September 30, 2024, the Company entered into the Purchase Agreement with BFS and High Mountain, pursuant to which the Company sold substantially all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject to certain pre-closing and post-closing adjustments. At closing, the purchase price was subject to a working capital adjustment and was also reduced by the amount of outstanding indebtedness repaid at closing or assumed by BFS, as well as certain transaction expenses. Additionally, the purchase price was reduced by $1,700,000, which may be used for certain post-closing payments (the “Holdback Amount”).
The purchase price is also subject to a post-closing adjustment. Under this provision, High Mountain delivered to BFS an estimated closing statement forth the estimated closing date payment amount, which included, among other things, High Mountain’s estimate of the net working capital of High Mountain and its business as of the closing date, calculated in accordance with the asset purchase agreement. Within 90 to 120 days following the closing date, BFS must deliver to High Mountain a final closing statement setting forth its determination of the actual closing date payment amount, including, among other things, BFS’ determination of the net working capital as of the closing date. If the actual closing date payment amount exceeds the estimated closing date payment amount, BFS must, within ten business days, pay to High Mountain an amount of cash that is equal to such excess. If the estimated closing date payment amount exceeds the actual closing date payment amount, High Mountain must, within ten business days, pay to BFS an amount in cash equal to such excess. If High Mountain fails to make such payment, BFS will have the right to recover such amount from the Holdback Amount.
Under the Purchase Agreement, BFS must use commercially reasonable efforts in the ordinary course of business to collect accounts receivable in a manner no less rigorous than the collection efforts used its own business operations, but is entitled to compensation for any uncollected accounts from the Holdback Amount. In addition, the Purchase Agreement provides that BFS must use commercially reasonable efforts in the ordinary course of business to finish and sell any special order or custom inventory that was included in the final net working capital, but is entitled to compensation, on the one-year anniversary of the closing, for any unsold special order or custom inventory from the Holdback Amount.
The sale of High Mountain’s assets represents a strategic shift and its results are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of High Mountain’s assets of $4,181,791, as a separate line item in discontinued operations in the consolidated statements of operations for the three and nine months ended September 30, 2024.
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of High Mountain in the consolidated balance sheet as of December 31, 2023:
The following information presents the major classes of line items constituting the loss from discontinued operations of High Mountain in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
The following information presents the major classes of line items constituting significant operating, investing and financing cash flow activities from discontinued operations of High Mountain in the unaudited consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023:
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Disaggregation of Revenues and Segment Reporting |
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| Disaggregation of Revenues and Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISAGGREGATION OF REVENUES AND SEGMENT REPORTING | NOTE 4—DISAGGREGATION OF REVENUES AND SEGMENT REPORTING
Following the divesture of the retail and appliances segment and the retail and eyewear segment, the Company now has two reportable segments:
The Construction Segment specializes in designing, building, and installing custom cabinetry and countertops.
The Automotive Supplies Segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment) and vehicle emergency and safety warning lights (cars, trucks, industrial equipment, and emergency vehicles).
The Company reports all other business activities that are not reportable in the Corporate Services Segment. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. The Corporate Services Segment includes costs associated with executive management, financing activities and other public company-related costs.
The Company’s revenues for the three months ended September 30, 2024 and 2023 are disaggregated as follows:
The Company’s revenues for the nine months ended September 30, 2024 and 2023 are disaggregated as follows:
Segment information for the three months ended September 30, 2024 and 2023 are as follows:
Segment information for the nine months ended September 30, 2024 and 2023 are as follows:
Total assets by operating segment as of September 30, 2024 are as follows:
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Property and Equipment |
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2024 and December 31, 2023 consisted of the following:
Depreciation expense for the three and nine months ended September 30, 2024 was $104,260 and $319,092, respectively. Depreciation expense for the three and nine months ended September 30, 2023 was $108,982 and $326,667, respectively. |
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Intangible Assets |
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| Intangible Assets[Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | NOTE 6—INTANGIBLE ASSETS
Intangible assets as of September 30, 2024 and December 31, 2023 consisted of the following:
Amortization expense for the three and nine months ended September 30, 2024 was $62,744 and $188,232, respectively. Amortization expense for the three and nine months ended September 30, 2023 was $222,128 and $666,384, respectively.
Estimated amortization expense for intangible assets for the next five years consists of the following as of September 30, 2024:
Below is a table summarizing the changes in the carrying amount of goodwill for the nine months ended September 30, 2024:
During the three and nine months ended September 30, 2024, the Company recorded goodwill impairment of 679,175. |
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Selected Account Information |
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| Selected Account Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SELECTED ACCOUNT INFORMATION | NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables
Receivables as of September 30, 2024 and December 31, 2023 consisted of the following:
Inventories
Inventories as of September 30, 2024 and December 31, 2023 consisted of the following:
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of September 30, 2024 and December 31, 2023 consisted of the following:
On February 7, 2024, the Company entered into a consulting agreement with TraDigital Marketing Group for consulting services related to investor relations, digital marketing and advertising, and strategic advisory, totaling $1,400,000. The term of the agreement is for six months.
On February 8, 2024, the Company entered into a consulting agreement with Alchemy Advisory LLC for consulting services related to business and investor outreach, totaling $400,000. The term of the agreement is for six months.
On February 8, 2024, the Company entered into a consulting agreement with Reef Digital LLC for consulting services related to investor relations, IT support, and strategic advisory, totaling $333,000. The term of the agreement for 12 months.
On February 8, 2024, the Company entered into a consulting agreement with SeaPath Advisory, LLC for consulting services related to content marketing and strategic advisory, totaling $365,000. The term of the agreement is for three months.
The Company prepaid these consulting agreements, totaling $2,498,000, using the proceeds from the public offering (see Note 11). As of September 30, 2024, the total outstanding prepaid expense relating to these consulting agreements was $111,000.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of September 30, 2024 and December 31, 2023 consisted of the following:
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Leases |
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| LEASES | NOTE 8—LEASES
Operating Leases
The following was included in the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023:
Rent expense for the three and nine months ended September 30, 2024 was $135,588 and $408,004, respectively. Rent expense for the three and nine months ended September 30, 2023 was $126,772 and $414,155, respectively.
As of September 30, 2024, maturities of operating lease liabilities were as follows:
Finance Leases
As of September 30, 2024, maturities of financing lease liabilities were as follows:
As of September 30, 2024, the weighted-average remaining lease term for all finance leases is 40 months and the weighted average discount rate is 5.15%. |
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Fair Value Measurements |
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| Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | NOTE 9— FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The fair value of financial instruments measured on a recurring basis as of September 30, 2024 consisted of the following:
The following table provides a roll-forward of changes for financial instruments measured at fair value on a recurring basis for the nine months ended September 30, 2024:
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Debt |
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| Debt [Abstract] | |
| DEBT | NOTE 10—DEBT
Notes Payable
6% Amortizing Promissory Note
On July 29, 2020, 1847 Asien entered into a securities purchase agreement with Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (the “Trust”), pursuant to which 1847 Asien issued a two-year 6% amortizing promissory note in the aggregate principal amount of $1,037,500. This note was subsequently amended on multiple occasions, and pursuant to the latest amendment, the parties agreed to extend the maturity date of the note to July 30, 2023.
On August 22, 2024, the Company and 1847 Asien entered into a settlement and release agreement with the Trust, pursuant to which the Trust surrendered the note and forgave the entire outstanding balance of the note in the amount of $831,027 in exchange for which the Company issued 83,603 series C senior convertible preferred shares to the Trust (see Note 11). The settlement agreement also includes a customary release of claims and covenant not to sue by the Trust. As a result, the Company recognized a gain on extinguishment of debt of $616,127.
Private Placement of 20% OID Promissory Notes and Warrants
On August 11, 2023, the Company entered into a securities purchase agreement in a private placement transaction with certain accredited investors, pursuant to which the Company issued and sold to the investors 20% original issue discount (“OID”) subordinated promissory notes in the aggregate principal amount of $3,125,000. The notes are due and payable on February 11, 2024.
