ACQUISITION OF NEESE, INC.

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

NOTE 7 - ACQUISITION OF NEESE, INC.

On March 3, 2017, the Company’s wholly-owned subsidiary 1847 Neese entered into a stock purchase agreement with Neese and Alan Neese and Katherine Neese, pursuant to which 1847 Neese acquired all of the issued and outstanding capital stock of Neese for an aggregate purchase price of: (i) $2,225,000 in cash (subject to certain adjustments); (ii) 450 shares of the common stock of 1847 Neese, constituting 45% of its capital stock; (iii) the issuance of a vesting promissory note in the principal amount of $1,875,000; and (iv) the issuance of a short-term promissory note in the principal amount of $1,025,000.

The cash portion of the purchase price would have been adjusted upward if Neese’s final certified balance sheet, as of a date on or about the closing date, did not reflect a cash balance of at least $200,000. The cash balance on the closing date of March 3, 2017 amounted to approximately $676,056.

The fair value of the purchase consideration issued to the sellers of Neese was allocated to the net tangible assets acquired. The Company accounted for the acquisition of Neese as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $5,513,498. The excess of the aggregate fair value of the net tangible assets has been treated as a gain on bargain purchase in accordance with ASC 805. The purchase price allocation was based, in part, on management’s knowledge of Neese’s business.

Purchase Consideration
Cash Consideration	$	3,240,000
Add: Stock Paid, Minority Interest		852,864
Add: 8% Vesting Promissory Note		395,634
Add: 10% Promissory Note		1,025,000
Total acquisition price	$	5,513,498
Assets acquired and liabilities assumed at fair value
Cash	$	676,056
Accounts receivable		156,655
Prepaid expenses		90,238
Inventories		1,037,910
Property and equipment		6,167,104
Other assets		85,322
Accounts payable and accrued expenses		(209,913	)
Uncertain tax position		(129,000	)
Cash payable to seller		(337,645	)
Deferred tax liability		(2,079,395	)
Other liabilities
Net tangible assets acquired	$	5,457,332
Identifiable intangible assets and Goodwill
Intangible assets	$	34,000
Goodwill		22,166
Total Identifiable Intangible Assets and Goodwill	$	56,166
Total net assets acquired	$	5,513,498

The following presents the pro-forma combined results of operations of the Company with Neese as if the entities were combined on January 1, 2017.

	For the Year Ended December 31,
	2018			2017
Revenues, net	$	7,333,847		$	7,588,524
Net income (loss) allocable to common shareholders	$	(1,541,873	)	$	(608,293	)
Net income (loss) per share	$	(0.50	)	$	(0.20	)
Weighted average number of shares outstanding		3,115,625			3,115,625

The pro-forma results of operations are presented for information purposes only. The pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of January 1, 2017 or to project potential operating results as of any future date or for any future periods.

The estimated useful life remaining on the property and equipment acquired is 1 to 10 years.