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
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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
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has been subject to such filing requirements for the past 90 days.
Indicate
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405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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| Smaller reporting company | ||
| Emerging growth company |
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As of November 11, 2022, there were
1847 HOLDINGS LLC
Quarterly Report on Form 10-Q
Period Ended September 30, 2022
TABLE OF CONTENTS
| PART I | ||
| FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 43 |
| Item 4. | Controls and Procedures | 43 |
PART II
OTHER INFORMATION
| Item 1. | Legal Proceedings | 45 |
| Item 1A. | Risk Factors | 45 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 45 |
| Item 3. | Defaults Upon Senior Securities | 45 |
| Item 4. | Mine Safety Disclosures | 45 |
| Item 5. | Other Information | 45 |
| Item 6. | Exhibits | 46 |
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,
2022 | December 31,
2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Receivables, net | ||||||||
| Contract assets | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Customer deposits | ||||||||
| 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 contingent note payable | ||||||||
| 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 | ||||||||
| Contingent note payable, net of current portion | ||||||||
| Deferred tax liability, net | ||||||||
| TOTAL LIABILITIES | ||||||||
| Mezzanine Equity | ||||||||
| Series A senior convertible preferred shares | ||||||||
| TOTAL MEZZANINE EQUITY | ||||||||
| Shareholders’ Deficit | ||||||||
| Series A senior convertible preferred shares, par value, | ||||||||
| Series B senior convertible preferred shares, par value, | ||||||||
| Allocation shares, | ||||||||
| Common shares, $ | ||||||||
| Distribution receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL 1847 HOLDINGS SHAREHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| NON-CONTROLLING INTERESTS | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Personnel | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | - | |||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| Gain on disposal of property and equipment | ||||||||||||||||
| Gain on disposition of subsidiary | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on write-down of contingent note payable | ( | ) | ( | ) | ||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME TAX BENEFIT FROM CONTINUING OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO 1847 HOLDINGS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO 1847 HOLDINGS | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO 1847 HOLDINGS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| PREFERRED SHARE DIVIDENDS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DEEMED DIVIDEND RELATED TO DOWN ROUND PROVISION IN WARRANTS | ( | ) | ( | ) | ||||||||||||
| NET LOSS ATTRIBUTABLE TO 1847 HOLDINGS COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER COMMON SHARE ATTRIBUTABLE TO 1847 HOLDINGS COMMON SHAREHOLDERS | ||||||||||||||||
| BASIC | ||||||||||||||||
| LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| LOSS PER COMMON SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| DILUTED | ||||||||||||||||
| LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| LOSS PER COMMON SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
| BASIC | ||||||||||||||||
| DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Three and Nine Months Ended September 30, 2022
| 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, 2021 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of series A preferred shares | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of series B convertible preferred shares and warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends - common shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of series B convertible preferred shares and warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of warrants in connection with notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon cashless exercise of warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon partial extinguishment of convertible notes payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon partial extinguishment of contingent note payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon settlement of debt | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of preferred shares from mezzanine equity to permanent equity | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and warrants in connection with a public offering | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of series A senior convertible preferred shares | ( | ) | ( | ) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Redemption of series B senior convertible preferred shares | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dividends - common shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends - series B senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Deemed dividends - down round provision in warrants | - | - | - | - | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||
4
1847 HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Three and Nine Months Ended September 30, 2021
| 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, 2020 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Issuance of series A senior convertible preferred shares and warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common adjustment shares | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends - series A senior convertible preferred shares | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Accrued dividend payable | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Accrued dividend payable | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | - | $ | - | $ | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
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, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Loss from discontinued operations | ( | ) | ||||||
| Gain on disposition of subsidiary | ( | ) | ||||||
| Gain on forgiveness of debt | ( | ) | ||||||
| Gain on disposal of property and equipment | ( | ) | ( | ) | ||||
| Loss on adjustment shares | ||||||||
| Loss on extinguishment of debt | ||||||||
| Loss on write-down of contingent note payable | ||||||||
| Deferred tax asset (liability) | ( | ) | ( | ) | ||||
| 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 | ( | ) | ||||||
| Other assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ||||||
| Due to related parties | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Net paid in acquisitions | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of property and equipment | ||||||||
| Investments in certificates of deposit | ( | ) | ||||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by investing activities from discontinued operations | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | ||||||||
| Net proceeds from issuance of common shares and warrants in public offering | ||||||||
| Net proceeds from issuance of series A senior convertible preferred shares | ||||||||
| Net proceeds from issuance of series B senior convertible preferred shares | ||||||||
| Proceeds from line of credit | ||||||||
| Repayments of notes payable and finance lease liabilities | ( | ) | ( | ) | ||||
| Repayments to sellers | ( | ) | ||||||
| Cash paid for financing costs | ( | ) | ||||||
| Redemption of series A senior convertible preferred shares | ( | ) | ||||||
| Redemption of series B senior convertible preferred shares | ( | ) | ||||||
| Dividends on series A senior convertible preferred shares | ( | ) | ( | ) | ||||
| Dividends on series B senior convertible preferred shares | ( | ) | ||||||
| Dividends on common shares | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ( | ) | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENT FROM DISCONTINUED OPERATIONS | ||||||||
| CASH AND CASH EQUIVALENTS AVAILABLE FROM DISCONTINUED OPERATIONS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS | ||||||||
| Beginning of the period | ||||||||
| 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 | ||||||||
| Issuance of common shares upon conversion of series A preferred shares | $ | $ | ||||||
| Issuance of common shares upon cashless exercise of warrants | $ | $ | ||||||
| Deemed dividend from down round provision in warrants | $ | $ | ||||||
| Financed purchases of property and equipment | $ | $ | ||||||
| Debt discount on notes payable issued with warrants | $ | $ | ||||||
| Operating lease right-of-use asset and liability remeasurement | $ | $ | ||||||
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, 2022
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated financial statements of 1847 Holdings LLC (the “Company,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2022. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Reverse Share Split
On August 2, 2022, we effected a 1-for-4 reverse split of our outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-4 reverse split, with respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and series A and B convertible senior 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 split. The total number of authorized common shares did not change. As a result of the reverse common share split, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.”
Reclassifications
Certain reclassifications within property and equipment, notes payable, preferred shares, and operating expenses have been made to 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.
Sequencing
Under ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest maturity date of potentially dilutive instruments first, with the earliest maturity date of grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy.
7
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 2—RECENT ACCOUNTING PRONOUCEMENTS
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on our condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 Accounting for Convertible Instruments and Contracts In An Entity’s Own Equity. ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this guidance on January 1, 2022. The Company’s adoption of this update did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This ASU should be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted. The Company adopted this guidance on January 1, 2022. The Company’s adoption of this update did not have a material impact on the condensed consolidated financial statements.
NOTE 3—LIQUIDITY AND GOING CONCERN ASSESSMENT
Management assesses liquidity and going concern uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As
of September 30, 2022, the Company had cash and cash equivalents of $
Management has prepared estimates of operations for fiscal year 2022 and 2023 believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of these condensed consolidated financial statements, which indicate improved operations and the Company’s ability to continue operations as a going concern. The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations.
8
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The accompanying condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts for one year from the date of the filing of these condensed consolidated financial statements. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period.
NOTE 4—DISAGGREGATION OF REVENUES AND SEGMENT REPORTING
The
Company has
The Retail and Appliances Segment provides a wide variety of appliance products (laundry, refrigeration, cooking, dishwashers, outdoor, accessories, parts, and other appliance related products) and services (delivery, installation, service and repair, extended warranties, and financing).
The Construction Segment provides finished carpentry products and services (door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, fireplace mantles, windows, and custom design and build of cabinetry and countertops).
The Automotive Supplies Segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment), and offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment, and emergency vehicles.
The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, financing activities and public company compliance.
The Company’s revenues for the three and nine months ended September 30, 2022 and 2021 are disaggregated as follows:
| Three Months Ended September 30, 2022 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
9
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| Nine Months Ended September 30, 2022 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Total | |||||||||||||
| Revenues | ||||||||||||||||
| Appliances | $ | $ | $ | $ | ||||||||||||
| Appliance accessories, parts, and other | ||||||||||||||||
| Automotive horns | ||||||||||||||||
| Automotive lighting | ||||||||||||||||
| Custom cabinets and countertops | ||||||||||||||||
| Finished carpentry | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
Segment information for the three and nine months ended September 30, 2022 and 2021 is as follows:
| Three Months Ended September 30, 2022 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (loss) from Operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
10
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Retail
and Appliances | Construction | Automotive Supplies | Corporate Services | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | - | |||||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Personnel | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (Loss) from Operations | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Equipment and machinery | $ | $ | ||||||
| Office furniture and equipment | ||||||||
| Transportation equipment | ||||||||
| Leasehold improvements | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and nine months ended September 30, 2022 was $
NOTE 6—INTANGIBLE ASSETS
Intangible assets at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Customer relationships | $ | $ | ||||||
| Marketing-related | ||||||||
| Technology-related | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
11
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Amortization
expense for the three and nine months ended September 30, 2022 was $
Estimated amortization expense for intangible assets for the next five years consists of the following as of September 30, 2022:
| Year Ending December 31, | Amount | |||
| 2022 – remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Vendor rebates receivable | ||||||||
| Credit card payments in process of settlement | ||||||||
| Retainage | ||||||||
| Total receivables | ||||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total receivables, net | $ | $ | ||||||
Inventories at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Appliances | $ | $ | ||||||
| Automotive | ||||||||
| Construction | ||||||||
| Total inventories | ||||||||
| Less reserve for obsolescence | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
Inventory balances are composed of finished goods. Raw materials and work in process inventory are immaterial to the condensed consolidated financial statements.
Accounts payable and accrued expenses at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts payable | $ | $ | ||||||
| Credit cards payable | ||||||||
| Accrued payroll liabilities | ||||||||
| Accrued interest | ||||||||
| Accrued dividends | ||||||||
| Other accrued liabilities | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
12
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 8—LEASES
Operating Leases
In
April 2022, the Company entered into a lease amendment to renew its office and warehouse space in the automotive supplies segment, located
in Deer Park, New York. The lease renewal will commence on August 1, 2022 and shall expire on July 31, 2025. Under the terms of the lease
renewal, the Company will lease the premises at the monthly rate of $
The following was included in our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Lease liabilities, current portion | ||||||||
| 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, 2022 was $
As of September 30, 2022, maturities of operating lease liabilities were as follows:
| Year Ending December 31, | Amount | |||
| 2022 – remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Finance Leases
On
March 28, 2022, the Company entered an equipment financing lease to purchase machinery and equipment totaling $
On
April 11, 2022, the Company entered in an equipment financing lease to purchase machinery and equipment totaling $
On
July 13, 2022, the Company entered in an equipment financing lease to purchase machinery and equipment totaling $
13
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
As of September 30, 2022, maturities of finance lease liabilities were as follows:
| Year Ending December 31, | Amount | |||
| 2022 – remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total payments | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of minimum finance lease payments | $ | |||
As
of September 30, 2022, the weighted-average remaining lease term for all finance leases is
NOTE 9—ACQUISITIONS
On
March 30, 2021, the Company acquired
On
October 8, 2021, the Company acquired
Pro Forma Information
The following unaudited pro forma results presented below include the effects of the Wolo, High Mountain and Sierra Homes acquisitions as if they had been consummated as of January 1, 2021, with adjustments to give effect to pro forma events that are directly attributable to the acquisitions.
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to common shareholders’ | ( | ) | ( | ) | ( | ) | ||||||||||
| Earnings (loss) per share attributable to common shareholders’: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisitions had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
14
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
NOTE 10—RELATED PARTIES
Management Services Agreement
Offsetting Management Services Agreements
The
Company’s subsidiary 1847 Asien Inc. (“1847 Asien”) entered into an offsetting management services agreement with the
Manager on May 28, 2020, the Company’s subsidiary 1847 Cabinet Inc. (“1847 Cabinet”) entered into an offsetting management
services agreement with the Manager on August 21, 2020 (which was amended and restated on October 8, 2021) and the Company’s subsidiary
1847 Wolo Inc. (“1847 Wolo”) entered into an offsetting management services agreement with the Manager on March 30, 2021.
1847
Asien expensed management fees of $
1847
Cabinet expensed management fees of $
1847
Wolo expensed management fees of $
On
a consolidated basis, the Company expensed total management fees of $
Advances
From
time to time, the Company has received advances from its chief executive officer to meet short-term working capital needs. As of September
30, 2022 and December 31, 2021, a total of $
As
of September 30, 2022 and December 31, 2021, the Manager has funded the Company $
15
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Building Lease
On
September 1, 2020, Kyle’s entered into an industrial lease agreement with Stephen Mallatt, Jr. and Rita Mallatt, who are officers
of Kyle’s and principal shareholders of the Company. The lease is for a term of five years, with an option for a renewal term of
five years and provides for a base rent of $
The
total rent expense under this related party leases was $
NOTE 11—MEZZANINE EQUITY
Series A Senior Convertible Preferred Shares
On
September 30, 2020, the Company executed a share designation, which was amended on November 20, 2020, March 26, 2021 and September 29,
2021, to designate
Ranking. The series A 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 A senior convertible preferred shares; (ii) on parity with the series B senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series A senior convertible preferred shares; and (iii) junior to 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 A senior convertible preferred shares.