On February 11, 2024, the Company and remaining note holders entered into amendments, pursuant to which the parties agreed to extend the maturity date of these remaining notes to April 11, 2024. As additional consideration for the amendments, the Company agreed to increase the outstanding principal by 20% of the outstanding principal amounts of the remaining notes as an amendment fee. As a result, the Company recognized a loss on extinguishment of debt of $421,875.
On April 11, 2024, the Company and remaining note holders entered into amendments to the notes, pursuant to which the parties agreed to extend the maturity date of these remaining notes to July 10, 2024. As additional consideration for the amendments, the Company agreed to increase the outstanding principal by 20% of the outstanding principal amounts of the remaining notes as an amendment fee. As a result, the Company recognized a loss on extinguishment of debt of $421,875.
On July 10, 2024, the Company and the remaining note holders entered into amendments to the notes, pursuant to which the parties agreed to extend the maturity date of these notes to October 10, 2024. As additional consideration for the amendments, the Company agreed to increase the outstanding principal by 25% of the outstanding principal amounts of the notes as an amendment fee. As a result, the Company recognized a loss on extinguishment of debt of $632,810.
During the nine months ended September 30, 2024, the Company made principal payments totaling $1,437,500, recorded $3,095,645 amortization of debt discount and recognized a loss on extinguishment of $1,476,560. As of September 30, 2024, the total outstanding principal balance is $3,164,060.
Private Placement of 20% OID Promissory Note
On March 4, 2024, the Company issued a 20% OID subordinated note in the principal amount of $1,250,000 to an accredited investor for net cash proceeds of $999,900. On March 27, 2024, the note was amended and restated to increase the principal amount to $1,562,500 for additional cash proceeds of $250,000. On April 9, 2024, the note was amended and restated to increase the principal amount to $2,500,000 for additional cash proceeds of $750,000.
The Company may voluntarily prepay the note in full at any time. In addition, if the Company consummates any equity or equity-linked or debt securities issuance, or enters into a loan agreement or other financing, other than certain excluded debt (as defined in the note), then the Company must prepay the note in full. The note is unsecured and has priority over all other unsecured indebtedness, except for certain senior indebtedness (as defined in the note). The note contains customary affirmative and negative covenants and events of default for a loan of this type.
The Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the note’s embedded features, specifically that should the Company default on the note, the note holder will receive a default penalty of 50% constitute a deemed redemption feature as a result of the substantial premium received by the note holder in the event of default. The Company concluded that this redemption feature requires bifurcation from the note and subsequent accounting in the same manner as a freestanding derivative.
The fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of 25-30% and assumptions of a 75% probability related to likelihood of the Company would default. Subsequent changes in the fair value of the redemption feature are measured at each reporting period and recognized in the statement of operations. The OID and issuance costs for the promissory note, along with the fair value of the embedded redemption derivative liability, were collectively recorded as a debt discount. This discount will be amortized to interest expense over the respective term of the convertible notes using the effective interest method.
On June 4, 2024, an event of default occurred, resulting in a $1,250,000 increase to the principal balance. As a result, the Company recognized a loss on extinguishment of debt of $1,250,000. Consequently, the corresponding derivative liability was extinguished.
On August 20, 2024, the parties entered into an amendment, pursuant to which the parties agreed to extend the maturity date of the note to November 30, 2024. As additional consideration for the amendment, the Company agreed to an amendment fee of $500,000. As a result, the Company recognized a loss on extinguishment of debt of $500,000.
During the nine months ended September 30, 2024, the Company recorded $1,393,100 amortization of debt discount and recognized a loss on extinguishment of $1,750,000. As of September 30, 2024, the total outstanding principal balance is $4,250,000.
Private Placement of 20% OID Promissory Note and Warrants
On May 8, 2024, the Company entered into securities purchase agreement with an accredited investor, pursuant to which the Company issued to such investor (i) a 20% OID subordinated note in the principal amount of $625,000 and (ii) -year warrants for the purchase of 477 common shares at an adjusted exercise price of $524.55 per share (subject to standard adjustments as defined in the warrant) for total cash proceeds of $500,000.
Additionally, the Company issued a -year warrant to the placement agent, Spartan Capital Securities, LLC (“Spartan”), for the purchase of 39 common shares at an adjusted exercise price of $577.05 per share (subject to standard adjustments as defined in the warrant agreement). The warrants are exercisable at any time six months after the date of issuance.
The Company may voluntarily prepay the note in full at any time. In addition, if the Company consummates any sale of a material amount of assets of the Company or any of its subsidiaries, then the net proceeds thereof shall be applied to the payment or prepayment of the note. The note is unsecured and has priority over all other unsecured indebtedness of the Company, except for certain senior indebtedness (as defined in the note). The note contains customary affirmative and negative covenants and events of default for a loan of this type. Upon an event of default, the outstanding balance of the note will be assessed a 40% penalty.
The note becomes convertible into common shares at the option of the holder at any time on or following the date that an event of default (as defined in the note agreement) occurs under the note at a conversion price equal to 90% of the lowest volume weighted average price of the Company’s common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such conversion price shall not be less than $1.95 per share.
The Company evaluated the embedded features within this note in accordance with ASC 480 and ASC 815. The Company determined that the embedded features, specifically (i) the default penalty of 40% on outstanding principal and accrued interest, and (ii) the conversion option into common shares at 90% of the lowest volume weighted average price in the five days preceding conversion, subject to a $1.95 floor price, constitute derivative liabilities. These features, arising from default provisions not within the Company’s control, including the contingent interest feature and the contingent conversion (deemed redemption) feature, meet the definition of a derivative and do not qualify for derivative accounting exemptions. Consequently, these embedded features are bifurcated from the debt host and recognized as a single derivative liability.
The initial fair value of the derivative liabilities was determined using a Monte Carlo Simulation valuation model, considering various potential outcomes and scenarios. The model used the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 236.98%; (iii) risk-free interest rate of 5.31%; (iv) term of three months; (v) estimated fair value of the common shares of $468 per share; and (vi) various probability assumptions. Subsequent changes in fair value are recognized in the statement of operations each reporting period. The issuance costs for the promissory note, along with the allocated fair values of both the warrants and the bifurcated embedded derivative liability, have been collectively treated as a debt discount. This discount is being amortized to interest expense over the term of the promissory note using the effective interest method.
On September 26, 2024, the parties entered in an amendment to the note to (i) increase the original issue discount to $218,750, (ii) increase the principal amount to $868,750, (iii) increase the default amount (as defined in the note) to 140% and (iv) extend the maturity date to November 30, 2024.
During the nine months ended September 30, 2024, the Company recorded $625,000 amortization of debt discount and recognized a loss on extinguishment of $243,750. As of September 30, 2024, the total outstanding principal balance is $868,750.
Private Placement of 12% Promissory Note for Services
On May 9, 2024, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company issued to such investor a promissory note in the principal amount of $500,000 in a private placement transaction in consideration for the holder entering into a lock up agreement to not execute any conversions of a secured convertible note issued to the holder on October 8, 2021 into common shares of the Company (subject to certain exceptions). The note accrues interest at a rate of 12% per annum and is due and payable on May 9, 2025; provided that upon an event of default (as defined in the note), such rate shall increase to 16% per annum. The Company may voluntarily prepay the note in full at any time prior to the date that an event of default occurs.
In addition, if, at any time prior to the full repayment of the note, the Company receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the issuance of securities pursuant to an equity line of credit (as defined in the note) or the sale of assets, the investor will have the right in its sole discretion to require the Company to immediately apply up to 100% of such proceeds to repay all or any portion of the outstanding principal amount and interest (including any default interest) then due under the note. The note is unsecured and has priority over all other unsecured indebtedness. The note contains customary affirmative and negative covenants and events of default for a loan of this type. Upon an event of default, the outstanding balance of the note will be assessed a 50% penalty.