Dividend
Rights. Holders of series A 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
A 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 A senior convertible preferred shares shall be entitled to receive an amount
of cash equal to
16
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Voting Rights. The series A senior convertible preferred shares do not have any voting rights; provided that, so long as any series A senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series A senior convertible preferred shares, which majority must include Leonite Capital LLC so long as it holds any series A senior convertible preferred shares (the “Requisite Holders”), voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the share designation. In addition, so long as any series A senior convertible preferred shares are outstanding, the affirmative vote of the Requisite Holders shall be required prior to the creation or issuance by the Company or by its subsidiaries Kyle’s Custom Wood Shop, Inc. (“Kyle’s”) and Wolo Mfg. Corp. and Wolo Industrial Horn & Signal, Inc. (together, “Wolo”) of (i) any parity securities; (ii) any senior securities; and (iii) any new indebtedness other than (A) intercompany indebtedness by Kyle’s or Wolo in favor of the Company, (B) indebtedness incurred in favor of the sellers of Kyle’s or Wolo in connection with the acquisition of Kyle’s or Wolo, or (C) indebtedness (or the refinancing of such indebtedness) the proceeds of which are used to complete the acquisition of Kyle’s or Wolo related expenses or working capital to operate the business of Kyle’s or Wolo. Notwithstanding the foregoing, this shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series A senior convertible preferred shares and the warrants issued in connection therewith.
Conversion
Rights. Each series A senior convertible preferred share, plus all accrued and unpaid dividends thereon, shall be convertible, at
the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable common shares determined
by dividing the stated value ($
Redemption
Rights. The Company may redeem in whole, or upon the written consent of the Requisite Holders and in the manner provided for in such
written consent, in part, the series A senior convertible preferred shares by paying in cash therefore a sum equal to
Adjustments. The share designation contains standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar transactions. In addition, the share designation provides that if, but only if, the Requisite Holders provide the Company with at least ten (10) business day’s prior written notice, then, from and after the date of such notice, the stated dividend rate, the stated value and the conversion price shall automatically adjust as follows:
| ● | On the first day of the 24th month following the issuance date of any series A senior convertible preferred shares, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
17
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| ● | On the first day of the 36th month following the issuance date of any series A senior convertible preferred shares, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding the third adjustment date. |
Notwithstanding the foregoing, the conversion price for purposes of the adjustments above shall not be adjusted to a number that is below $0.03. In addition, if any legislation or rules are adopted whereby the holding period of securities for purposes of Rule 144 of the Securities Act of 1933, as amended, for convertible securities that convert at market-adjusted rates is increased resulting in a longer holding period for convertible securities like the series A senior convertible preferred shares and the unavailability at the time of conversion of Rule 144, the pricing provisions that are based upon the lowest VWAP of the previous ten (10) trading days immediately preceding the relevant adjustment date shall be removed unless the common shares issuable upon conversion are then registered under an effective registration statement.
Additional
Equity Interest. On the third adjustment date set forth above, the Company is required to cause Kyle’s and Wolo to issue to
the holders of series A senior convertible preferred shares, on a pro rata basis, a ten percent (
As
of September 30, 2022 and December 31, 2021, the Company had
During
the three months ended September 30, 2022, the Company accrued dividends attributable to the series A senior convertible preferred shares
in the amount of $
On
February 16, 2022,
On
August 12, 2022, the Company redeemed
Series B Senior Convertible Preferred Shares
On
February 17, 2022, the Company executed a share designation to designate
18
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Ranking. The series B 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 B senior convertible preferred shares; (ii) on parity with the series A senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series A senior convertible preferred shares; and (iii) junior to 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 B senior convertible preferred shares.
Dividend
Rights. Holders of series B 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
B 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 B senior convertible preferred shares shall be entitled to receive an amount
of cash equal to
Voting Rights. The series B senior convertible preferred shares do not have any voting rights; provided that, so long as any series B senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series B senior convertible preferred shares, voting as a separate class, shall be necessary for approving, effecting or validating (i) any amendment, alteration or repeal of any of the provisions of the share designation or (ii) the Company’s creation or issuance of any parity securities or any senior securities. Notwithstanding the foregoing, such vote of the holders shall not be required in connection with the issuance of parity securities or senior securities if, and so long as, the proceeds resulting from the issuance of such securities are used to redeem in full the outstanding series B senior convertible preferred shares.
Conversion
Rights. Each series B 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 ($
19
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Redemption
Rights. The Company may redeem in whole (but not in part) the series B senior convertible preferred shares by paying in cash therefore
a sum equal to
Adjustments. The share designation contains standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar transactions. In addition, the share designation provides that the stated dividend rate, the stated value and the conversion price shall automatically adjust as follows:
| ● | On the first day of the 12th month following the issuance of the first series B senior convertible preferred share, the stated dividend rate shall automatically increase by five percent (5.0%) per annum and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
| ● | On the first day of the 24th month following the issuance of the first series B senior convertible preferred share, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
| ● | On the first day of the 36th month following the issuance of the first series B senior convertible preferred share, the stated dividend rate shall automatically increase by an additional five percent (5.0%) per annum, the stated value shall automatically increase by ten percent (10%) and the conversion price shall automatically adjust to the lower of the (i) initial conversion price and (ii) the price equal to the lowest VWAP of the ten (10) trading days immediately preceding such date. |
Notwithstanding
the foregoing, the conversion price for purposes of the adjustments above shall not be adjusted to a number that is below $
From
February 24, 2022 to March 24, 2022, the Company sold an aggregate of
Each
unit consists of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an
exercise price of $
As
of September 30, 2022 and December 31, 2021, the Company had
20
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
During
the three months ended September 30, 2022, the Company accrued dividends attributable to the series B senior convertible preferred shares
in the amount of $
On
August 26, 2022, the Company redeemed
Mezzanine Equity Classification
We applied the guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”), in order to determine the appropriate classification for both the series A senior convertible preferred shares and the series B senior convertible preferred shares.
ASC
480 requires equity instruments to be evaluated on an ongoing basis for mezzanine equity (temporary equity) vs permanent equity classification.
As a result of the maximum number of common shares that may be issuable (upon conversion of the preferred securities) exceeded the number
of authorized but unissued common shares available, temporary equity classification is required. As of December 31, 2021, there were
As a result of the 1-for-4 reverse split of our outstanding common shares
(see Note 1 for additional information), the maximum number of common shares that may be issuable (upon conversion of the preferred securities)
no longer exceeded the number of unissued common shares available, resulting in the reclassification of
NOTE 12—SHAREHOLDERS’ DEFICIT
Reverse Stock Split
The Company’s board of directors approved a 1-for-4 reverse stock split of its issued, outstanding common shares, which became effective August 2, 2022. See Note 1 for additional information.
Common Shares
As
of September 30, 2022, the Company was authorized to issue
On
February 16, 2022, the Company issued
From
July 12, 2022 to September 15, 2022, the Company issued
On
August 2, 2022, the Company entered into an underwriting agreement with Craft Capital Management LLC and R.F. Lafferty & Co. Inc.,
as representatives of the underwriters named on Schedule 1 thereto, relating to the Company’s public offering of common shares.
Under the underwriting agreement, the Company agreed to sell
21
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
On
August 2, 2022, the Company issued an aggregate of
On
August 2, 2022, the Company issued
On
August 2, 2022, the Company issued
On
March 23, 2022, the Company declared a common share dividend of $
On
July 29, 2022, the Company declared a common share dividend of $
On
August 23, 2022, the Company declared a common share dividend of $
Warrants
As described in Note 11, the Company issued units during the nine months ended September 30, 2022, with each unit consisting of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below. Accordingly, a portion of the proceeds were allocated to the warrant based on its relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 51.81%; (iii) weighted average risk-free interest rate of 0.31%; (iv) expected life of three years; (v) estimated fair value of the common shares of $7.76 per share; and (vi) various probability assumptions related to redemption, calls and price resets. The fair value of the warrants was $428,034, or $0.89 per warrant, resulting in the amount allocated to the warrants, based on their relative fair of $172,050, which was recorded as additional paid-in capital.
22
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The warrants allow the holder to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment including upon any future equity offering with a lower exercise price), which may be exercised on a cashless basis under certain circumstances. The Company may force the exercise of the warrants at any time after the one year anniversary of the date of the warrants, if (i) the Company is listed on a national securities exchange or the over-the-counter market, (ii) the underlying common shares are registered or the holder of the warrant otherwise has the ability to trade the underlying common shares without restriction, (iii) the 30-day volume-weighted daily average price of the common shares exceeds 200% of the exercise price, as adjusted, and (iv) the average daily trading volume is at least 100,000 common shares during such 30-day period. The Company may redeem the warrants held by any holder in whole (but not in part) by paying in cash to such holder as follows: (i) $0.50 per share then underlying the warrant if within the first twelve (12) months of issuance; (ii) $1.00 per share then underlying the warrant if after the first twelve (12) months, but before twenty-four (24) months of issuance; and (iii) $1.50 per share then underlying the warrant if after twenty-four months, but before thirty-six (36) months.
On
July 8, 2022, the Company entered into a securities purchase agreement with Mast Hill Fund, L.P., pursuant to which the Company issued
to it a promissory note in the principal amount of $
As
a result of the issuance of the note to Mast Hill Fund, L.P. on July 8, 2022, the exercise price of certain of the Company’s outstanding
warrants was adjusted to $
From
July 12, 2022 to September 15, 2022, warrants for the purchase of
On
August 5, 2022, the Company issued a common share purchase warrant to each of Craft Capital Management LLC and R.F. Lafferty & Co.
Inc., the representatives of the underwriters for the public offering described above, for the purchase of
As
a result of the public offering, the exercise price of certain of the Company’s outstanding warrants was adjusted to $
23
1847 HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Below is a table summarizing the changes in warrants outstanding during the nine months ended September 30, 2022:
| Warrants | Weighted- Average Exercise Price | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted(1) | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Outstanding at September 30, 2022 | $ | |||||||
| Exercisable at September 30, 2022 | $ | |||||||
| (1) |
As
of September 30, 2022, the outstanding warrants have a weighted average remaining contractual life of
NOTE 13—EARNINGS (LOSS) PER SHARE
The computation of weighted average shares outstanding and the basic and diluted loss per common share attributable to common shareholders for the three and nine months ended September 30, 2022 consisted of the following:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Net loss per common share attributable to common shareholders’ | ( | ) | $ | ( | ) | |||
| Weighted average common shares outstanding | ||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | ||
For
the three and nine months ended September 30, 2022, there were
For
the three and nine months ended September 30, 2021, there were
NOTE 14—SUBSEQUENT EVENTS
On
October 20, 2022, 1847 Asien and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T
Dated May 1, 1992 entered into a letter agreement to amend the terms of that certain
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and the “Company” refer to 1847 Holdings LLC, a Delaware limited liability company, and its consolidated subsidiaries. References to the “Manager” refer to 1847 Partners LLC, a Delaware limited liability company.
Special Note Regarding Forward Looking Statements
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 the 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 the Manager’s ability to retain or replace qualified employees of our businesses and the 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, 2021. 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.
25
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 May 28, 2020, our subsidiary 1847 Asien Inc. (“1847 Asien”) acquired Asien’s Appliance, Inc., a California corporation (“Asien’s”). Asien’s has been in business since 1948 serving the North Bay area of Sonoma County, California. It provides a wide variety of appliance services, including sales, delivery/installation, in-home service and repair, extended warranties, and financing. Its main focus is delivering personal sales and exceptional service to its customers at competitive prices.
On September 30, 2020, our subsidiary 1847 Cabinet Inc. (“1847 Cabinet”) acquired Kyle’s Custom Wood Shop, Inc., an Idaho corporation (“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. (“1847 Wolo”) acquired Wolo Mfg. Corp., a New York corporation, and Wolo Industrial Horn & Signal, Inc., a New York corporation (together, “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 (“High Mountain”), and Sierra Homes, LLC d/b/a Innovative Cabinets & Design, a Nevada limited liability company (“Innovative Cabinets”). Headquartered in Reno, Nevada and founded in 2014, High Mountain specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, working primarily with large homebuilders of single-family homes and commercial and multi-family developers. 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 grow regular distributions to our common shareholders and increasing common shareholder value over time.
We seek to acquire controlling interests in small businesses that we believe operate in industries with long-term macroeconomic growth opportunities, and that have positive and stable earnings and cash flows, face minimal threats of technological or competitive obsolescence and have strong management teams largely in place. We believe that private company operators and corporate parents looking to sell their businesses will consider us to be an attractive purchaser of their businesses. We 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
On October 20, 2022, 1847 Asien and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (the “Asien’s Seller”) entered into a letter agreement to amend the terms of that certain 6% amortizing promissory note in the aggregate principal amount of $1,037,500 described below. Pursuant to the letter agreement, the parties agreed to extend the maturity date of this note to February 28, 2023 and revised the repayment terms so that the outstanding principal amount and all accrued interest thereon shall be payable monthly, beginning on November 30, 2022, in accordance with the payment schedule set forth on Exhibit A to the letter agreement. As additional consideration for entering into the letter agreement, 1847 Asien also agreed to pay the Asien’s Seller $87,707 as an amendment fee.
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Impact of Coronavirus Pandemic
In December 2019, a novel coronavirus disease, or COVID-19, was initially reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases and affected countries and actions by public health and governmental authorities, businesses, other organizations, and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns.
Despite recent developments of vaccines, the duration and severity of COVID-19, mutations and possible additional mutations and the degree of their impact on our business is uncertain and difficult to predict. The continued spread of the outbreak could result in one or more of the following conditions that could have a material adverse impact on our business operations and financial condition: delays or difficulty sourcing certain products and raw materials; increased costs for such products and raw materials; and loss of productivity due to employee absences. Notably, approximately 90% of Wolo’s vendor base is located in China. The pandemic issues impacting ports in the U.S. due to lack of personnel has had a ripple effect on Chinese suppliers. Containers are slow to be emptied in the U.S., causing a backlog of ships waiting to get into ports and limiting containers and ships returning to China. The lack of containers and available space on ships has escalated shipping costs by over 300% from 2020. Our inability to respond to and manage the potential impact of such events effectively could have a material adverse effect on our business, financial condition, and results of operations.
Our efforts to help mitigate the negative impact of the outbreak on our business may not be effective, and we may be affected by a protracted economic downturn. Furthermore, while many governmental authorities around the world have and continue to enact legislation to address the impact of COVID-19, including measures intended to mitigate some of the more severe anticipated economic effects of the virus, we may not benefit from such legislation, or such legislation may prove to be ineffective in addressing COVID-19’s impact on our and our customer’s businesses and operations. Even after the COVID-19 outbreak has subsided, we may continue to experience impacts to our business as a result of COVID-19’s global economic impact and any recession that has occurred or may occur in the future. Further, as the COVID-19 situation is unprecedented and continuously evolving, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or in a manner that we currently do not consider that may present significant risks to our operations.
The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report. Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
Management Fees
On April 15, 2013, the Company and the Manager entered into a management services agreement, pursuant to which the Company is required to pay the Manager a quarterly management fee equal to 0.5% of its adjusted net assets for services performed (the “Parent Management Fee”). The amount of the Parent Management Fee with respect to any fiscal quarter is (i) reduced by the aggregate amount of any management fees received by the Manager under any offsetting management services agreements with respect to such fiscal quarter, (ii) reduced (or increased) by the amount of any over-paid (or under-paid) Parent Management Fees received by (or owed to) the Manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid Parent Management Fees. The Company expensed $0 in Parent Management Fees for the nine months ended September 30, 2022 and 2021.
1847 Asien entered into an offsetting management services agreement with the Manager on May 28, 2020, 1847 Cabinet entered into an offsetting management services agreement with the Manager on August 21, 2020 (which was amended and restated on October 8, 2021) and 1847 Wolo entered into an offsetting management services agreement with the Manager on March 30, 2021. Pursuant to the offsetting management services agreements, 1847 Neese appointed the Manager to provide certain services to it for a quarterly management fee equal to $62,500, 1847 Asien appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement), 1847 Cabinet appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement), which was increased to $125,000 or 2% of adjusted net assets on October 8, 2021, and 1847 Wolo appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement); provided, however, in each case that if the aggregate amount of management fees paid or to be paid by such entities, together with all other management fees paid or to be paid to the Manager under other offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of 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 the Manager under other offsetting management services agreements.
27
Each of these subsidiaries shall also reimburse the Manager for all of their costs and expenses which are specifically approved by their board of directors, including all out-of-pocket costs and expenses, which are actually incurred by the Manager or its affiliates on behalf of these subsidiaries in connection with performing services under the offsetting management services agreements.
1847 Asien expensed management fees of $75,000 and $225,000 for the three and nine months ended September 30, 2022, respectively, and $75,000 and $225,000 for the three and nine months ended September 30, 2021, respectively.
1847 Cabinet expensed management fees of $125,000 and $375,000 for the three and nine months ended September 30, 2022, respectively, and $75,000 and $225,000 for the three and nine months ended September 30, 2021, respectively.
1847 Wolo expensed management fees of $75,000 and $225,000 for the three and nine months ended September 30, 2022, respectively, and $75,000 and $150,000 for the three and nine months ended September 30, 2021, respectively.
On a consolidated basis, the Company expensed total management fees of $275,000 and $825,000 for the three and nine months ended September 30, 2022, respectively, and $225,000 and $600,000 for the three and nine months ended September 30, 2021, respectively.
Segments
The Financial Accounting Standards Board Accounting Standard Codification Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its shareholders. As of September 30, 2022, we have three reportable segments - the retail and appliances segment, which is operated by Asien’s, the construction segment, which is operated by Kyle’s, High Mountain and Innovative Cabinets, and the automotive supplies segment, which is operated by Wolo.
The retail and appliances segment is comprised of the business of Asien’s, which is based in Santa Rosa, California, and provides a wide variety of appliance services including sales, delivery, installation, service and repair, extended warranties, and financing.
The construction segment is comprised of the businesses of Kyle’s, High Mountain and Innovative Cabinets. Kyle’s, which is based in Boise, Idaho, provides a wide variety of construction services including custom design and build of kitchen and bathroom cabinetry, delivery, installation, service and repair, extended warranties, and financing. High Mountain, which is based in Reno, Nevada, specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, as well as window installation. Innovative Cabinets, also based in Reno, Nevada, specializes in custom cabinetry and countertops.
The automotive supplies segment is comprised of the business of Wolo, which is based in Deer Park, New York, and 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.
We provide general corporate services to our segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, financing activities and public company compliance.
Discontinued Operations
On April 19, 2021, we entered into a stock purchase agreement with Alan Neese and Katherine Neese, pursuant to which they purchased our 55% ownership interest in 1847 Neese Inc. (“1847 Neese”), a company that we originally acquired in March 2017, for a purchase price of $325,000 in cash. As a result of this transaction, 1847 Neese is no longer a subsidiary of the Company. All financial information of 1847 Neese previously presented as part of land management services operations are classified as discontinued operations and not presented as part of continuing operations for the nine months ended September 30, 2021.
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Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table sets forth key components of our results of operations during the three months ended September 30, 2022 and 2021, both in dollars and as a percentage of our revenues.
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Amount | %
of | Amount | %
of | |||||||||||||
| Revenues | $ | 14,472,361 | 100.0 | % | $ | 6,735,028 | 100.0 | % | ||||||||
| Operating Expenses | ||||||||||||||||
| Cost of sales | 9,596,387 | 66.3 | % | 4,573,123 | 67.9 | % | ||||||||||
| Personnel | 3,182,286 | 22.0 | % | 876,991 | 13.0 | % | ||||||||||
| Depreciation and amortization | 516,414 | 3.6 | % | 299,477 | 4.4 | % | ||||||||||
| General and administrative | 2,688,877 | 18.6 | % | 1,844,979 | 27.4 | % | ||||||||||
| Total Operating Expenses | 15,983,964 | 110.4 | % | 7,594,570 | 112.8 | % | ||||||||||
| Loss From Operations | (1,511,603 | ) | (10.4 | )% | (859,542 | ) | (12.8 | )% | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Other income | 2,756 | 0.0 | % | 3,539 | 0.1 | % | ||||||||||
| Interest expense | (1,875,757 | ) | (13.0 | )% | (128,199 | ) | (1.9 | )% | ||||||||
| Gain on sale of property and equipment | 15,614 | 0.1 | % | 10,885 | 0.2 | % | ||||||||||
| Loss on extinguishment of debt | (2,039,815 | ) | (14.1 | )% | - | - | ||||||||||
| Loss on write-down of contingent note payable | (158,817 | ) | (1.1 | )% | - | - | ||||||||||
| Total Other Income (Expense) | (4,056,019 | ) | (28.0 | )% | (113,775 | ) | (1.7 | )% | ||||||||
| Net Loss Before Income Taxes | (5,567,622 | ) | (38.5 | )% | (973,317 | ) | (14.5 | )% | ||||||||
| Income tax benefit | 1,095,000 | 7.6 | % | - | - | |||||||||||
| Net Loss From Continuing Operations | $ | (4,472,622 | ) | (30.9 | )% | $ | (973,317 | ) | (14.5 | )% | ||||||
Revenues. Our total revenues were $14,472,361 for the three months ended September 30, 2022, as compared to $6,735,028 for the three months ended September 30, 2021.
The retail and appliances segment generates revenue through the sales of home furnishings, including appliances and related products. Revenues from the retail and appliances segment decreased by $211,250, or 6.7%, to $2,934,705 for the three months ended September 30, 2022 from $3,145,955 for the three months ended September 30, 2021. Such decrease was primarily due to ongoing supply chain delays and cost increases with appliance manufacturers, increased time it takes to receive products, and decreased customer demand.
The construction segment generates revenue through the sale of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, and fireplace mantles, among others, as well as kitchen countertops. Revenues from the construction segment increased by $8,709,518, or 650.7%, to $10,047,946 for the three months ended September 30, 2022 from $1,338,428 for the three months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, revenues from the construction segment increased by $409,929, or 30.6%. Such increase was primarily due to increases in the average customer contract in the construction segment.
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 decreased by $760,935, or 33.8%, to $1,489,710 for the three months ended September 30, 2022 from $2,250,645 for the three months ended September 30, 2021. Such decrease was primarily due to ongoing supply chain delays and cost increases, increased time it takes to receive products, and decreased customer demand.
Cost of sales. Our total cost of sales was $9,596,387 for the three months ended September 30, 2022, as compared to $4,573,123 for the three months ended September 30, 2021.
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Cost of sales for the retail and appliances segment consists of the cost of purchased merchandise plus the cost of delivering merchandise and where applicable installation, net of promotional rebates and other incentives received from vendors. Cost of sales for the retail and appliances segment decreased by $116,691, or 5.1%, to $2,183,972 for the three months ended September 30, 2022 from $2,300,663 for the three months ended September 30, 2021. Such decrease was primarily due to the corresponding decrease in revenues from the retail and appliance segment. As a percentage of retail and appliances revenues, cost of sales for the retail and appliances segment was 74.4% and 73.1% for the three months ended September 30, 2022 and 2021, respectively.
Cost of sales 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 sales for the construction segment increased by $5,739,330, or 712.5%, to $6,544,843 for the three months ended September 30, 2022 from $805,513 for the three months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, cost of sales for the construction segment increased by $101,508, or 12.6%. Such increase was primarily due to corresponding the increase in revenues from the construction segment, offset by increased product and delivery costs. As a percentage of construction revenues, cost of sales for the construction segment was 65.1% and 60.2% for the three months ended September 30, 2022 and 2021, respectively.
Cost of sales for the automotive supplies segment consists of the costs of purchased finished goods plus freight and tariff costs. Cost of sales for the automotive supplies segment decreased by $599,375, or 40.9%, to $867,572 for the three months ended September 30, 2022 from $1,466,947 for the three months ended September 30, 2021. Such decrease was primarily due to the corresponding decrease in revenues from the automotive segment. As a percentage of automotive supplies revenues, cost of sales for the automotive supplies segment was 58.2% and 65.2% for the three months ended September 30, 2022 and 2021, respectively.
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 $3,182,286 for the three months ended September 30, 2022, as compared to $876,991 for the three months ended September 30, 2021.
Personnel costs for the retail and appliances segment increased by $5,851, or 3.0%, to $202,443 for the three months ended September 30, 2022 from $196,592 for the three months ended September 30, 2021. Such increase was primarily due to increased employee headcount as a result of previous staffing shortages in the retail and appliances segment. As a percentage of retail and appliances revenue, personnel costs for the retail and appliances segment were 6.9% and 6.2% for the three months ended September 30, 2022 and 2021, respectively.
Personnel costs for the construction segment increased by $2,132,829, or 780.2%, to $2,406,195 for the three months ended September 30, 2022 from $273,366 for the three months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, personnel costs for the construction segment increased by $44,380, or 16.2%. Such increase was primarily due to increased operations in the construction segment. As a percentage of construction revenue, personnel costs for the construction segment were 23.9% and 20.4% for the three months ended September 30, 2022 and 2021, respectively.
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Personnel costs for the automotive supplies segment decreased by $129,636, or 31.8%, to $277,398 for the three months ended September 30, 2022 from $407,034 for the three months ended September 30, 2021. Such decrease was primarily due to decreased employee headcount and officer compensation. As a percentage of automotive supplies revenue, personnel costs for the automotive supplies segment were 18.6% and 18.1% for the three months ended September 30, 2022 and 2021, respectively.
Personnel costs for our holding company were $296,250 for the three months ended September 30, 2022, as compared to $0 for the three months ended September 30, 2021. Such increase was primarily due to accrued management bonuses during the period.
Depreciation and amortization. Our total depreciation and amortization expense increased by $216,937, or 72.4%, to $516,414 for the three months ended September 30, 2022 from $299,477 for the three months ended September 30, 2021. Such increase was primarily as a result of the intangible assets and property and equipment acquired in the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021.
General and administrative expenses. Our general and administrative expenses consist primarily of professional advisor fees, stock-based compensation, bad debts reserve, rent expense, advertising, bank fees, and other expenses incurred in connection with general operations. Our total general and administrative expenses were $2,688,877 for the three months ended September 30, 2022, as compared to $1,844,979 for the three months ended September 30, 2021.
General and administrative expenses for the retail and appliances segment increased by $55,305, or 12.6%, to $494,719 for the three months ended September 30, 2022 from $439,414 for the three months ended September 30, 2021. Such increase was primarily due to increased marketing and professional fees. As a percentage of retail and appliances revenue, general and administrative expenses for the retail and appliances segment were 16.9% and 14.0% for the three months ended September 30, 2022 and 2021, respectively.
General and administrative expenses for the construction segment increased by $989,266, or 385.8%, to $1,245,668 for the three months ended September 30, 2022 from $256,402 for the three months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, general and administrative expenses for the construction segment increased by $55,517, or 21.7%. Such increase was primarily due to increased rent from new facility leases, as well as increased professional fees in the construction segment. As a percentage of construction revenue, general and administrative expenses for the construction segment were 12.4% and 19.2% for the three months ended September 30, 2022 and 2021, respectively.
General and administrative expenses for the automotive supplies segment decreased by $288,614, or 42.9%, to $384,870 for the three months ended September 30, 2022 from $673,484 for the three months ended September 30, 2021. Such decrease was primarily due to decreased operations from the automotive supplies segment. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 25.8% and 29.9% for the three months ended September 30, 2022 and 2021, respectively.
General and administrative expenses for our holding company increased by $87,941, or 18.5%, to $563,620 for the three months ended September 30, 2022 from $475,679 for the three months ended September 30, 2021. Such increase was primarily due to increased professional fees during the period.
Total other income (expense). We had $4,056,019 in total other expense, net, for the three months ended September 30, 2022, as compared to other expense net, of $113,775 for the three months ended September 30, 2021. Other expense, net, for the three months ended September 30, 2022 consisted of $1,875,757 of interest expense, $2,039,815 of loss on extinguishment of debt, $158,817 of loss on write-down of contingent note payable, offset by other income of $2,756 and $15,614 gain on disposal of property and equipment, while other expense, net, for the three months ended September 30, 2021 consisted of interest expense of $128,199, offset by other income of $3,539 and gain on disposal of property and equipment of $10,885. The loss on extinguishment of debt was a result of partially settling debt through the issuance of common shares and the significant increase in interest expense was primarily a result of note issuances during the period and convertible debt issuances during the fourth quarter of 2021 in order to help finance the acquisitions of High Mountain and Innovative Cabinets.