The fair value of the 12% promissory note issued for services was recorded at fair value. The fair value of the note was calculated at the present value of the cash flows using the market interest rate of 13.76%, resulting in a fair value of $492,000. The initial fair value of the promissory note issued for services was recognized in the statement of operations. A discount of $8,000 was recorded for difference between the par value and present value of the promissory note and will be amortized to interest expense over the respective term of the promissory note using the effective interest method.
The Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the note’s embedded features, specifically should the Company default on the note, the note holder will receive a default penalty of 50% constitute a deemed redemption feature as a result of the substantial premium received by the note holder in the event of default. The Company concluded that this redemption feature requires bifurcation from the note and subsequent accounting in the same manner as a freestanding derivative.
The fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of 25% and assumptions of a 75% probability related to likelihood of the Company would default. The initial fair value of the bifurcated embedded redemption derivative liability was recognized in the statement of operations. Subsequent changes in the fair value of the redemption feature are measured at each reporting period and recognized in the statement of operations.
As of September 30, 2024, the total outstanding principal balance is $495,141, net of debt discount of $4,859.
Private Placement of OID Promissory Note and Series D Preferred Shares
On June 28, 2024, the Company’s subsidiaries 1847 Cabinet Inc. (“1847 Cabinet”), High Mountain, Sierra Homes, LLC d/b/a Innovative Cabinets & Design and Kyle’s Custom Wood Shop, Inc. (the “Borrowers”) issued an OID promissory note in the principal amount of up to $2,472,000, to be advanced in one or more tranches, to Breadcrumbs Capital LLC (“Breadcrumbs”).
On June 28, 2024, the parties executed tranche No. 1 in the principal amount of $666,667 for total cash proceeds of $475,000. On July 3, 2024, the parties executed tranche No. 2 in the principal amount of $466,667 for total cash proceeds of $300,000. On July 16, 2024, the parties executed tranche No. 3 in the principal amount of $233,333 for total cash proceeds of $175,000. On August 12, 2024, the parties executed tranche No. 4 in the principal amount of $466,667 for total proceeds of $350,000 (cash proceeds of $250,000 and $100,000 paid directly to third parties to settle accrued liabilities). On August 22, 2024, the parties executed tranche No. 5 in the principal amount of $300,000 for total cash proceeds of $225,000.
The note bears interest at a rate per annum equal to the greater of (i) 8% plus the U.S. Prime Rate that appears in The Wall Street Journal from time to time or (ii) 14%; provided that, upon an event of default (as defined in the note), such rate shall increase to 36% or the maximum legal rate. Each tranche of the note is due and payable three months after issuance. The note is secured by all assets of the Borrowers pursuant to a security agreement; provided that such security interest is subordinate to the rights of the senior lender, Leonite Capital LLC. The note contains customary affirmative and negative covenants and events of default for a loan of this type. Upon an event of default, the outstanding balance of the note will be assessed a 35% penalty.
In connection with the issuance of the note, the Company entered into a memorandum of understanding with the Breadcrumbs, pursuant to which the Company agreed to issue to Breadcrumbs upon the closing of each tranche under the note and (ii) series D senior convertible preferred shares with a stated value equal to the principal amount of such each such tranche (see Note 11 for further details).
The Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the note’s embedded features, specifically that should the Company default on the note, the note holder will receive a default penalty of 35% constitute a deemed redemption feature as a result of the substantial premium received by the note holder in the event of default. The Company concluded that this redemption feature requires bifurcation from the note and subsequent accounting in the same manner as a freestanding derivative.
The fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of 30% and assumptions of a 75% probability related to likelihood of the Company would default. Subsequent changes in the fair value of the redemption feature are measured at each reporting period and recognized in the statement of operations. The OID and issuance costs for the note, along with the allocated fair value of both the series D senior convertible preferred shares and the bifurcated embedded redemption derivative liability, were collectively recorded as a debt discount. This discount will be amortized to interest expense over the respective term of the promissory note using the effective interest method.
During the nine months ended September 30, 2024, the Company made principal payments totaling $1,055,104 and recorded $1,232,616 amortization of debt discount. As of September 30, 2024, the total outstanding principal balance is $577,412, net of debt discount of $500,818.
Purchase and Sale of Future Revenues Agreement
On March 31, 2023, the Company and its subsidiary 1847 Cabinet entered into a non-recourse funding agreement with a third-party for the sale of future revenues totaling $1,965,000 for net cash proceeds of $1,410,000. The Company is required to make weekly ACH payments in the amount of $39,300. The agreement also allows for the third-party to file UCCs securing their interest in the receivables and includes customary events of default.
On November 30, 2023, this agreement was amended to increase the sale of future revenues outstanding balance by $1,375,500 to $1,965,000 for net cash proceeds of $865,500. All other terms remained the same.
On July 23, 2024, this agreement was amended to increase the sale of future revenues outstanding balance by $1,624,400 to $2,292,500 for net cash proceeds of $1,029,400. The Company is required to make weekly ACH payments in the amount of $45,850. All other terms remained the same.
As a result of the amendment, the Company recorded a debt discount of $595,000, which will be amortized under the effective interest method. The Company is utilizing the prospective method to account for subsequent changes in the estimated future payments, whereby if there is a change in the estimated future cash flows, a new effective interest rate is determined based on the revised estimate of remaining cash flows. The effective interest rate is 74.8%.
During the nine months ended September 30, 2024, the Company made principal payments totaling $1,552,350 and recorded $567,665 amortization of debt discount. As of September 30, 2024, the total outstanding principal balance is $1,413,599, net of debt discount of $466,251.
Convertible Notes Payable
Secured Convertible Promissory Notes
On October 8, 2021, the Company issued two secured convertible promissory notes in the principal amount of $16,900,000 and $7,860,000 to SILAC Insurance Company (“SILAC”) and a secured convertible promissory note in the principal amount of $100,000 to Leonite Capital LLC (“Leonite”). Thereafter, (i) on September 1, 2023, SILAC entered into a securities purchase agreement with Altimir Partners LP (“Altimir”), pursuant to which Altimir agreed to purchase the secured convertible promissory note in the principal amount of $16,900,000, $765,306 of which was then acquired by Leonite, and (ii) on December 1, 2023, SILAC entered into a securities purchase agreement with Beaman Special Opportunities Partners, LP (“Beaman”), pursuant to which Beaman purchased that the secured convertible promissory note in the principal amount of $7,860,000. In connection with the sale of High Mountain, $5,815,768 of the purchase price was paid to Altimir and $2,819,711 of the purchase price was paid to Beaman. A total of $7,000,000 of these funds are being held by Altimir and Beauman in a reserve account for the Company’s use in connection with a potential acquisition. If such potential acquisition is not completed by November 15, 2024, then these funds will be used to pay down these notes.
On September 30, 2024, the parties entered into an amendment to the notes, which (i) provided for the terms of the reserve account described above, (ii) changed the maturity date to October 8, 2025, (iii) changed the interest rate to 15%, (iv) amended the repayment terms to require monthly payments of interest only commencing on the earlier of completion of the potential acquisition and December 1, 2024 and to require monthly payments of $500,000 commencing on April 1, 2025. The amendment also requires that the Company pay $4,000,000 no later than January 31, 2025 and includes an additional exit fee of $250,000 to be paid on the maturity date or upon the earlier repayment of the notes in full. As additional consideration for entering into the amendment, the Company agreed to pay an amendment fee of $250,000.
As of September 30, 2024, the combined total outstanding principal balance is $22,790,057, net of debt discount of $1,304,637.
6% Subordinated Convertible Promissory Notes
On October 8, 2021, 1847 Cabinet issued 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 to Steven J. Parkey and Jose D. Garcia-Rendon. In connection with sale of High Mountain, $3,207,058 of the purchase price was used to repay the remaining principal and accrued interest of the notes in full. |
Shareholders’ Deficit |
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| Shareholders’ Deficit [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHAREHOLDERS’ DEFICIT | NOTE 11—SHAREHOLDERS’ DEFICIT
Series A Senior Convertible Preferred Shares
During the nine months ended September 30, 2024, the Company accrued dividends of $135,485 for the series A senior convertible preferred shares and settled $130,968 of previously accrued dividends through the issuance of 625 common shares.
On September 30, 2024, the Company settled $12,432 of previously accrued dividends through the issuance of 5,137 series A senior convertible preferred shares with an allocated value of $1,700. As a result, the Company recognized a gain on extinguishment of debt of $10,732.
During the nine months ended September 30, 2024, an aggregate of 181,212 series A senior convertible preferred shares were converted into an aggregate of 2,437 common shares.
As of September 30, 2024 and December 31, 2023, the Company had 50,592 and 226,667 series A senior convertible preferred shares issued and outstanding, respectively.
Series B Senior Convertible Preferred Shares
During the nine months ended September 30, 2024, the Company accrued dividends of $2,976 for the series B senior convertible preferred shares and settled $13,299 of previously accrued dividends through the issuance of 51 common shares.
During the nine months ended September 30, 2024, an aggregate of 91,567 series B senior convertible preferred shares were converted into an aggregate of 1,523 common shares.
As of September 30, 2024 and December 31, 2023, the Company had 0 and 91,567 series B senior convertible preferred shares issued and outstanding, respectively.
Series C Senior Convertible Preferred Shares
On August 19, 2024, the Company executed a share designation to designate 83,603 of its shares as series C senior convertible preferred shares. The following is a description of the rights of the series C senior convertible preferred shares.
Ranking. The series C senior convertible preferred shares rank, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common shares, allocation shares, and each other class or series that is not expressly made senior to or on parity with the series C senior convertible preferred shares; (ii) on parity with the series D senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series C senior convertible preferred shares; and (iii) junior to the series A senior convertible preferred shares, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each other class or series that is expressly made senior to the series C senior convertible preferred shares.
Dividend Rights. Holders of series C senior convertible preferred shares are entitled to dividends at a rate per annum of 6.0% of the stated value ($10 per share). Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable only upon the liquidation of the Company or upon conversion.
Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined in the share 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 C senior convertible preferred shares as to the distribution of assets on any liquidation of the Company, including the common shares and allocation shares, each holder of outstanding series C senior convertible preferred shares shall be entitled to receive an amount of cash equal to 100% 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, the assets, or proceeds thereof, distributable among the holders of the series C senior convertible preferred shares shall be insufficient to pay in full the preferential amount payable to the holders of the series C 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, then such assets, or the proceeds thereof, shall be distributed among the holders of series C senior convertible preferred shares and any such other parity securities ratably in accordance with the respective amounts that would be payable on such series C senior convertible preferred shares and any such other parity securities if all amounts payable thereon were paid in full.
Voting Rights. The series C senior convertible preferred shares do not have any voting rights; provided that, so long as any series C senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series C senior convertible preferred shares, 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 share designation.
Conversion Rights. Each series C 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 ($10 per share), plus the value of the accrued, but unpaid, dividends thereon, by the conversion price of $150 per share (subject to standard adjustments 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); provided that in no event shall the holder of any series C senior convertible preferred shares be entitled to convert any number of series C 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 C 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. 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.
Redemption Rights. Not redeemable.
On August 22, 2024, the Company issued 83,603 series C senior convertible preferred shares to the Trust as settlement of the outstanding balance of the 6% amortizing promissory note in the amount of $831,027 (see Note 10). As a result, the Company recognized a gain on extinguishment of debt of $616,127.
During the nine months ended September 30, 2024, the Company accrued dividends of $5,360 for the series C senior convertible preferred shares.
As of September 30, 2024 and December 31, 2023, the Company had 83,603 and 0 series C senior convertible preferred shares issued and outstanding, respectively.
Series D Senior Convertible Preferred Shares
On June 27, 2024, the Company executed a share designation to designate 7,292,036 of its shares as series D senior convertible preferred shares. The following is a description of the rights of the series D senior convertible preferred shares.
Ranking. The series D senior convertible preferred shares rank, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common shares, allocation shares, and each other class or series that is not expressly made senior to or on parity with the series D senior convertible preferred shares; (ii) on parity with each other class or series that is not expressly subordinated or made senior to the series D senior convertible preferred shares; and (iii) junior to the Series A senior convertible preferred shares, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each other class or series that is expressly made senior to the series D senior convertible preferred shares.
Dividend Rights. Holders of series D senior convertible preferred shares are entitled to dividends at a rate per annum of 10% of the stated value ($0.339 per share, subject to adjustment). Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable only upon the liquidation of the Company or conversion (as defined in the share designation).
Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined in the share 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 D senior convertible preferred shares as to the distribution of assets on any liquidation of the Company, including the common shares and allocation shares, each holder of outstanding series D senior convertible preferred shares shall be entitled to receive an amount of cash equal to 100% 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, the assets, or proceeds thereof, distributable among the holders of the series D senior convertible preferred shares shall be insufficient to pay in full the preferential amount payable to the holders of the series D 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, then such assets, or the proceeds thereof, shall be distributed among the holders of series D senior convertible preferred shares and any such other parity securities ratably in accordance with the respective amounts that would be payable on such series D senior convertible preferred shares and any such other parity securities if all amounts payable thereon were paid in full.
Voting Rights. The series D senior convertible preferred shares do not have any voting rights; provided that, so long as any series D senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series D senior convertible preferred shares, 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 share designation.
Conversion Rights. Each series D 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 ($0.339 per share), plus the value of the accrued, but unpaid, dividends thereon, by the conversion price of $66.105 per share (subject to standard adjustments 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); provided that in no event shall the holder of any series D senior convertible preferred shares be entitled to convert any number of series D 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 D 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. 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.
Redemption Rights. Not redeemable.
On June 28, 2024, the Company issued 1,966,570 series D senior convertible preferred shares in connection with the closing of the first tranche under the OID promissory note of $666,667 (see Note 10). $214,000 of the net proceeds were allocated on a relative fair value basis to the series D senior preferred shares.
On July 3, 2024, the Company issued 1,376,599 series D senior convertible preferred shares in connection with the closing of the second tranche under the OID promissory note of $466,667 (see Note 10). $122,800 of the net proceeds were allocated on a relative fair value basis to the series D senior preferred shares.
On July 16, 2024, the Company issued 688,298 series D senior convertible preferred shares in connection with the closing of the third tranche under the OID promissory note of $233,333 (see Note 10). $67,400 of the net proceeds were allocated on a relative fair value basis to the series D senior preferred shares.
On August 12, 2024, the Company issued 1,376,599 series D senior convertible preferred shares in connection with the closing of the fourth tranche under the OID promissory note of $466,667 (see Note 10). $113,000 of the net proceeds were allocated on a relative fair value basis to the series D senior preferred shares.
On August 22, 2024, the Company issued 884,956 series D senior convertible preferred shares in connection with the closing of the fifth tranche under the OID promissory note of $300,000 (see Note 10). $82,900 of the net proceeds were allocated on a relative fair value basis to the series D senior preferred shares.
During the nine months ended September 30, 2024, the Company accrued dividends of $42,876 for the series D senior convertible preferred shares.
As of September 30, 2024 and December 31, 2023, the Company had 6,293,022 and 0 series D senior convertible preferred shares issued and outstanding, respectively.
Common Shares
On February 9, 2024, the Company entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to which the Company agreed to issue and sell to such purchasers an aggregate of 9,364 common shares and prefunded warrants for the purchase of 16,280 common shares at an offering price of $1.95 per common share and $193.05 per prefunded warrant, pursuant to the Company’s effective registration statement on Form S-1 (File No. 333-276670). On February 14, 2024, the closing of this offering was completed. At the closing, the purchasers prepaid the exercise price of the prefunded warrants in full. Therefore, the Company received total gross proceeds of $5,000,000. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these and other offering expenses, the Company received net proceeds of approximately $4,335,000. During the nine months ended September 30, 2024, the Company issued an aggregate of 16,275 common shares upon the exercise of prefunded warrants.