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Income tax benefit. We had an income tax benefit of $1,095,000 for the three months ended September 30, 2022, as compared to $0 for the three months ended September 30, 2021.
Net loss from continuing operations. As a result of the cumulative effect of the factors described above, our net loss from continuing operations was $4,472,622 for the three months ended September 30, 2022, as compared to $973,317 for the three months ended September 30, 2021.
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table sets forth key components of our results of operations during the nine months ended September 30, 2022 and 2021, both in dollars and as a percentage of our revenues.
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Amount | % of Revenues | Amount | % of Revenues | |||||||||||||
| Revenues | $ | 39,437482 | 100.0 | % | $ | 18,163,257 | 100.0 | % | ||||||||
| Operating Expenses | ||||||||||||||||
| Cost of sales | 25,109,863 | 63.7 | % | 12,348,594 | 68.0 | % | ||||||||||
| Personnel | 6,446,145 | 16.3 | % | 2,198,231 | 12.1 | % | ||||||||||
| Depreciation and amortization | 1,526,759 | 3.9 | % | 547,655 | 3.0 | % | ||||||||||
| General and administrative | 7,451,079 | 18.9 | % | 4,519,504 | 24.9 | % | ||||||||||
| Total Operating Expenses | 40,533,846 | 102.8 | % | 19,613,984 | 108.0 | % | ||||||||||
| Loss From Operations | (1,096,364 | ) | (2.8 | )% | (1,450,727 | ) | (8.0 | )% | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Other income (expense) | 3,431 | 0.0 | % | - | - | |||||||||||
| Interest expense | (3,714,623 | ) | (9.4 | )% | (309,832 | ) | (1.7 | )% | ||||||||
| Gain on forgiveness of debt | - | - | 360,302 | 2.0 | % | |||||||||||
| Gain on sale of property and equipment | 47,690 | 0.1 | % | 10,885 | 0.1 | % | ||||||||||
| Gain on disposition of subsidiary | - | - | 3,282,804 | 18.1 | % | |||||||||||
| Loss on extinguishment of debt | (2,039,815 | ) | (5.2 | )% | - | - | ||||||||||
| Loss on adjustment shares | - | - | (757,792 | ) | (4.2 | )% | ||||||||||
| Loss on write-down of contingent note payable | (158,817 | ) | (0.4 | )% | - | - | ||||||||||
| Total Other Income (Expense) | (5,862,134 | ) | (14.9 | )% | 2,586,367 | 14.2 | % | |||||||||
| Net Income (Loss) Before Income Taxes | (6,958,498 | ) | (17.6 | )% | 1,135,640 | 6.3 | % | |||||||||
| Income tax benefit | 1,411,000 | 3.6 | % | 21,900 | 0.1 | % | ||||||||||
| Net Income (Loss) From Continuing Operations | $ | (5,547,498 | ) | (14.1 | )% | $ | 1,157,540 | 6.4 | % | |||||||
Revenues. Our total revenues were $39,437,482 for the nine months ended September 30, 2022, as compared to $18,163,257 for the nine months ended September 30, 2021.
Revenues from the retail and appliances segment decreased by $1,440,439, or 14.8%, to $8,322,500 for the nine months ended September 30, 2022 from $9,762,939 for the nine months ended September 30, 2021. Such decrease was primarily due to ongoing supply chain delays and cost increases with appliance manufacturers, increased time it takes to receive products, and decreased customer demand.
Revenues from the construction segment increased by $21,830,922, or 523.6%, to $26,000,227 for the nine months ended September 30, 2022 from $4,169,305 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, revenues from the construction segment increased by $781,392, or 18.7%. Such increase was primarily due to increases in the average customer contract in the construction segment.
Revenues from the automotive supplies segment increased by $883,742, or 20.9%, to $5,114,755 for the nine months ended September 30, 2022 from $4,231,013 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisition of Wolo, which was acquired on March 31, 2021.
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Cost of sales. Our total cost of sales was $25,109,863 for the nine months ended September 30, 2022, as compared to $12,348,594 for the nine months ended September 30, 2021.
Cost of sales for the retail and appliances segment decreased by $1,163,920, or 15.7%, to $6,245,993 for the nine months ended September 30, 2022 from $7,409,913 for the nine months ended September 30, 2021. Such decrease was primarily due to the corresponding decrease in revenues from the retail and appliance segment, offset by increased product and delivery costs. As a percentage of retail and appliances revenues, cost of sales for the retail and appliances segment was 75.0% and 75.9% for the nine months ended September 30, 2022 and 2021, respectively.
Cost of sales for the construction segment increased by $13,555,821, or 594.6%, to $15,835,830 for the nine months ended September 30, 2022 from $2,280,009 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, cost of sales for the construction segment increased by $511,796, or 22.4%. Such increase was primarily due to the corresponding increase in revenues from the construction segment, as well as increased product and delivery costs. As a percentage of construction revenues, cost of sales for the construction segment was 60.9% and 54.7% for the nine months ended September 30, 2022 and 2021, respectively.
Cost of sales for the automotive supplies segment increased by $369,368, or 13.9%, to $3,028,040 for the nine months ended September 30, 2022 from $2,658,672 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisition of Wolo, which was acquired on March 31, 2021. As a percentage of automotive supplies revenues, cost of sales for the automotive supplies segment was 59.2% and 62.8% for the nine months ended September 30, 2022 and 2021, respectively.
Personnel costs. Our total personnel costs were $6,446,145 for the nine months ended September 30, 2022, as compared to $2,198,231 for the nine months ended September 30, 2021.
Personnel costs for the retail and appliances segment decreased by $101,769, or 14.8%, to $587,073 for the nine months ended September 30, 2022 from $688,842 for the nine months ended September 30, 2021. Such decrease was primarily due to decreased employee headcount as a result of staffing shortages in the retail and appliances segment. As a percentage of retail and appliances revenue, personnel costs for the retail and appliances segment were 7.1% and 7.1% for the nine months ended September 30, 2022 and 2021, respectively.
Personnel costs for the construction segment increased by $3,975,708, or 537.5%, to $4,715,419 for the nine months ended September 30, 2022 from $739,711 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, personnel costs for the construction segment decreased by $4,232, or 0.6%. Such decrease was primarily due to decreased office personnel headcount in the construction segment. As a percentage of construction revenue, personnel costs for the construction segment were 18.1% and 17.7% for the nine months ended September 30, 2022 and 2021, respectively.
Personnel costs for the automotive supplies segment increased by $77,725, or 10.1%, to $847,403 for the nine months ended September 30, 2022 from $769,678 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisition of Wolo, which was acquired on March 31, 2021. As a percentage of automotive supplies revenues, personnel costs for the automotive supplies segment was 16.6% and 18.2% for the nine months ended September 30, 2022 and 2021, respectively.
Personnel costs for our holding company were $296,250 for the nine months ended September 30, 2022, as compared to $0 for the nine months ended September 30, 2021. Such increase was primarily due to accrued management bonuses during the period.
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Depreciation and amortization. Our total depreciation and amortization expense increased by $979,104, or 178.8%, to $1,526,759 for the nine months ended September 30, 2022 from $547,655 for the nine months ended September 30, 2021. Such increase was primarily as a result of the intangible assets and property and equipment acquired in the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021.
General and administrative expenses. Our total general and administrative expenses were $7,451,079 for the nine months ended September 30, 2022, as compared to $4,519,504 for the nine months ended September 30, 2021.
General and administrative expenses for the retail and appliances segment increased by $209,810, or 16.5%, to $1,480,465 for the nine months ended September 30, 2022 from $1,270,655 for the nine months ended September 30, 2021. Such increase was primarily due to increased marketing and professional fees. As a percentage of retail and appliances revenue, general and administrative expenses for the retail and appliances segment were 17.8% and 13.0% for the nine months ended September 30, 2022 and 2021, respectively.
General and administrative expenses for the construction segment increased by $3,300,962, or 467.8%, to $4,006,636 for the nine months ended September 30, 2022 from $705,674 for the nine months ended September 30, 2021. Such increase was primarily due to the acquisitions of High Mountain and Innovative Cabinets, which were acquired in the fourth quarter of 2021. Excluding these acquisitions, general and administrative expenses for the construction segment increased by $205,527, or 29.1%. Such increase was primarily due to increased rent from a new facility lease, as well as increased professional fees in the construction segment. As a percentage of construction revenue, general and administrative expenses for the construction segment were 15.4% and 16.9% for the nine months ended September 30, 2022 and 2021, respectively.
General and administrative expenses for the automotive supplies segment decreased by $381,452, or 24.3%, to $1,188,618 for the nine months ended September 30, 2022 from $1,570,070 for the nine months ended September 30, 2021. Such decrease was primarily due to the lack of acquisition related costs during the current period. As a percentage of automotive supplies revenue, general and administrative expenses for the automotive supplies segment were 23.2% and 37.1% for the nine months ended September 30, 2022 and 2021, respectively.
General and administrative expenses for our holding company decreased by $197,745, or 20.3%, to $775,360 for the nine months ended September 30, 2022 from $973,105 for the nine months ended September 30, 2021. Such decrease was primarily due to more corporate expenses relating to the business segments being allocated directly to the subsidiaries and less acquisition-related costs.
Total other income (expense). We had $5,862,134 in total other expense, net, for the nine months ended September 30, 2022, as compared to other income, net, of $2,586,367 for the nine months ended September 30, 2021. Other expense, net, for the nine months ended September 30, 2022 consisted of $3,714,623 of interest expense, $2,039,815 of loss on extinguishment of debt, $158,817 of loss on write-down of contingent note payable, offset by other income of $3,431 and $47,690 gain on disposal of property and equipment, while other income, net, for the nine months ended September 30, 2021 consisted of a gain on the disposition of 1847 Neese of $3,282,804, a gain on forgiveness of debt of $360,302 and gain on disposal of property and equipment of $10,885, offset by a loss on the issuance of adjustment shares of $757,792 and interest expense of $309,832. The loss on extinguishment of debt was a result of partially settling debt through the issuance of common shares and the significant increase in interest expense was primarily a result of note issuances during the period and convertible debt issuances during the fourth quarter of 2021 in order to help finance the acquisitions of High Mountain and Innovative Cabinets.
Income tax benefit. We had an income tax benefit of $1,411,000 for the nine months ended September 30, 2022, as compared to $21,900 for the nine months ended September 30, 2021.
Net income (loss) from continuing operations. As a result of the cumulative effect of the factors described above, our net loss from continuing operations was $5,547,498 for the nine months ended September 30, 2022, as compared to a net income of $1,157,540 for the nine months ended September 30, 2021.
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Liquidity and Capital Resources
As of September 30, 2022, we had cash and cash equivalents of $1,584,499. 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.
Although we do not believe that we will require additional cash to continue our operations over the next twelve months, we do believe additional funds are required to execute our business plan and our strategy of acquiring additional businesses. The funds required to execute our business plan will depend on the size, capital structure and purchase price consideration that the seller of a target business deems acceptable in a given transaction. The amount of funds needed to execute our business plan also depends on what portion of the purchase price of a target business the seller of that business is willing to take in the form of seller notes or our equity or equity in one of our subsidiaries. Given these factors, we believe that the amount of outside additional capital necessary to execute our business plan on the low end (assuming target company sellers accept a significant portion of the purchase price in the form of seller notes or our equity or equity in one of our subsidiaries) ranges between $100,000 to $250,000. If, and to the extent, that sellers are unwilling to accept a significant portion of the purchase price in seller notes and equity, then the cash required to execute our business plan could be as much as $5,000,000. We will seek growth as funds become available from cash flow, borrowings, additional capital raised privately or publicly, or seller retained financing.
Our primary use of funds will be for future acquisitions, public company expenses including regular distributions to our shareholders, investments in future acquisitions, payments to the Manager pursuant to the management services agreement, potential payment of profit allocation to the Manager and potential put price to the Manager in respect of the allocation shares it owns. The management fee, expenses, potential profit allocation and potential put price are paid before distributions to shareholders and may be significant and exceed the funds we hold, which may require us to dispose of assets or incur debt to fund such expenditures. See Item 1. “Business—Our Manager” included in our Annual Report on Form 10-K for the year ended December 31, 2021 for more information concerning the management fee, the profit allocation and put price.
The amount of management fee paid to the Manager by us is reduced by the aggregate amount of any offsetting management fees, if any, received by the Manager from any of our businesses. As a result, the management fee paid to the Manager may fluctuate from quarter to quarter. The amount of management fee paid to the Manager may represent a significant cash obligation. In this respect, the payment of the management fee will reduce the amount of cash available for distribution to shareholders.
The Manager, as holder of 100% of our allocation shares, is entitled to receive a twenty percent (20%) profit allocation as a form of preferred equity distribution, subject to an annual hurdle rate of eight percent (8%), as follows. Upon the sale of a company subsidiary, the Manager will be paid a profit allocation if the sum of (i) the excess of the gain on the sale of such subsidiary over a high water mark plus (ii) the subsidiary’s net income since its acquisition by the Company exceeds the 8% hurdle rate. The 8% hurdle rate is the product of (i) a 2% rate per quarter, multiplied by (ii) the number of quarters such subsidiary was held by the Company, multiplied by (iii) the subsidiary’s average share (determined based on gross assets, generally) of our consolidated net equity (determined according to United States generally accepted accounting principles with certain adjustments). In certain circumstances, after a subsidiary has been held for at least 5 years, the Manager may also trigger a profit allocation with respect to such subsidiary (determined based solely on the subsidiary’s net income since its acquisition). The amount of profit allocation may represent a significant cash payment and is senior in right to payments of distributions to our shareholders. Therefore, the amount of profit allocation paid, when paid, will reduce the amount of cash available to us for our operating and investing activities, including future acquisitions. See Item 1. “Business—Our Manager—Our Manager as an Equity Holder—Manager’s Profit Allocation” included in our Annual Report on Form 10-K for the year ended December 31, 2021 for more information on the calculation of the profit allocation.