During the nine months ended September 30, 2024, the Company issued an aggregate of 5,863 common shares with a fair value of $2,026,499 upon the conversions of convertible promissory notes and accrued interest totaling $1,170,979 and extinguishment of derivative liabilities of $855,520.
During the nine months ended September 30, 2024, the Company issued an aggregate of 676 common shares to the holders of the series A and B senior convertible preferred shares in settlement of $144,267 of accrued dividends. Pursuant to the series A and B senior convertible preferred shares designations, dividends payable in common shares shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common shares on the Company’s principal trading market during the five (5) trading days immediately prior to the applicable dividend payment date.
During the nine months ended September 30, 2024, the Company issued an aggregate of 2,437 common shares upon the conversion of an aggregate of 181,212 series A senior convertible preferred shares.
During the nine months ended September 30, 2024, the Company issued an aggregate of 1,523 common shares upon the conversion of an aggregate of 91,567 series B senior convertible preferred shares.
Potential Common Stock Equivalents
For the nine months ended September 30, 2024, there were 13,278,444 potential common share equivalents from series A, C and D senior convertible preferred shares, convertible notes, and warrants excluded from the diluted loss per share calculations as their effect is anti-dilutive.
Manager’s Profit Allocation (Distribution Receivable)
The Manager owns 100% of the allocation shares of the Company which represent the original equity interest in the Company. As a holder of the allocation shares, the Manager is entitled to receive a 20% profit allocation as a form of preferred distribution, pursuant to a profit allocation formula upon the occurrence of certain events. Generally, the distribution of the profit allocation is paid upon the occurrence of the sale of a material amount of capital stock or assets of one of the Company’s businesses, including if the Company distributes its equity ownership in a subsidiary to the Company’s shareholders in a spin-off or similar transaction (a “Sale Event”), or, at the option of the Manager, at the five-year anniversary date of the acquisition of one of the Company’s businesses (a “Holding Event”). The calculation of the profit allocation and the rights of the Manager, as the holder of the allocation shares, are governed by the operating agreement. The Company records distributions of the profit allocation to the holders upon occurrence of a Sale Event or Holding Event as dividends declared on allocation interests to shareholders’ equity when they are approved by the Company’s board of directors.
Prior to the sale of High Mountain, the last occurrence of profit allocation distribution to the Manager by the Company was during the fourth quarter of 2020, concurrent with the spin-off of a former subsidiary. Following the profit allocation distribution to the Manager, the board of directors identified a need to adjust the distribution to the Manager, which resulted in the recognition of a $2 million distribution receivable from the Manager within shareholders’ equity, with repayment anticipated upon the occurrence of the next qualified profit allocation distribution event (the “Distribution Receivable”).
On April 23, 2024, the Company and the Manager entered into a letter agreement regarding the timing of payment of the Distribution Receivable, pursuant to which the parties agreed to treat the Distribution Receivable as a $2,000,000, plus interest accrued thereon at a non-compounding rate equal to the applicable federal rate, unqualified obligation of the Manager to be repaid as a credit against all future profit allocations resulting from both a Sale Event and a Holding Event payable to the Manager, all until the Distribution Receivable is fully paid, provided that, if the Distribution Receivable is not fully paid by the application of such credit or otherwise by the first to occur of (i) December 31, 2024 and (ii) the date of the sale of all or substantially all the assets (in a transaction of any form) or the liquidation, dissolution or winding up, voluntary or involuntary, of either party, then upon such date the unpaid balance shall be immediately due, payable and paid by the Manager.
On September 30, 2024, the Company sold substantially all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject to certain pre-closing and post-closing adjustments. At closing, the purchase price was subject to a working capital adjustment and was also reduced by the amount of outstanding indebtedness repaid at closing or assumed by BFS, as well as certain transaction expenses.
The sale of High Mountain qualified as a Sale Event that entitles the Manager to receive a 20% profit allocation, or $875,000, in accordance with the profit allocation formula outlined in the operating agreement. Additionally, the Manager is entitled to receive a transaction fee of 2.0%, or $340,000. The Manager’s profit allocation and transaction fee were applied as a credit to the Distribution Receivable, leaving a balance of $785,000 as of September 30, 2024.
Warrants
Warrants Issued in Public Equity Offering
On February 14, 2024 (as described above), the Company closed on a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, pursuant to which the Company agreed to issue and sell to such purchasers prefunded warrants for the purchase of 16,280 common shares at an exercise price of $1.95 per common share.
The Company evaluated the prefunded warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the prefunded warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the prefunded warrants issued failed the indexation guidance under ASC 815-40, specifically, the prefunded warrants provide for a Black-Scholes value calculation in the event of certain transactions (“Fundamental Transactions”), which includes a floor on volatility utilized in the value calculation at 100% or greater. The Company has determined that this provision introduces leverage to the holders of the warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Accordingly, pursuant to ASC 815-40, the Company recorded the fair value of the warrants as a liability upon issuance and marked to market each reporting period in the Company’s condensed consolidated statement of operations until their exercise or expiration (see Note 9).
The fair value of the warrants deemed to be a liability, due to certain contingent put features, was determined using the Black-Scholes option pricing model, which was deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 149.05%; (iii) risk-free interest rate of 4.86%; (iv) expected life of one year; (v) estimated fair value of the common shares of $380.25 per share; (vi) exercise price of $1.95.
Warrants Issued in Private Placement with 20% OID Promissory Note
On May 8, 2024, the Company issued five-year warrants for the purchase of 477 common shares at an adjusted exercise price of $524.55 per share (subject to standard adjustments as defined in the warrant agreement). Additionally, the Company issued a -year warrant to the placement agent, Spartan, for the purchase of 39 common shares at an adjusted exercise price of $577.05 per share (subject to standard adjustments as defined in the warrant agreement). The warrants are exercisable at any time six months after the date of issuance.
The Company evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance from ASC 480 and ASC 815-40. The Company determined the warrants issued failed the indexation guidance under ASC 815-40, specifically, the warrants provide for a Black-Scholes value calculation in the event of certain transactions (“Fundamental Transactions”), which includes a floor on volatility utilized in the value calculation at 100% or greater. The Company has determined that this provision introduces leverage to the holders of the warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Accordingly, pursuant to ASC 815-40, the Company recorded the fair value of the warrants as a liability upon issuance and marked to market each reporting period in the Company’s condensed consolidated statement of operations until their exercise or expiration (see Note 9). The warrants issued to the placement agent were classified as equity.
The fair value of the warrants deemed to be a liability, due to certain contingent put features, was determined using the Black-Scholes option pricing model, which was deemed to be an appropriate model due to the terms of the warrants issued, including a fixed term and exercise price. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 160.8%; (iii) risk-free interest rate of 4.5%; (iv) expected life of 5.5 years; (v) estimated fair value of the common shares of $468 per share; (vi) exercise price of $524.55.
The remaining proceeds were allocated to the placement agent warrants and note based on their relative fair value using the Black-Scholes option pricing model. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 160.8%; (iii) risk-free interest rate of 4.5%; (iv) expected life of 5.5 years; (v) estimated fair value of the common shares of $468 per share; (vi) exercise price of $577.05. The fair value of the placement agent warrants was $16,800, resulting in the amount allocated to the warrants, based on their relative fair value of $7,573, which was recorded as additional paid-in capital.
Exercise Price Adjustments to Warrants
As a result of the issuance of common shares in the offering on February 14, 2024, the exercise price of certain of the Company’s outstanding warrants was adjusted to $1.95 pursuant to certain antidilution provisions of such warrants (down round feature). As a result, the Company recognized a deemed dividend of $1,000, which was calculated using a Black-
Below is a table summarizing the changes in warrants outstanding during the nine months ended September 30, 2024:
As of September 30, 2024, the outstanding warrants have a weighted average remaining contractual life of 4.09 years and a total intrinsic value of $127. |
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Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 12—SUBSEQUENT EVENTS
Public Offering
On October 28, 2024, the Company entered into a securities purchase agreement with certain purchasers and a placement agency agreement with Spartan, as placement agent, relating to the Company’s public offering of units. Pursuant to the securities purchase agreement and the placement agency agreement, the Company agreed to issue and sell to the purchasers an aggregate of 587,301 units, at a purchase price of $18.9 per unit, for total gross proceeds of approximately $11.1 million, pursuant to the Company’s registration statement on Form S-1 (File No. 333-282201) under the Securities Act of 1933, as amended. The units are comprised of (i) 587,301 common shares, (ii) series A warrants to purchase 587,301 common shares at an exercise price of $28.5 per share and (iii) series B warrants to purchase 587,301 common shares at an exercise price of $37.8 per share.
On October 30, 2024, the closing of the offering was completed. Pursuant to the placement agency agreement, Spartan received a cash transaction fee equal to 8% of the aggregate gross proceeds, a non-accountable expense allowance equal to 1% of the aggregate gross proceeds and reimbursement of certain out-of-pocket expenses. After deducting these expenses, the Company received net proceeds of approximately $9.9 million.
The series A warrants are exercisable at any time at an exercise price of $28.5 per share and will expire five years from the date of issuance. The series B warrants are exercisable at any time at an exercise price of $37.8 per share and will expire five years from the date of issuance. Under an alternate cashless exercise option contained in the series A warrants, the holders of the series A warrants will have the right to receive an aggregate number of shares equal to the product of (i) the aggregate number of common shares that would be issuable upon a cash exercise of the series A warrants and (ii) 2.0. in addition, the series A warrants and the series B warrants contain a reset of the exercise price to a price equal to the lesser of (i) the then exercise price and (ii) lowest volume weighted average price for the five trading days immediately preceding and immediately following the date the Company effects a reverse share split in the future with a proportionate adjustment to the number of shares underlying the series A warrants and the series B warrants, subject to a floor price of $0.10. Finally, with certain exceptions, the series B warrants provide for an adjustment to the exercise price and number of shares underlying such the series B warrants upon the Company’s issuance of common shares or common share equivalents at a price per share that is less than the exercise price of the series B warrants, subject to a floor price of $0.10.
As a result of the 1-for-15 reverse share split completed on August 11, 2024 and the related adjustment described above, the exercise prices of the series A warrants and the series B warrants was adjusted to $1.50 (the floor price following the reverse split), the number of series A warrants was increased to 8,583,969 and the number of series B warrants was increased to 14,799,979.
Subsequent to completion of the offering, purchases have exercised an aggregate of 7,879,430 series A warrants for an aggregate of 15,758,861 common shares in accordance with the alternate cashless exercise provision described above.
Debt Conversions
During October 2024, Mast Hill Fund, LP converted the remaining balance of the promissory note issued to it on February 9, 2023 into an aggregate of 13,353 common shares, which included the conversion of principal of $188,646, interest of $16,211 and conversion fees of $10,500.
During October 2024, Mast Hill Fund, LP converted a portion of the promissory note issued to it on February 22, 2023 into an aggregate of 8,970 common shares, which included the conversion of principal of $135,044, interest of $46,949 and conversion fees of $7,000.
During October 2024, the Company entered into cancellation and exchange agreements with the holder of the 20% OID subordinated note originally issued on March 4, 2024 (see Note 10), pursuant to which an aggregate of $221,575 of the note was exchanged for an aggregate of 11,401 common shares.
Debt Repayments
The Company used a portion of the net proceeds from the public offering described above to repay the remaining balance of the promissory note issued to Mast Hill Fund, LP on February 22, 2023 in full.
The Company also used a portion of the net proceeds from the public offering described above to repay the 20% OID subordinated promissory notes originally issued on August 11, 2023 and the 20% OID subordinated promissory note originally issued on May 8, 2024 in full (see Note 10).
The Company also used a portion of the net proceeds from the public offering described above to repay $2,015,325 of the 20% OID subordinated note originally issued on March 4, 2024 (see Note 10), leaving a balance of $2,234,675.
Amendment to 20% OID Subordinated Note
On November 15, 2024, the Company entered into an amendment to the 20% OID subordinated note originally issued on March 4, 2024 (see Note 10) to (i) reflect the repayment described above, (ii) increase the principal amount remaining to $2,681,610 and (iii) extend the maturity date to December 31, 2024.
Signing of Acquisition Agreement
On November 4, 2024, 1847 CMD Inc. (“1847 CMD” ), a newly formed wholly owned subsidiary of the Company, entered into a stock and membership interest purchase agreement (the “Purchase Agreement”) with the owner (“Seller”) of CMD Inc. (“CMD”) and CMD Finish Carpentry LLC (“Finish” and together with CMD, the “CMD Companies”), pursuant to which 1847 CMD agreed to acquire from the Seller all of the issued and outstanding capital stock of CMD and all of the membership interests in Finish for an aggregate cash purchase price of $18,750,000, subject to adjustment as described below. Upon the execution of the Purchase Agreement, the Company paid to the Seller a deposit of $1,000,000, which shall be applied toward the purchase price. The transaction is expected to be completed on or before December 3, 2024.
The purchase price is subject to a closing date net working capital adjustment in cash, and a post-closing net working capital adjustment in cash if the adjustment is in favor of 1847 CMD, or in the form of a promissory note if the adjustment is in favor of the Seller. If a working capital promissory note is issued, it will be secured in a subordinate position by the assets of 1847 CMD and the CMD Companies, guaranteed by the Company and the CMD Companies, and by a pledge agreement in the equity of 1847 CMD and the CMD Companies.
The Purchase Agreement contains customary representations, warranties and covenants, including a covenant that the Seller will not compete with the business of 1847 CMD 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 Seller with respect to breaches of certain non-fundamental representations and warranties, the Seller will only become liable for indemnified losses if the amount exceeds an aggregate of $60,000, whereupon the Seller will be liable for all losses back to the first dollar, provided that the liability of the Seller for breaches of certain non-fundamental representations and warranties shall not exceed $2,512,500. The closing of the transaction contemplated in the Purchase Agreement is subject to customary closing conditions. |
Pay vs Performance Disclosure - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Pay vs Performance Disclosure | ||||
| Net Income (Loss) | $ 2,813,784 | $ (5,828,305) | $ (12,461,958) | $ (8,486,502) |
Insider Trading Arrangements |
3 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Trading Arrangements, by Individual | |
| Rule 10b5-1 Arrangement Adopted | false |
| Non-Rule 10b5-1 Arrangement Adopted | false |
| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
Accounting Policies, by Policy (Policies) |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Accounting Policies [Abstract] | |
| Discontinued Operations | Discontinued Operations On February 26, 2024, Asien’s Appliance, Inc. (“Asien’s”), a wholly owned subsidiary of the Company’s subsidiary 1847 Asien Inc. (“1847 Asien”), entered into a general assignment for the benefit of its creditors (the “Assignment Agreement”) with SG Service Co., LLC, pursuant to which Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust. The Company is a limited guarantor of an Amended and Restated Credit and Security Agreement (the “ICU Loan Agreement”) that was entered into on September 11, 2023, between AB Lending SPV I LLC d/b/a Mountain Ridge Capital (the “ICU Lender”), and the Company’s subsidiaries ICU Eyewear, Inc. (“ICU Eyewear”), ICU Eyewear Holdings, Inc., and 1847 ICU Holdings Inc. (the “ICU Parties”). Pursuant to the ICU Loan Agreement, the ICU Lender had a security interest in all the assets of ICU Eyewear. ICU Eyewear was in default under the ICU Loan Agreement and, with the approval of the other ICU Parties, consented to a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section 9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with the Company, was the successful bidder with a cash bid of $4,250,000. Pursuant to an agreement dated, August 5, 2024, and in consideration for such purchase price, the ICU Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights, title, and interest in all of such assets to ICU Eyecare Solutions Inc. On September 30, 2024, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with BFS Group LLC (“BFS”), and the Company’s majority owned subsidiary High Mountain Door & Trim Inc. (“High Mountain”), pursuant to which the Company sold substantially all of the assets of High Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject to certain pre-closing and post-closing adjustments. The results of operations of Asien’s, ICU Eyewear and High Mountain are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate solely to continuing operations and exclude all discontinued operations. See Note 3 for additional information.