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Our operating agreement also contains a supplemental put provision, which gives the Manager the right, subject to certain conditions, to cause us to purchase the allocation shares then owned by the Manager upon termination of the management services agreement. The amount of put price under the supplemental put provision is determined by assuming all of our subsidiaries are sold at that time for their fair market value and then calculating the amount of profit allocation would be payable in such a case. If the management services agreement is terminated for any reason other than the Manager’s resignation, the payment to the Manager could be as much as twice the amount of such hypothetical profit allocation. As is the case with profit allocation, the calculation of the put price is complex and based on many factors that cannot be predicted with any certainty at this time. See Item 1. “Business—Our Manager—Our Manager as an Equity Holder—Supplemental Put Provision” included in our Annual Report on Form 10-K for the year ended December 31, 2021 for more information on the calculation of the put price. The put price obligation, if the Manager exercises its put right, will represent a significant cash payment and is senior in right to payments of distributions to our shareholders. Therefore, the amount of put price will reduce the amount of cash available to us for our operating and investing activities, including future acquisitions.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for the period indicated:
| Nine
Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities from continuing operations | $ | (3,977,286 | ) | $ | (381,346 | ) | ||
| Net cash used in investing activities from continuing operations | (178,944 | ) | (5,291,198 | ) | ||||
| Net cash provided by financing activities from continuing operations | 4,357,196 | 5,265,367 | ||||||
| Net change in cash and cash equivalents from continuing operations | 200,966 | (407,177 | ) | |||||
| Cash and cash equivalents from continuing operations at beginning of period | 1,383,533 | 1,380,349 | ||||||
| Cash and cash equivalents from continuing operations at end of period | $ | 1,584,499 | $ | 973,172 | ||||
Net cash used in operating activities from continuing operations was $3,977,286 for the nine months ended September 30, 2022, as compared to $381,346 for the nine months ended September 30, 2021. The increase in cash used from operating activities during the nine months ended September 30, 2022 was primarily a result of the increased net loss, increased receivables, decreased contract liabilities and decreased deferred tax liability, offset by decreased inventories, increased accounts payable and accrued expenses, and decreased prepaids and other current assets.
Net cash used in investing activities from continuing operations was $178,944 for the nine months ended September 30, 2022, as compared to $5,291,198 for the nine months ended September 30, 2021. The decrease in cash used in investing activities during the nine months ended September 30, 2022 was primarily a result of the cash paid in acquisitions during the comparable period.
Net cash provided by financing activities from continuing operations was $4,357,196 for the nine months ended September 30, 2022, as compared to $5,265,367 for the nine months ended September 30, 2021. The decrease in cash provided by investing activities during the nine months ended September 30, 2022 was primarily a result of decreased proceeds from preferred shares and notes payable issuances and increased dividend payments, offset by an equity offering and decreased notes payable payments.
Series A Unit Offering
On March 26, 2021, we sold an aggregate of 1,818,182 units, at a price of $1.65 per unit, for aggregate gross proceeds of $3,000,000. Each unit consists of one (1) series A senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $10.00 per common share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below, which may be exercised on a cashless basis under certain circumstances. As described in further detail below, we contributed to 1847 Wolo the $3,000,000 raised in this offering in exchange for 1,000 shares of 1847 Wolo’s series A preferred stock, at a price of $3,000 per share, to fund, in part, the planned acquisition of Wolo by 1847 Wolo.
In exchange for the consent of the holders of our outstanding series A senior convertible preferred shares to the issuance of these units at a lower purchase price than such holders paid for their shares, we issued an aggregate of 99,710 common shares to such holders.
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Subscription Agreement
On March 29, 2021, we entered into a subscription agreement with 1847 Wolo, pursuant to which 1847 Wolo issued 1,000 shares of its series A preferred stock to us for gross proceeds to 1847 Wolo of $3,000,000. The series A preferred stock has no voting rights and is not convertible into the common stock or any other securities of 1847 Wolo. Dividends at the rate per annum of 16.0% of the stated value of $3,000 per share shall accrue on the series A preferred stock (subject to adjustment) and shall accrue from day to day, whether or not declared, and shall be cumulative. Accruing dividends are payable quarterly in arrears on each of the following dividend payment dates: January 15, April 15, July 15 and October 15 beginning on April 15, 2021. Upon any liquidation, dissolution or winding up of 1847 Wolo, before any payment shall be made to the holders of 1847 Wolo’s common stock, the series A preferred stock then outstanding shall be entitled to be paid out of the funds and assets available for distribution to 1847 Wolo’s stockholders an amount per share equal to the stated value of $3,000 per share, plus any accrued, but unpaid dividends.
Series B Unit Offering
From February 24, 2022 to March 24, 2022, the Company sold an aggregate of 426,999 units, at a price of $3.00 per unit, for aggregate gross proceeds of $1,281,000. From April 20, 2022 to May 19, 2022, the Company sold an aggregate of 54,567 units to our Chief Executive Officer, Ellery W. Roberts, for aggregate gross proceeds of $163,700. The Company had total issuance costs relating to these offerings of approximately $15,000, resulting in net proceeds of $1,429,700. Each unit consists of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $12.00 per share (subject to adjustment), which such exercise price was adjusted to $4.20 following the down round warrant adjustments described below, which may be exercised on a cashless basis under certain circumstances.
Private Placement
On July 8, 2022, the Company entered into a securities purchase agreement with Mast Hill Fund, L.P., pursuant to which the Company issued to it a promissory note in the principal amount of $600,000 and a five-year warrant for the purchase of 100,000 common shares at an exercise price of $6.00 per share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below, which may be exercised on a cashless basis if the market price of the Company’s common shares is greater than the exercise price, for total net proceeds of $499,600. Additionally, the Company issued a three-year warrant to J.H. Darbie & Co (the broker) for the purchase of 3,600 common shares at an exercise price of $7.50 (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below, which may be exercised on a cashless basis if the market price of the Company’s common shares is greater than the exercise price. Accordingly, a portion of the proceeds were allocated to the warrants based on its relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. On August 10, 2022, the promissory note was repaid in full.
Public Offering
On August 2, 2022, the Company entered into an underwriting agreement with Craft Capital Management LLC and R.F. Lafferty & Co. Inc., as representatives of the underwriters named on Schedule 1 thereto, relating to the Company’s public offering of common shares. Under the underwriting agreement, the Company agreed to sell 1,428,572 common shares to the underwriters, at a gross purchase price per share of $4.20 per share, pursuant to the Company’s registration statement on Form S-1 (File No. 333-259011) under the Securities Act of 1933, as amended. On August 5, 2022, the closing of the public offering was completed and the Company sold 1,428,572 common shares for total gross proceeds of $6 million. After deducting underwriting commissions and expenses, the Company received net proceeds of approximately $5.15 million.
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Dividends
During the nine months ended September 30, 2022, the Company accrued dividends attributable to the series A senior convertible preferred shares in the amount of $437,491 and paid prior period accrued dividends of $462,925.
During the nine months ended September 30, 2022, the Company accrued dividends attributable to the series B senior convertible preferred shares in the amount of $113,052 and paid prior period accrued dividends of $77,548.
On March 23, 2022, the Company declared a common share dividend of $0.05 per share, or an aggregate of $249,762, to shareholders of record as of March 31, 2022. This dividend was paid on April 15, 2022.
On July 29, 2022, the Company declared a common share dividend of $0.13125 per share, or an aggregate of $337,841, to shareholders of record as of August 4, 2022. This dividend was paid on August 19, 2022.
On August 23, 2022, the Company declared a common share dividend of $0.13125 per share, or an aggregate of $505,751 to shareholders of record as of September 30, 2022. This dividend was paid on October 17, 2022.
Warrant Adjustments
As a result of the issuance of the note to Mast Hill Fund, L.P. on July 8, 2022, the exercise price of certain of the Company’s outstanding warrants was adjusted to $5.20 pursuant to certain antidilution provisions of such warrants (down round feature). In addition, certain of the Company’s outstanding warrants include an “full ratchet” feature, whereby the exercise price was reset to $5.20 and the number of shares underlying the warrants was increased in the same proportion as the exercise price decrease. As a result, the Company recognized a deemed dividend of approximately $6.4 million, which was calculated using a Black-Scholes pricing model.
As a result of the public offering, the exercise price of certain of the Company’s outstanding warrants was adjusted to $4.20 pursuant to certain antidilution provisions of such warrants (down round feature). In addition, certain of the Company’s outstanding warrants include an “full ratchet” feature, whereby the exercise price was reset to $4.20 and the number of shares underlying the warrants was increased in the same proportion as the exercise price decrease. As a result, the Company recognized a deemed dividend of approximately $2.6 million, which was calculated using a Black-Scholes pricing model.
Debt
Secured Convertible Promissory Notes
On October 8, 2021, we and each of our subsidiaries 1847 Asien, 1847 Wolo, 1847 Cabinet, Asien’s, Wolo, Kyle’s, High Mountain and Innovative Cabinets, entered into a note purchase agreement with two institutional investors, including Leonite, pursuant to which we issued to these purchasers secured convertible promissory notes in the aggregate principal amount of $24,860,000. The notes contain an aggregate original issue discount of $497,200. As a result, the total purchase price was $24,362,800. After payment of expenses of $617,825, we received net proceeds of $23,744,975, of which $10,687,500 was used to fund the cash portion of the purchase price for the acquisition of High Mountain and Innovative Cabinets. In addition, as consideration for the financing, we granted the financing agent 187,500 warrants with a fair value of $956,526 and 7.5% interest in High Mountain and Innovative Cabinets which had a fair value of $1,146,803. The agent fees were reflected as a discount against the convertible note payable with the warrants being included in additional paid in capital and the equity interest being including within noncontrolling interest on the consolidated balance sheet. The remaining principal balance of the notes at September 30, 2022 is $22,270,755, net of debt discounts of $2,589,245, and they have accrued interest of $479,098.
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The notes bear interest at a rate per annum equal to the greater of (i) 4.75% plus the U.S. Prime Rate that appears in The Wall Street Journal from time to time or (ii) 8%; provided that, upon an event of default (as defined in the notes), such rate shall increase to 24% or the maximum legal rate. Payments of interest only, computed at such rate on the outstanding principal amount, will be due and payable quarterly in arrears commencing on January 1, 2022 and continuing on the first day of each calendar quarter thereafter through and including the maturity date, October 8, 2026.
We may voluntarily prepay the notes in whole or in part upon payment of a prepayment fee in an amount equal to 10% of the principal and interest paid in connection with such prepayment. In addition, immediately upon receipt by the Company or any subsidiary of any proceeds from any issuance of indebtedness (other than certain permitted indebtedness), any proceeds of any sale or disposition by the Company or any subsidiary of any of the collateral or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the note purchase agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, we must prepay the notes in an amount equal to all such proceeds, net of reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by the Company or a subsidiary in connection therewith (in each case, paid to non-affiliates).
The holders of the notes may, in their sole discretion, elect to convert any outstanding and unpaid principal portion of the notes, and any accrued but unpaid interest on such portion, into our common shares at a conversion price equal to $10.00 (subject to standard adjustments, including a full ratchet antidilution adjustment); provided that the notes contain certain beneficial ownership limitations.
Pursuant to the terms of the notes, until the date that is eighteen (18) months after the issuance date of the notes, the holders shall have the right, but not the obligation, to participate in any securities offering other than a permitted issuance (as defined in the note purchase agreement) in an amount of up to the original principal amount of the notes. In addition, the holders shall have the right of first refusal to participate in any issuance of indebtedness until the notes have been terminated; provided, however, that this right of first refusal shall not apply to permitted issuances.
The note purchase agreement and the notes contain customary representations, warranties, affirmative and negative financial and other covenants and events of default for loans of this type. The notes are guaranteed by each subsidiary and are secured by a first priority security interest in all of the assets of the Company and its subsidiaries.
6% Subordinated Convertible Promissory Notes
A portion of the purchase price for the acquisition of High Mountain and Innovative Cabinets on October 8, 2021 was paid by the issuance of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 by 1847 Cabinet to the sellers of High Mountain and Innovative Cabinets.
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. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Steven J. Parkey and Jose D. Garcia-Rendon, pursuant to which they agreed to convert an aggregate of $3,360,000 of the convertible notes into an aggregate of 800,000 common shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of $1,280,000.
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The notes bear interest at a rate of six percent (6%) per annum and are due and payable on October 8, 2024; provided that upon an event of default (as defined in the notes), such interest rate shall increase to ten percent (10%) per annum. 1847 Cabinet may prepay the notes in whole or in part, without penalty or premium, upon ten (10) business days prior written notice to the holders of the notes.
At any time prior to October 8, 2022, the holders may, in their sole discretion, elect to convert up to twenty percent (20%) of the original principal amount of the notes and all accrued, but unpaid, interest into such number of shares of the common stock of 1847 Cabinet determined by dividing the amount to be converted by a conversion price determined by dividing (i) the fair market value of 1847 Cabinet (determined in accordance with the notes) by (ii) the number of shares of 1847 Cabinet outstanding on a fully diluted basis. In addition, on October 8, 2021, we entered into an exchange agreement with the holders, pursuant to which we granted them the right to exchange all of the principal amount and accrued but unpaid interest under the notes or any portion thereof for a number of our common shares to be determined by dividing the amount to be converted by an exchange price equal to the higher of (i) the 30-day volume weighted average price for our common shares on the primary national securities exchange or over-the-counter market on which our common shares are traded over the thirty (30) trading days immediately prior to the applicable exchange date or (ii) $10.00 (subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions).
The notes contain customary events of default, including in the event of a default under the secured convertible promissory notes described above. The rights of the holders to receive payments under the notes are subordinated to the rights of the purchasers under secured convertible promissory notes described above.