The Company evaluates all disposal transactions to determine whether such disposal qualifies for reporting as discontinued operations in accordance with ASC 205-20, “Discontinued Operations.” A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off). For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for current and all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods. |
| Reverse Share Splits | Reverse Share Splits On July 8, 2024, the Company effected a 1-for-13 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-13 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion. On November 11, 2024, the Company effected a 1-for-15 reverse split of its outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-15 reverse split, with the respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and preferred shares conversion prices were adjusted to reflect a proportional decrease in the number of common shares to be issued upon conversion. All share and per share data throughout these condensed consolidated financial statements have been retroactively adjusted to reflect the reverse share splits. The total number of authorized common shares did not change. As a result of the reverse common share splits, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.” |
| Reclassifications | Reclassifications Certain reclassifications within operating expenses have been made to the prior period’s financial statements to conform to the current period financial statement presentation. There is no impact in total to the results of operations and cash flows in all periods presented. |
| Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. These amendments are to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. These amendments are to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements. The Company currently believes there are no other issued and not yet effective accounting standards that are materially relevant to our condensed consolidated financial statements. |
Discontinued Operations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Discontinued Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Consolidated Balance Sheet | The
following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of
Asien’s in the consolidated balance sheet as of December 31, 2023:
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of ICU Eyewear in the consolidated balance sheet as of December 31, 2023:
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of High Mountain in the consolidated balance sheet as of December 31, 2023:
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| Schedule of Consolidated Statements of Operations | The
following information presents the major classes of line items constituting the loss from discontinued operations of Asien’s in
the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
The following information presents the major classes of line items constituting the loss from discontinued operations of ICU Eyewear in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
The following information presents the major classes of line items constituting the loss from discontinued operations of High Mountain in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
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| Schedule of Consolidated Statements of Cash Flows | The
following information presents the major classes of line items constituting significant operating, investing and financing cash flow
activities from discontinued operations of Asien’s in the unaudited consolidated statements of cash flows for the nine months ended
September 30, 2024 and 2023:
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Disaggregation of Revenues and Segment Reporting (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Disaggregation of Revenues and Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenues | The
Company’s revenues for the three months ended September 30, 2024 and 2023 are disaggregated as follows:
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| Schedule of Segment Information | Segment
information for the three months ended September 30, 2024 and 2023 are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Property
and equipment as of September 30, 2024 and December 31, 2023 consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets[Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets | Intangible
assets as of September 30, 2024 and December 31, 2023 consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Amortization Expense for Intangible Assets | Estimated
amortization expense for intangible assets for the next five years consists of the following as of September 30, 2024:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Summarizing the Changes in the Carrying Amount of Goodwill | Below
is a table summarizing the changes in the carrying amount of goodwill for the nine months ended September 30, 2024:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selected Account Information (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selected Account Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Receivables | Receivables
as of September 30, 2024 and December 31, 2023 consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories
as of September 30, 2024 and December 31, 2023 consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Prepaid Expenses and Other Current Assets | Prepaid
expenses and other current assets as of September 30, 2024 and December 31, 2023 consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Payable and Accrued Expenses | Accounts
payable and accrued expenses as of September 30, 2024 and December 31, 2023 consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Leases | The
following was included in the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Lease Liabilities | As
of September 30, 2024, maturities of operating lease liabilities were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Financing Lease Liabilities | As
of September 30, 2024, maturities of financing lease liabilities were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Financial Instruments Measured on a Recurring Basis | The
fair value of financial instruments measured on a recurring basis as of September 30, 2024 consisted of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Roll-Forward of Changes for Financial Instruments Measured at Fair Value on a Recurring Basis | The
following table provides a roll-forward of changes for financial instruments measured at fair value on a recurring basis for the nine
months ended September 30, 2024:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ Deficit (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ Deficit [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Warrants Outstanding | Below is a table summarizing the changes in warrants
outstanding during the nine months ended September 30, 2024:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Other Information (Details) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2024 |
Aug. 05, 2024 |
|
| Basis of Presentation and Other Information [Line Items] | |||
| Assets acquired | $ 17,000,000 | ||
| High Mountain Door & Trim Inc [Member] | |||
| Basis of Presentation and Other Information [Line Items] | |||
| Assets acquired | $ 17,000,000 | ||
| ICU Eyecare Solutions Inc [Member] | |||
| Basis of Presentation and Other Information [Line Items] | |||
| Payment from non affiliated | $ 4,250,000 |
Liquidity and Going Concern Assessment (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Dec. 31, 2023 |
|
| Liquidity and Going Concern Assessment [Abstract] | |||||
| Cash and cash equivalents | $ 1,517,191 | $ 1,517,191 | $ 673,445 | ||
| Restricted cash | 8,700,000 | 8,700,000 | |||
| Working capital deficit | 5,848,670 | ||||
| Operating loss | $ (3,413,238) | $ (1,207,243) | (8,560,340) | $ (2,979,520) | |
| Operating activities from continuing operations | $ (11,688,488) | $ (7,953,559) | |||
Discontinued Operations (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Aug. 05, 2024 |
|
| Discontinued Operations [Line Items] | |||||
| Recognized gain on disposition | $ (9,023,526) | $ (10,083,621) | |||
| Cash bid | $ 4,250,000 | ||||
| Additional cash purchase price | 17,000,000 | ||||
| Additional purchase price | 1,700,000 | ||||
| Discontinued Operations [Member] | |||||
| Discontinued Operations [Line Items] | |||||
| Recognized gain on disposition | 1,060,095 | ||||
| ICU Eyewear [Member] | |||||
| Discontinued Operations [Line Items] | |||||
| Recognized gain on disposition | 4,841,735 | 4,841,735 | 4,841,735 | 4,841,735 | |
| High Mountain’s Assets [Member] | |||||
| Discontinued Operations [Line Items] | |||||
| Recognized gain on disposition | $ 4,181,791 | $ 4,181,791 | $ 4,181,791 | $ 4,181,791 | |
Disaggregation of Revenues and Segment Reporting (Details) |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Corporate Segment [Member] | |
| Disaggregation of Revenues and Segment Reporting [Line Items] | |
| Reportable segments | 2 |
Property and Equipment (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Property and Equipment [Abstract] | ||||