6% Amortizing Promissory Note
On July 29, 2020, 1847 Asien entered into a securities purchase agreement with the Asien’s Seller, pursuant to which the Asien’s Seller sold 103,750 of our common shares to 1847 Asien a purchase price of $10.00 per share. As consideration, 1847 Asien issued to the Asien’s Seller a two-year 6% amortizing promissory note in the aggregate principal amount of $1,037,500. On October 8, 2021, 1847 Asien and the Asien’s Seller entered into amendment no. 1 to securities purchase agreement to amend certain terms of the securities purchase agreement and the 6% amortizing promissory note. Pursuant to the amendment, the repayment terms of the 6% amortizing promissory note were revised so that one-half (50%) of the outstanding principal amount ($518,750) and all accrued interest thereon shall be amortized on a two-year straight-line basis and payable quarterly in accordance with the amortization schedule set forth on Exhibit A to the amendment, except for the payments that were initially scheduled on January 1, 2022 and April 1, 2022, which were paid from the proceeds of the senior convertible promissory notes described above, and the second-half (50%) of the outstanding principal amount ($518,750) and all accrued, but unpaid interest thereon shall be paid on the second anniversary of the date of the 6% amortizing promissory note, along with any other unpaid principal or accrued interest thereon. The note is unsecured and contains customary events of default. The remaining principal balance of the note at September 30, 2022 was $562,411 and it had accrued interest of $6,561.
Vesting Promissory Note
A portion of the purchase price for the acquisition of Kyle’s on September 30, 2020 was paid by the issuance of a vesting promissory note by 1847 Cabinet to Stephen Mallatt, Jr. and Rita Mallatt in the principal amount of $1,050,000, which increased to a principal amount of up to $1,260,000 pursuant to the vested percentage calculation described below. Payment of the principal and accrued interest on the note is subject to vesting as described below. The note bears interest on the vested portion of principal amount at the rate of eight percent (8%) per annum. To the extent vested, the vested portion of the principal and all accrued but unpaid interest on such vested portion of the principal shall be paid in one lump sum on the last day of the thirty-sixth (36th) month following the date of the note.
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The vested principal of the note due at the maturity date shall be calculated each year based on the average annual consolidated EBITDA (as defined in the note) of 1847 Cabinet for each of the years ended December 31, 2020, 2021 and 2022. The EBITDA for each year shall be divided by $1.4 million multiplied by 100 to obtain the vested percentage. The vested principal for each year shall be equal to the vested percentage for that year multiplied by $350,000. To the extent that the vested percentage for the subject year is less than 80%, no portion of the note for that year shall vest. To the extent that the vested percentage for the subject year is equal to or greater than 120%, the vested principal shall be equal to $420,000 for that year and no more. For the year ended December 31, 2020, EBITDA of 1847 Cabinet was approximately $1,553,561, resulting in a vested amount of approximately $388,390. For the year ended December 31, 2021, EBITDA of 1847 Cabinet was approximately $1,642,335, resulting in an additional vested amount of approximately $410,584.
On September 30, 2020, 1847 Cabinet Inc. issued an 8% vesting promissory note in the principal amount of up to $1,260,000 to Stephen Mallatt, Jr. and Rita Mallatt. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Stephen Mallatt, Jr. and Rita Mallatt, pursuant to which they agreed to convert $797,221 of the vesting note into 189,815 common shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of $303,706.
Financing Leases
On February 14, 2019, High Mountain entered in an equipment financing lease to purchase a lift truck for $24,337, which matures on January 19, 2024. The balance payable was $7,228 as of September 30, 2022.
On April 10, 2019, High Mountain entered in an equipment financing lease to purchase equipment for $67,577, which matures on April 1, 2024. The balance payable was $23,924 as of September 30, 2022.
On September 2, 2020, High Mountain entered in an equipment financing lease to purchase office printers for $9,240, which matures on May 2, 2024. The balance payable was $4,030 as of September 30, 2022.
On May 6, 2021, Kyle’s entered in an equipment financing lease to purchase equipment for $276,896, which matures on December 1, 2027. The balance payable was $239,054 as of September 30, 2022.
On October 12, 2021, Kyle’s entered in an equipment financing lease to purchase equipment for $245,375, which matures on December 1, 2027. The balance payable was $211,852 as of September 30, 2022.
On March 28, 2022, Kyle’s entered in an equipment financing lease to purchase equipment for $245,395, which matures on January 28, 2028. The balance payable was $221,694 as of September 30, 2022.
On March 28, 2022, Kyle’s entered in an equipment financing lease to purchase equipment for $71,403, which matures on January 28, 2028. The balance payable was $64,378 as of September 30, 2022.
On April 11, 2022, Kyle’s entered in a financing lease to lease copy machines valued at $11,706, which matures on September 20, 2027. The balance payable was $10,734 as of September 30, 2022.
On July 13, 2022, Kyle’s entered in an equipment financing lease to purchase equipment for $240,260, which matures on June 26, 2028. The balance payable was $231,779 as of September 30, 2022.
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Vehicle Loans
Asien’s has entered into seven retail installment sale contracts pursuant to which Asien’s agreed to finance its delivery trucks at rates ranging from 3.74% to 8.72% with an aggregate remaining principal amount of $118,898 as of September 30, 2022.
Kyle’s has entered into two retail installment sale contracts pursuant to which Kyle’s agreed to finance its delivery trucks at rates ranging from 5.90% to 6.54% with an aggregate remaining principal amount of $54,359 as of September 30, 2022.
High Mountain has entered into twelve retail installment sale contracts pursuant to which it agreed to finance delivery trucks and equipment at rates ranging from 3.74% to 6.34% with an aggregate remaining principal amount of $84,747 as of September 30, 2022.
Innovative Cabinets has entered into two retail installment sale contracts pursuant to which it agreed to finance delivery trucks and equipment at rates of 3.74% with an aggregate remaining principal amount of $15,838 as of September 30, 2022.
Total Debt
The following table shows aggregate figures for the total debt, net of discounts, described above that is coming due in the short and long term as of September 30, 2022. See the above disclosures for more details regarding these loans.
| Short-Term | Long-Term | Total Debt | ||||||||||
| Secured Convertible Promissory Notes | $ | - | $ | 22,270,755 | $ | 22,270,755 | ||||||
| 6% Subordinated Convertible Promissory Notes | - | 2,194,422 | 2,194,422 | |||||||||
| 6% Amortizing Promissory Note | 562,411 | - | 562,411 | |||||||||
| Vesting Promissory Note | 362,779 | - | 362,779 | |||||||||
| Financing Leases | 183,103 | 831,570 | 1,014,673 | |||||||||
| Vehicle Loans | 97,921 | 175,921 | 273,842 | |||||||||
| Total | $ | 1,206,214 | $ | 25,472,668 | $ | 26,678,882 | ||||||
Contractual Obligations
Our principal commitments consist mostly of obligations under the loans described above and other contractual commitments described below.
We have engaged the Manager to manage our day-to-day operations and affairs. Our relationship with the Manager will be governed principally by the following agreements:
| ● | the management services agreement and offsetting management services agreements relating to the management services the Manager will perform for us and the businesses we own and the management fee to be paid to the Manager in respect thereof; and |
| ● | our operating agreement setting forth the Manager’s rights with respect to the allocation shares it owns, including the right to receive profit allocations from us, and the supplemental put provision relating to the Manager’s right to cause us to purchase the allocation shares it owns. |
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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, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2022. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which we are still in the process of remediating as of September 30, 2022, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for the description of these weaknesses.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
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During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2022, our management identified the following material weaknesses:
| ● | We did not have appropriate policies and procedures in place to evaluate the proper accounting and disclosures of key documents and agreements. |
| ● | We do not have adequate segregation of duties with our limited accounting personnel and rely upon outsourced accounting services. |
| ● | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of GAAP commensurate with our financial reporting requirements. |
As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, our management has identified the steps necessary to address the material weaknesses, and in the third quarter of 2022, we continued to implement the following remedial procedures:
| ● | We plan to make necessary changes by providing training to our financial team and our other relevant personnel on the GAAP accounting guidelines applicable to financial reporting requirements. |
| ● | In the first quarter of 2022, we engaged a financial reporting consultant to provide outsourced accounting and financial reporting services. |
| ● | In the first quarter of 2022, we also put in place new policies and procedures at the subsidiary level to standardize accounting procedures across all business units. We also plan to hire additional skilled accounting personnel at the subsidiary companies to implement the policies and procedures. |
| ● | In the third quarter of 2022, we hired a corporate controller. |
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of 2022 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.
We have not sold any equity securities during the three months ended September 30, 2022 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
We did not repurchase any of our common shares during the three months ended September 30, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required to be in a report on Form 8-K during the second quarter of fiscal 2022 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
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ITEM 6. EXHIBITS.
| * | 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 14, 2022 |
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 4.9
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON SHARE PURCHASE WARRANT
1847 HOLDINGS LLC
Warrant Shares: 14,400
Date of Issuance: July 8, 2022 (“Issuance Date”)
This COMMON SHARE PURCHASE WARRANT (the “Warrant”) certifies that, for services provided according to a Fee Agreement, dated June 19, 2022 (the “Fee Agreement”), J.H. Darbie & Co., Inc., a New York corporation (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time during the Exercise Period (as defined below), to purchase from 1847 Holdings LLC, a Delaware limited liability company (the “Company”), up to 14,400 Common Shares of the Company (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued by the Company as of the date hereof in connection with that certain securities purchase agreement, as of the date hereof, by and among the Company and the Introduced Party (as defined in the Fee Agreement).
Terms used in this Warrant shall have the meanings set forth in Section 13 below. For purposes of this Warrant, the term “Exercise Price” shall mean $1.875, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the date which is five years after the Issuance Date.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the second Trading Day (the “Warrant Share Delivery Date”) following the date on which the Holder sent the Exercise Notice to the Company or the Company’s transfer agent, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and deliver by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Common Shares to which the Holder is entitled pursuant to such exercise (or deliver such Common Shares in electronic format if requested by the Holder). Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to issue to the Holder the respective Common Shares by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion in addition to all other rights and remedies at law, under this Warrant, or otherwise, and such failure shall also be deemed a material breach under this Warrant.
If the Market Price of one Common Share is greater than the Exercise Price, then the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and an Exercise Notice, in which event the Company shall issue to Holder a number of Common Shares computed using the following formula:
X = Y (A-B)
A
Where X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation).
A = the Market Price (at the date of such calculation).
B = Exercise Price (as adjusted to the date of such calculation).
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
(c) Holder’s Exercise Limitations. Notwithstanding anything to the contrary contained herein, the Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Exercise Notice, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and Attribution Parties shall include the number of Common Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1(c), in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of Common Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of Common Shares outstanding at the time of the respective calculation hereunder. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Anti-Dilution Adjustments to Exercise Price. If the Company or any subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Shares or securities (including but not limited to Common Share Equivalents) entitling any Person to acquire Common Shares (upon conversion, exercise or otherwise), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Shares or Common Share Equivalents so issued shall at any time, whether by operation of purchase price adjustments, elimination of an applicable floor price for any reason in the future (including but not limited to the passage of time or satisfaction of certain condition(s)), reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled or potentially entitled to receive Common Shares at an effective price per share which is less than the Exercise Price at any time while such Common Shares or Common Share Equivalents are in existence, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance (regardless of whether the Common Shares or Common Share Equivalents are (i) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (ii) actually converted or exercised at such Base Share Price), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price. Such adjustment shall be made whenever such Common Shares or Common Share Equivalents are issued, regardless of whether the Common Shares or Common Share Equivalents are (i) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (ii) actually converted or exercised at such Base Share Price by the holder thereof (for the avoidance of doubt, the Holder may utilize the Base Share Price even if the Company did not actually issue Common Shares at the Base Share Price under the respective Common Share Equivalents). The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Shares or Common Share Equivalents subject to this Section 2(a), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, regardless of whether (i) the Company provides a Dilutive Issuance Notice pursuant to this Section 2(a) upon the occurrence of any Dilutive Issuance or (ii) the Holder accurately refers to the Base Share Price in the Exercise Notice, the Holder is entitled to receive the Base Share Price at all times on and after the date of such Dilutive Issuance. Notwithstanding the foregoing, this Section 2(a) shall not apply to the Excluded Transactions.
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(b) Subdivision or Combination of Common Shares. If the Company at any time on or after the Issuance Date subdivides (by any share split, share dividend, recapitalization or otherwise) one or more classes of its outstanding Common Shares into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Issuance Date combines (by combination, reverse share split or otherwise) one or more classes of its outstanding Common Shares into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(b) shall become effective at the close of business on the date the subdivision or combination becomes effective. Each such adjustment of the Exercise Price shall be calculated to the nearest one-hundredth of a cent. Such adjustment shall be made successively whenever any event covered by this Section 2(b) shall occur.
3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Shares are permitted to tender or exchange their Common Shares for other securities, cash or property and the holders of at least 50% of the Common Shares accept such offer, or (iv) the Company effects any reclassification of the Common Shares or any compulsory share exchange pursuant to which the Common Shares are effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of Common Shares) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of Common Shares of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Common Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
4. NON-CIRCUMVENTION. The Company covenants and agrees that it will not, by amendment of its certificate of formation, operating agreement or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any Common Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Common Shares upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, one and a half (1.5) times the number of Common Shares into which the Warrants are then exercisable into to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
6. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
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7. TRANSFER. This Warrant shall be binding upon the Company and its successors and assigns and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Company hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior signed written consent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Company does not obtain the prior signed written consent of the Holder). This Warrant or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to a third party, in whole or in part, without the need to obtain the Company’s consent thereto.
8. NOTICES. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Shares, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for Common Shares or other property, pro rata to the holders of Common Shares or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be personally served, deposited in the mail, registered or certified, return receipt requested, postage prepaid, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
1847 Holdings LLC
590 Madison Avenue, 21st Floor
New York, NY 10022
Attention: Ellery Roberts
e-mail: info@1847holdings.com
If to the Holder:
J.H. Darbie & Co., Inc.
48 Wall Street, Suite 1206
New York, NY 10005
e-mail:
9. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
10. GOVERNING LAW AND VENUE. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts located in the Commonwealth of Massachusetts or federal courts located in the Commonwealth of Massachusetts. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Warrant or any other transaction document entered into in connection with this Warrant by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under Section 8 and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
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11. PIGGYBACK REGISTRATION RIGHTS.