| Depreciation expense | $ 104,260 | $ 108,982 | $ 319,092 | $ 326,667 |
Property and Equipment (Details) - Schedule of Property and Equipment - Property, Plant and Equipment [Member] - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Property and Equipment [Line Items] | ||
| Total property and equipment | $ 1,964,418 | $ 1,964,418 |
| Less: accumulated depreciation | (1,221,183) | (902,091) |
| Total property and equipment, net | 743,235 | 1,062,327 |
| Machinery and equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total property and equipment | 1,295,499 | 1,295,499 |
| Office furniture and equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total property and equipment | 115,409 | 115,409 |
| Transportation equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total property and equipment | 400,602 | 400,602 |
| Leasehold improvements [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total property and equipment | $ 152,908 | $ 152,908 |
Intangible Assets (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Intangible Assets[Abstract] | ||||
| Amortization expense | $ 62,744 | $ 222,128 | $ 188,232 | $ 666,384 |
| Goodwill impairment | $ 679,175 | $ 679,175 | ||
Intangible Assets (Details) - Schedule of Intangible Assets - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Intangible Assets [Line Items] | ||
| Total intangible assets | $ 3,021,000 | $ 3,021,000 |
| Less: accumulated amortization | (1,003,909) | (815,677) |
| Total intangible assets, net | 2,017,091 | 2,205,323 |
| Customer-related [Member] | ||
| Schedule of Intangible Assets [Line Items] | ||
| Total intangible assets | 2,727,000 | 2,727,000 |
| Marketing-related [Member] | ||
| Schedule of Intangible Assets [Line Items] | ||
| Total intangible assets | $ 294,000 | $ 294,000 |
Intangible Assets (Details) - Schedule of Amortization Expense for Intangible Assets |
Sep. 30, 2024
USD ($)
|
|---|---|
| Schedule of Amortization Expense for Intangible Assets [Abstract] | |
| 2024 (remaining) | $ 62,745 |
| 2025 | 181,800 |
| 2026 | 181,800 |
| 2027 | 181,800 |
| 2028 | 181,800 |
| Thereafter | 1,227,146 |
| Total estimated amortization expense | $ 2,017,091 |
Intangible Assets (Details) - Schedule of Summarizing the Changes in the Carrying Amount of Goodwill - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2024 |
|
| Schedule of Summarizing the Changes in the Carrying Amount of Goodwill [Abstract] | ||
| Balance as of December 31, 2023 | $ 679,175 | |
| Impairment | $ (679,175) | (679,175) |
| Balance as of September 30, 2024 |
Selected Account Information (Details) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2024 |
Feb. 08, 2024 |
Feb. 07, 2024 |
|
| Selected Account Information [Line Items] | |||
| Prepaid expense | $ 111,000 | ||
| Proceeds from the public offering | $ 2,498,000 | ||
| TraDigital Marketing Group [Member] | |||
| Selected Account Information [Line Items] | |||
| Prepaid expense | $ 1,400,000 | ||
| Alchemy Advisory LLC [Member] | |||
| Selected Account Information [Line Items] | |||
| Prepaid expense | $ 400,000 | ||
| Reef Digital LLC [Member] | |||
| Selected Account Information [Line Items] | |||
| Prepaid expense | 333,000 | ||
| SeaPath Advisory, LLC [Member] | |||
| Selected Account Information [Line Items] | |||
| Prepaid expense | $ 365,000 |
Selected Account Information (Details) - Schedule of Receivables - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Receivables [Line Items] | ||
| Total receivables | $ 1,875,316 | $ 1,744,835 |
| Allowance for expected credit losses | (47,200) | (47,200) |
| Total receivables, net | 1,828,116 | 1,697,635 |
| Trade accounts receivable [Member] | ||
| Schedule of Receivables [Line Items] | ||
| Total receivables | 1,572,615 | 1,628,293 |
| Factoring reserve holdback [Member] | ||
| Schedule of Receivables [Line Items] | ||
| Total receivables | 76,771 | |
| Retainage [Member] | ||
| Schedule of Receivables [Line Items] | ||
| Total receivables | $ 225,930 | $ 116,542 |
Selected Account Information (Details) - Schedule of Inventories - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory [Line Items] | ||
| Total inventories | $ 1,054,095 | $ 1,764,226 |
| Less reserve for obsolescence | (369,200) | (369,200) |
| Total inventories, net | 684,895 | 1,395,026 |
| Automotive [Member] | ||
| Inventory [Line Items] | ||
| Total inventories | 938,221 | 1,190,899 |
| Construction [Member] | ||
| Inventory [Line Items] | ||
| Total inventories | $ 115,874 | $ 573,327 |
Selected Account Information (Details) - Schedule of Prepaid Expenses and Other Current Assets - Prepaid Expenses and Other Current Assets [Member] - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Selected Account Information (Details) - Schedule of Prepaid Expenses and Other Current Assets [Line Items] | ||
| Prepaid expenses | $ 276,271 | $ 84,166 |
| Prepaid inventory | 282,410 | |
| Prepaid taxes | 226,788 | 204,788 |
| Other current assets | 200,000 | 200,000 |
| Total prepaid expenses and other current assets | $ 703,059 | $ 771,364 |
Selected Account Information (Details) - Schedule of Accounts Payable and Accrued Expenses - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Accounts Payable and Accrued Expenses [Abstract] | ||
| Trade accounts payable | $ 1,728,475 | $ 985,559 |
| Credit cards payable | 323,223 | 317,406 |
| Accrued payroll liabilities | 1,043,731 | 628,710 |
| Accrued interest | 1,042,206 | 1,386,536 |
| Accrued dividends | 56,203 | 32,997 |
| Accrued taxes | 66 | 15,903 |
| Other accrued liabilities | 763,109 | 604,686 |
| Total accounts payable and accrued expenses | $ 4,957,013 | $ 3,971,797 |
Leases (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Leases [Abstract] | ||||
| Rent expense | $ 135,588 | $ 126,772 | $ 408,004 | $ 414,155 |
| Weighted-average remaining lease term | 40 months | 40 months | ||
| Weighted average discount rate | 5.15% | 5.15% | ||
Leases (Details) - Schedule of Operating Leases - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Leases [Abstract] | ||
| Operating lease right-of-use assets | $ 594,738 | $ 907,748 |
| Operating lease liabilities, current portion | 436,253 | 435,280 |
| Operating lease liabilities, long-term | 198,747 | 523,768 |
| Total operating lease liabilities | $ 635,000 | $ 959,048 |
| Weighted-average remaining lease term (months) | 19 months | 28 months |
| Weighted average discount rate | 4.99% | 4.95% |
Leases (Details) - Schedule of Operating Lease Liabilities - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Operating Lease Liabilities [Abstract] | ||
| 2024 (remaining) | $ 118,576 | |
| 2025 | 413,193 | |
| 2026 | 107,966 | |
| 2027 | 22,525 | |
| Total | 662,260 | |
| Less: imputed interest | (27,260) | |
| Total operating lease liabilities | $ 635,000 | $ 959,048 |
Leases (Details) - Schedule of Financing Lease Liabilities |
Sep. 30, 2024
USD ($)
|
|---|---|
| Schedule of Financing Lease Liabilities [Abstract] | |
| 2024 (remaining) | $ 53,477 |
| 2025 | 211,332 |
| 2026 | 211,332 |
| 2027 | 210,042 |
| 2028 | 28,833 |
| Total | 715,016 |
| Less: amount representing interest | (65,282) |
| Total finance lease liabilities | $ 649,734 |
Fair Value Measurements (Details) - Schedule of Fair Value of Financial Instruments Measured on a Recurring Basis - Fair Value, Recurring [Member] |
Sep. 30, 2024
USD ($)
|
|---|---|
| Schedule of Fair Value of Financial Instruments Measured on a Recurring Basis [Line Items] | |
| Derivative liabilities | $ 544,000 |
| Warrant liabilities | 9,900 |
| Total recurring fair value measurements | 553,900 |
| Level 1 [Member] | |
| Schedule of Fair Value of Financial Instruments Measured on a Recurring Basis [Line Items] | |
| Derivative liabilities | |
| Warrant liabilities | |
| Total recurring fair value measurements | |
| Level 2 [Member] | |
| Schedule of Fair Value of Financial Instruments Measured on a Recurring Basis [Line Items] | |
| Derivative liabilities | |
| Warrant liabilities | |
| Total recurring fair value measurements | |
| Level 3 [Member] | |
| Schedule of Fair Value of Financial Instruments Measured on a Recurring Basis [Line Items] | |
| Derivative liabilities | 544,000 |
| Warrant liabilities | 9,900 |
| Total recurring fair value measurements | $ 553,900 |
Shareholders’ Deficit (Details) - Schedule of Warrants Outstanding - Warrants [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2024
$ / shares
shares
| |
| Schedule of Warrants Outstanding [Line Items] | |
| Warrants, Outstanding Beginning | shares | 706 |
| Weighted- Average Exercise Price, Outstanding Beginning | $ / shares | $ 6,597.35 |
| Warrants, Granted | shares | 16,796 |
| Weighted- Average Exercise Price, Granted | $ / shares | $ 18.13 |
| Warrants, Exercised/settled | shares | (16,275) |
| Weighted- Average Exercise Price, Exercised/settled | $ / shares | $ (1.95) |
| Warrants, Outstanding Ending | shares | 1,227 |
| Weighted- Average Exercise Price, Outstanding Ending | $ / shares | $ 4,012.72 |
| Warrants, Exercisable | shares | 711 |
| Weighted- Average Exercise Price, Exercisable | $ / shares | $ 6,541.33 |
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