(a) If at any time the Company proposes to file any registration statement (a “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the Holder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the Holder in such notice the opportunity to register the sale of such number of Warrant Shares (the “Registrable Securities”) as the Holder may request in writing within three (3) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. The Holder proposing to distribute its securities through a Piggy-Back Registration that involves an underwriter or underwriters shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration.
(b) The Holder may elect to withdraw its request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the Holder in connection with such Piggy-Back Registration as provided in Section 11(e) below.
(c) The Company shall notify the Holder at any time when a prospectus relating to the Holder’s Registrable Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of the Holder, the Company shall also prepare, file and furnish to the Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The Holder shall not to offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
(d) The Company may request that the Holder furnish the Company such information with respect to the Holder and its proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the Securities and Exchange Commission (the “SEC”) in connection therewith, and the Holder shall furnish the Company with such information.
(e) All fees and expenses incident to the performance of or compliance with this Section 11 by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Common Shares are then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which a holder of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Section 11 and (vii) reasonable fees and disbursements of a single special counsel for the Holder. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Section 11 (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of the Holder.
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(f) The Company and its successors and assigns shall indemnify and hold harmless the Holder, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of the Holder, each individual or entity who controls the Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 11, except to the extent, but only to the extent, that such untrue statements or omissions are based upon information regarding the Holder furnished to the Company by the Holder for use therein. The Company shall notify the Holder promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Section 11 of which the Company is aware.
(g) If the indemnification under Section 11(f) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 11(f) was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 11(f) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 11(g), the Holder shall not be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that the Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
12. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
13. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Common Shares” means the Company’s Common Shares, and any other class of securities into which such securities may hereafter be reclassified or changed.
(b) “Common Share Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Shares, including without limitation any debt, preferred shares, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares.
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(c) “Excluded Transactions” means transactions involving the issuance of the following securities of the Company: (i) the Common Shares to be sold in the Company’s contemplated public offering (Registration Statement No. 333-259011 (the “Public Offering Registration Statement”)), as well as the warrants issuable to the underwriters in connection therewith (including the Common Shares issuable upon the exercise of such warrants), (ii) the issuance by the Company of Common Shares upon the exercise of an outstanding option or warrant or the conversion of a security outstanding on the date hereof, (iii) any issuance of securities disclosed in the Public Offering Registration Statement, (iv) an offering of up to $50 million of senior convertible preferred shares in a private placement offering, and the underlying Common Shares issuable upon conversion of such securities, (v) the issuance of securities issued as part of the purchase price in connection with acquisitions or strategic transactions approved a majority of the disinterested directors of the Company, or securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved a majority of the disinterested directors of the Company, (vi) Common Shares, options or convertible securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction, approved by a majority of the disinterested directors of the Company, but shall not include a transaction in which the Company is primarily issuing such securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities, (vii) Common Shares, options or convertible securities issued to in connection with the provision of goods or services pursuant to transactions approved by a majority of the disinterested directors of the Company, but shall not include a transaction in which the Company is primarily issuing such securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities, (viii) Common Shares, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, investor or public relations, marketing or other similar agreements or strategic partnerships approved a majority of the disinterested directors of the Company, but shall not include a transaction in which the Company is primarily issuing such securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities, (ix) the issuance by the Company of any Common Shares or standard options to purchase Common Shares to directors, officers, employees or consultants of the Company or its subsidiaries in their capacity as such pursuant to an equity incentive plan approved by a majority of the disinterested directors of the Company, or (x) the issuance of securities pursuant to any other arrangements that are in place or disclosed in the Company’s filings with the SEC prior to the date of this Warrant.
(d) “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof.
(e) “Principal Market” means the principal securities exchange or trading market where such Common Shares are listed or quoted, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including the NASDAQ Capital Market), the New York Stock Exchange or the NYSE American, or any successor to such markets.
(f) “Market Price” means the highest traded price of the Common Shares during the one hundred and fifty Trading Days prior to the date of the respective Exercise Notice.
(g) “Trading Day” means any day on which the Common Shares are listed or quoted on its Principal Market, provided, however, that if the Common Shares are not then listed or quoted on any Principal Market, then any calendar day.
* * * * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
| 1847 Holdings LLC | ||
| By: | /s/ Ellery W. Roberts | |
| Name: | Ellery W. Roberts | |
| Title: | Chief Executive Officer | |
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EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Share Purchase Warrant)
THE UNDERSIGNED holder hereby exercises the right to purchase __________ Common Shares (“Warrant Shares”) of 1847 HOLDINGS LLC, a Delaware limited liability company (the “Company”), evidenced by the attached copy of the Common Share Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
| 1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
| ☐ | a cash exercise with respect to ___________Warrant Shares; or |
| ☐ | by cashless exercise pursuant to the Warrant. |
| 2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $______________ to the Company in accordance with the terms of the Warrant. |
| 3. | Delivery of Warrant Shares. The Company shall deliver to the holder ____________Warrant Shares in accordance with the terms of the Warrant. |
| Date: |
| (Print Name of Registered Holder) | ||
| By: | ||
| Name: | ||
| Title: | ||
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto _________________________________________________________________________ the right to purchase ______________________________ Common Shares of 1847 HOLDINGS LLC to which the within Common Share Purchase Warrant relates and appoints _________________________, as attorney-in-fact, to transfer said right on the books of 1847 HOLDINGS LLC with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
| Dated: |
| (Signature) * | |
| (Name) | |
| (Address) | |
| (Social Security or Tax Identification No.) |
| * | The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Share Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity. |
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 14, 2022 | |
| /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 14, 2022 | |
| /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, 2022 (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 14, 2022
| /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, 2022 (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 14, 2022.
| /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, 2022 | |
| 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 information and footnotes required by GAAP for complete financial statements. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2022. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Reverse Share Split
On August 2, 2022, we effected a 1-for-4 reverse split of our outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-4 reverse split, with respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and series A and B convertible senior 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 split. The total number of authorized common shares did not change. As a result of the reverse common share split, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.”
Reclassifications
Certain reclassifications within property and equipment, notes payable, preferred shares, and operating expenses have been made to 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.
Sequencing
Under ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest maturity date of potentially dilutive instruments first, with the earliest maturity date of grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy. |
Recent Accounting Pronoucements |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Recent Accounting Pronoucements [Abstract] | |
| RECENT ACCOUNTING PRONOUCEMENTS | NOTE 2—RECENT ACCOUNTING PRONOUCEMENTS
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on our condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 Accounting for Convertible Instruments and Contracts In An Entity’s Own Equity. ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this guidance on January 1, 2022. The Company’s adoption of this update did not have a material impact on the condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This ASU should be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted. The Company adopted this guidance on January 1, 2022. The Company’s adoption of this update did not have a material impact on the condensed consolidated financial statements. |
Liquidity and Going Concern Assessment |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Liquidity and Going Concern Assessment [Line Items] | |
| LIQUIDITY AND GOING CONCERN ASSESSMENT | NOTE 3—LIQUIDITY AND GOING CONCERN ASSESSMENT
Management assesses liquidity and going concern uncertainty in the Company’s condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As of September 30, 2022, the Company had cash and cash equivalents of $1,584,499. For the nine months ended September 30, 2022, the Company incurred an operating loss of $1,096,364 (before deducting losses attributable to non-controlling interests), cash flows used in operations of $3,977,286, and working capital of $1,839,424. The Company has generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cashflow from operations.
Management has prepared estimates of operations for fiscal year 2022 and 2023 believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of these condensed consolidated financial statements, which indicate improved operations and the Company’s ability to continue operations as a going concern. The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts for one year from the date of the filing of these condensed consolidated financial statements. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. |
Disaggregation of Revenues and Segment Reporting |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISAGGREGATION OF REVENUES AND SEGMENT REPORTING | NOTE 4—DISAGGREGATION OF REVENUES AND SEGMENT REPORTING
The Company has three reportable segments:
The Retail and Appliances Segment provides a wide variety of appliance products (laundry, refrigeration, cooking, dishwashers, outdoor, accessories, parts, and other appliance related products) and services (delivery, installation, service and repair, extended warranties, and financing).
The Construction Segment provides finished carpentry products and services (door frames, base boards, crown molding, cabinetry, bathroom sinks and cabinets, bookcases, built-in closets, fireplace mantles, windows, and custom design and build of cabinetry and countertops).
The Automotive Supplies Segment provides horn and safety products (electric, air, truck, marine, motorcycle, and industrial equipment), and offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment, and emergency vehicles.
The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, financing activities and public company compliance.
The Company’s revenues for the three and nine months ended September 30, 2022 and 2021 are disaggregated as follows:
Segment information for the three and nine months ended September 30, 2022 and 2021 is as follows:
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Property and Equipment |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2022 and December 31, 2021 consisted of the following:
Depreciation expense for the three and nine months ended September 30, 2022 was $151,722 and $432,683, respectively. Depreciation expense for the three and nine months ended September 30, 2021 was $32,420 and $85,005, respectively. |
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Intangible Assets |
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| INTANGIBLE ASSETS | NOTE 6—INTANGIBLE ASSETS
Intangible assets at September 30, 2022 and December 31, 2021 consisted of the following:
Amortization expense for the three and nine months ended September 30, 2022 was $364,692 and $1,094,076, respectively. Amortization expense for the three and nine months ended September 30, 2021 was $267,057 and $462,651, respectively.
Estimated amortization expense for intangible assets for the next five years consists of the following as of September 30, 2022:
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Selected Account Information |
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| SELECTED ACCOUNT INFORMATION | NOTE 7—SELECTED ACCOUNT INFORMATION
Receivables at September 30, 2022 and December 31, 2021 consisted of the following:
Inventories at September 30, 2022 and December 31, 2021 consisted of the following:
Inventory balances are composed of finished goods. Raw materials and work in process inventory are immaterial to the condensed consolidated financial statements.
Accounts payable and accrued expenses at September 30, 2022 and December 31, 2021 consisted of the following:
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Leases |
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| LEASES | NOTE 8—LEASES
Operating Leases
In April 2022, the Company entered into a lease amendment to renew its office and warehouse space in the automotive supplies segment, located in Deer Park, New York. The lease renewal will commence on August 1, 2022 and shall expire on July 31, 2025. Under the terms of the lease renewal, the Company will lease the premises at the monthly rate of $7,518 for the first year, with scheduled annual increases. The lease agreement contains customary events of default, representations, warranties, and covenants. The remeasurement of the ROU asset and liability associated with this operating lease was $254,713.
The following was included in our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021:
Rent expense for the three and nine months ended September 30, 2022 was $278,823 and $804,544, respectively.
As of September 30, 2022, maturities of operating lease liabilities were as follows:
Finance Leases
On March 28, 2022, the Company entered an equipment financing lease to purchase machinery and equipment totaling $316,798, maturing in January 2028.
On April 11, 2022, the Company entered in an equipment financing lease to purchase machinery and equipment totaling $11,706, maturing in June 2027.
On July 13, 2022, the Company entered in an equipment financing lease to purchase machinery and equipment totaling $240,260, maturing in June 2028.
As of September 30, 2022, maturities of finance lease liabilities were as follows:
As of September 30, 2022, the weighted-average remaining lease term for all finance leases is 5.20 years. |
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Acquisitions |
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| Acquisitions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITIONS | NOTE 9—ACQUISITIONS
On March 30, 2021, the Company acquired 100% of the outstanding capital stock of Wolo Mfg. Corp and Wolo Industrial Horn & Signal, Inc. (“Wolo”) for an aggregate purchase price of $8,344,056. For the three and nine months ended September 30, 2022, Wolo contributed revenue of $1,489,710 and $5,114,755, respectively, and net loss from continuing operations of $393,493 and $1,034,427, respectively, which are included in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
On October 8, 2021, the Company acquired 100% of the outstanding capital stock of High Mountain Door & Trim, Inc. (“High Mountain”) and Sierra Homes, LLC (“Sierra Homes”) for an aggregate purchase price of $15,441,173. For the three and nine months ended September 30, 2022, High Mountain and Sierra Homes contributed combined revenue of $8,299,589 and $21,049,530, respectively, and combined net loss from continuing operations of $2,846,780 and $3,633,437, respectively, which are included in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
Pro Forma Information
The following unaudited pro forma results presented below include the effects of the Wolo, High Mountain and Sierra Homes acquisitions as if they had been consummated as of January 1, 2021, with adjustments to give effect to pro forma events that are directly attributable to the acquisitions.
These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisitions had occurred at the beginning of the period presented, nor are they indicative of future results of operations. |
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Related Parties |
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| Related Party Transactions [Abstract] | |
| RELATED PARTIES | NOTE 10—RELATED PARTIES
Management Services Agreement
On April 15, 2013, the Company and 1847 Partners LLC (the “Manager”) entered into a management services agreement, pursuant to which the Company is required to pay the Manager a quarterly management fee equal to 0.5% of its adjusted net assets for services performed (the “Parent Management Fee”). The amount of the Parent Management Fee with respect to any fiscal quarter is (i) reduced by the aggregate amount of any management fees received by the Manager under any offsetting management services agreements with respect to such fiscal quarter, (ii) reduced (or increased) by the amount of any over-paid (or under-paid) Parent Management Fees received by (or owed to) the Manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid Parent Management Fees. The Company expensed $0 in Parent Management Fees for the three and nine months ended September 30, 2022 and $0 for the three and nine months ended September 30, 2021.
Offsetting Management Services Agreements
The Company’s subsidiary 1847 Asien Inc. (“1847 Asien”) entered into an offsetting management services agreement with the Manager on May 28, 2020, the Company’s subsidiary 1847 Cabinet Inc. (“1847 Cabinet”) entered into an offsetting management services agreement with the Manager on August 21, 2020 (which was amended and restated on October 8, 2021) and the Company’s subsidiary 1847 Wolo Inc. (“1847 Wolo”) entered into an offsetting management services agreement with the Manager on March 30, 2021. Pursuant to the offsetting management services agreements, 1847 Asien appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement), 1847 Cabinet appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement), which was increased to $125,000 or 2% of adjusted net assets on October 8, 2021, and 1847 Wolo appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement); provided, however, in each case that if the aggregate amount of management fees paid or to be paid by such entities, together with all other management fees paid or to be paid to the Manager under other offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of 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 the Manager under other offsetting management services agreements.
1847 Asien expensed management fees of $75,000 and $225,000 for the three and nine months ended September 30, 2022, respectively, and $75,000 and $225,000 for the three and nine months ended September 30, 2021, respectively.
1847 Cabinet expensed management fees of $125,000 and $375,000 for the three and nine months ended September 30, 2022, respectively, and $75,000 and $225,000 for the three and nine months ended September 30, 2021, respectively.
1847 Wolo expensed management fees of $75,000 and $225,000 for the three and nine months ended September 30, 2022, respectively, and $75,000 and $150,000 for the three and nine months ended September 30, 2021, respectively.
On a consolidated basis, the Company expensed total management fees of $275,000 and $825,000 for the three and nine months ended September 30, 2022, respectively, and $225,000 and $600,000 for the three and nine months ended September 30, 2021, respectively.
Advances
From time to time, the Company has received advances from its chief executive officer to meet short-term working capital needs. As of September 30, 2022 and December 31, 2021, a total of $118,834 in advances from related parties are outstanding. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.
As of September 30, 2022 and December 31, 2021, the Manager has funded the Company $74,928 in related party advances. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.
Building Lease
On September 1, 2020, Kyle’s entered into an industrial lease agreement with Stephen Mallatt, Jr. and Rita Mallatt, who are officers of Kyle’s and principal shareholders of the Company. The lease is for a term of five years, with an option for a renewal term of five years and provides for a base rent of $7,000 per month for the first 12 months, which will increase to $7,210 for months 13-16 and to $7,426 for months 37-60. In addition, Kyle’s is responsible for all taxes, insurance and certain operating costs during the lease term.
The total rent expense under this related party leases was $21,777 and $65,330 for the three and nine months ended September 30, 2022. |
Mezzanine Equity |
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| MEZZANINE EQUITY | NOTE 11—MEZZANINE EQUITY
Series A Senior Convertible Preferred Shares
On September 30, 2020, the Company executed a share designation, which was amended on November 20, 2020, March 26, 2021 and September 29, 2021, to designate 4,450,460 of its shares as series A senior convertible preferred shares. Following is a description of the rights of the series A senior convertible preferred shares.
Ranking. The series A 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 A senior convertible preferred shares; (ii) on parity with the series B senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series A senior convertible preferred shares; and (iii) junior to 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 A senior convertible preferred shares.
Dividend Rights. Holders of series A senior convertible preferred shares are entitled to dividends at a rate per annum of 14.0% of the stated value ($2.00 per share, subject to adjustment). Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date in cash or common shares at the Company’s discretion. Dividends payable in common shares shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common shares on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the applicable dividend payment date; provided, however, that if the common shares are not registered, and Rule 144 rulemaking referred to below is effective on the payment date, the dividends payable in common shares shall be calculated based upon the fixed price of $1.57; provided further, that the Company may only elect to pay dividends in common shares based upon such fixed price if the VWAP for the five (5) trading days immediately prior to the applicable dividend payment date is $1.57 or higher.
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 A 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 A senior convertible preferred shares shall be entitled to receive an amount of cash equal to 115% of the stated value plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders. If, upon any liquidation, the assets, or proceeds thereof, distributable among the holders of the series A senior convertible preferred shares shall be insufficient to pay in full the preferential amount payable to the holders of the series A senior convertible preferred shares and liquidating payments on any other shares of any class or series of parity securities as to the distribution of assets on any liquidation, then such assets, or the proceeds thereof, shall be distributed among the holders of series A senior convertible preferred shares and any such other parity securities ratably in accordance with the respective amounts that would be payable on such series A senior convertible preferred shares and any such other parity securities if all amounts payable thereon were paid in full.
Voting Rights. The series A senior convertible preferred shares do not have any voting rights; provided that, so long as any series A senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series A senior convertible preferred shares, which majority must include Leonite Capital LLC so long as it holds any series A senior convertible preferred shares (the “Requisite Holders”), voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the share designation. In addition, so long as any series A senior convertible preferred shares are outstanding, the affirmative vote of the Requisite Holders shall be required prior to the creation or issuance by the Company or by its subsidiaries Kyle’s Custom Wood Shop, Inc. (“Kyle’s”) and Wolo Mfg. Corp. and Wolo Industrial Horn & Signal, Inc. (together, “Wolo”) of (i) any parity securities; (ii) any senior securities; and (iii) any new indebtedness other than (A) intercompany indebtedness by Kyle’s or Wolo in favor of the Company, (B) indebtedness incurred in favor of the sellers of Kyle’s or Wolo in connection with the acquisition of Kyle’s or Wolo, or (C) indebtedness (or the refinancing of such indebtedness) the proceeds of which are used to complete the acquisition of Kyle’s or Wolo related expenses or working capital to operate the business of Kyle’s or Wolo. Notwithstanding the foregoing, this shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series A senior convertible preferred shares and the warrants issued in connection therewith.
Conversion Rights. Each series A senior convertible preferred share, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable common shares determined by dividing the stated value ($2.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price of $7.00 per share (subject to adjustment); provided that in no event shall the holder of any series A senior convertible preferred shares be entitled to convert any number of series A senior convertible preferred shares that upon conversion the sum of (i) the number of common shares beneficially owned by the holder and its affiliates and (ii) the number of common shares issuable upon the conversion of the series A senior convertible preferred shares with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common shares. 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. The Company may redeem in whole, or upon the written consent of the Requisite Holders and in the manner provided for in such written consent, in part, the series A senior convertible preferred shares by paying in cash therefore a sum equal to 115% of the stated value plus the amount of accrued and unpaid plus any other amounts due pursuant to the terms of the series A senior convertible preferred shares. On October 12, 2021, the Company redeemed 2,632,278 series A senior convertible preferred shares for a total redemption price, including dividends through such date, of $6,395,645.
Adjustments. The share designation contains standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar transactions. In addition, the share designation provides that if, but only if, the Requisite Holders provide the Company with at least ten (10) business day’s prior written notice, then, from and after the date of such notice, the stated dividend rate, the stated value and the conversion price shall automatically adjust as follows:
Notwithstanding the foregoing, the conversion price for purposes of the adjustments above shall not be adjusted to a number that is below $0.03. In addition, if any legislation or rules are adopted whereby the holding period of securities for purposes of Rule 144 of the Securities Act of 1933, as amended, for convertible securities that convert at market-adjusted rates is increased resulting in a longer holding period for convertible securities like the series A senior convertible preferred shares and the unavailability at the time of conversion of Rule 144, the pricing provisions that are based upon the lowest VWAP of the previous ten (10) trading days immediately preceding the relevant adjustment date shall be removed unless the common shares issuable upon conversion are then registered under an effective registration statement.
Additional Equity Interest. On the third adjustment date set forth above, the Company is required to cause Kyle’s and Wolo to issue to the holders of series A senior convertible preferred shares, on a pro rata basis, a ten percent (10%) equity stake Kyle’s and/or Wolo. The holders of series A senior convertible preferred shares issued in connection with the financing to complete the acquisition of Kyle’s shall receive the equity stake in Kyle’s and the holders of series A senior convertible preferred shares issued in connection with the financing to complete the acquisition of Wolo shall receive the equity stake in Wolo. The Company is required to cause Kyle’s and Wolo to grant to the holders of the series A senior convertible preferred shares upon the issuance to them of such equity interest a right to receive an additional number of shares of common stock of Kyle’s or Wolo if Kyle’s or Wolo issues to any third-party equity securities at a price below the acquisition price (as defined below). Such additional number of shares of common stock of Kyle’s or Wolo to be issued in such instance shall be equal to a number of shares of common stock of Kyle’s or Wolo which, when added to the number of shares of common stock of Kyle’s or Wolo constituting the initial additional equity interest, would be equal to the total number of shares of common stock which would have been issued to a holder of series A senior convertible preferred shares if the price per share of common stock of Kyle’s or Wolo was equivalent to the price per equity security paid by such third-party in Kyle’s or Wolo. For purposes of this provision, “acquisition price” means the price per share of Kyle’s and Wolo that was paid by the Company upon the acquisition of Kyle’s and Wolo, respectively.
As of September 30, 2022 and December 31, 2021, the Company had 1,593,940 and 1,818,182 series A senior convertible preferred shares issued and outstanding, respectively.
During the three months ended September 30, 2022, the Company accrued dividends attributable to the series A senior convertible preferred shares in the amount of $156,738 and paid prior period accrued dividends of $174,701. During the nine months ended September 30, 2022, the Company accrued dividends attributable to the series A senior convertible preferred shares in the amount of $437,491 and paid prior period accrued dividends of $462,925.
On February 16, 2022, 133,333 shares of series A senior convertible preferred shares were converted into 38,096 common shares.
On August 12, 2022, the Company redeemed 90,909 series A senior convertible preferred shares for a total redemption price of $209,091.
Series B Senior Convertible Preferred Shares
On February 17, 2022, the Company executed a share designation to designate 583,334 of its shares as series B senior convertible preferred shares. Following is a description of the rights of the series B senior convertible preferred shares.
Ranking. The series B 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 B senior convertible preferred shares; (ii) on parity with the series A senior convertible preferred shares and each other class or series that is not expressly subordinated or made senior to the series A senior convertible preferred shares; and (iii) junior to 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 B senior convertible preferred shares.
Dividend Rights. Holders of series B senior convertible preferred shares are entitled to dividends at a rate per annum of 14.0% of the stated value ($3.00 per share, subject to adjustment). Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date in cash or common shares at the Company’s discretion. Dividends payable in common shares shall be calculated based on a price equal to eighty percent (80%) of the VWAP during the five (5) trading days immediately prior to the applicable dividend payment date; provided, however, that if the common shares are not registered, and rulemaking regarding the Rule 144 holding period referred to below is effective on the payment date, the dividends payable in common shares shall be calculated based upon the fixed price of $2.70; provided further, that the Company may only elect to pay dividends in common shares based upon such fixed price if the VWAP for the five (5) trading days immediately prior to the applicable dividend payment date is $2.70 or higher.
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 B 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 B senior convertible preferred shares shall be entitled to receive an amount of cash equal to 115% of the stated value plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders. If, upon any liquidation, the assets, or proceeds thereof, distributable among the holders of the series B senior convertible preferred shares shall be insufficient to pay in full the preferential amount payable to the holders of the series B 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 B senior convertible preferred shares and any such other parity securities ratably in accordance with the respective amounts that would be payable on such series B senior convertible preferred shares and any such other parity securities if all amounts payable thereon were paid in full.
Voting Rights. The series B senior convertible preferred shares do not have any voting rights; provided that, so long as any series B senior convertible preferred shares are outstanding, the affirmative vote of holders of a majority of series B senior convertible preferred shares, voting as a separate class, shall be necessary for approving, effecting or validating (i) any amendment, alteration or repeal of any of the provisions of the share designation or (ii) the Company’s creation or issuance of any parity securities or any senior securities. Notwithstanding the foregoing, such vote of the holders shall not be required in connection with the issuance of parity securities or senior securities if, and so long as, the proceeds resulting from the issuance of such securities are used to redeem in full the outstanding series B senior convertible preferred shares.
Conversion Rights. Each series B 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 ($3.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by the conversion price of $12.00 per share (subject to adjustments); provided that in no event shall the holder of any series B senior convertible preferred shares be entitled to convert any number of series B 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 B 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. The Company may redeem in whole (but not in part) the series B senior convertible preferred shares by paying in cash therefore a sum equal to 115% of the stated value plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the series B senior convertible preferred shares.
Adjustments. The share designation contains standard adjustments to the conversion price in the event of any share splits, share combinations, share reclassifications, dividends paid in common shares, sales of substantially all of the Company’s assets, mergers, consolidations or similar transactions. In addition, the share designation provides that the stated dividend rate, the stated value and the conversion price shall automatically adjust as follows:
Notwithstanding the foregoing, the conversion price for purposes of the adjustments above shall not be adjusted to a number that is below $0.03 per share (subject to adjustment for splits or dividends of the common shares). In addition, if any legislation or rules are adopted whereby the holding period of securities for purposes of Rule 144 of the Securities Act of 1933, as amended, for convertible securities that convert at market-adjusted rates is increased resulting in a longer holding period for convertible securities like the series B senior convertible preferred shares and the unavailability at the time of conversion of Rule 144, the pricing provisions that are based upon the lowest VWAP of the previous ten (10) trading days immediately preceding the relevant adjustment date shall be removed unless the common shares issuable upon conversion are then registered under an effective registration statement.
From February 24, 2022 to March 24, 2022, the Company sold an aggregate of 426,999 units, at a price of $3.00 per unit, for aggregate gross proceeds of $1,281,000. From April 20, 2022 to May 19, 2022, the Company sold an aggregate of 54,567 units to our Chief Executive Officer, Ellery W. Roberts, for aggregate gross proceeds of $163,700. The Company had total issuance costs relating to these offerings of approximately $15,000, resulting in net proceeds of $1,429,700.
Each unit consists of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $3.00 per common share (subject to adjustment), which may be exercised on a cashless basis under certain circumstances. The embedded conversion options of the series B senior convertible preferred shares and warrants were clearly and closely related to the equity host and did not require bifurcation. The $1,429,700 of net proceeds were allocated on a relative fair value basis of $1,257,650 to the series B preferred shares and $172,050 to the warrants. The series B preferred shares fair value was derived using an Option Pricing Method and the warrants fair value was derived using a Monte Carlo Simulation Model.
As of September 30, 2022 and December 31, 2021, the Company had 464,899 and 0 series B senior convertible preferred shares issued and outstanding, respectively.
During the three months ended September 30, 2022, the Company accrued dividends attributable to the series B senior convertible preferred shares in the amount of $50,309 and paid prior period accrued dividends of $48,197. During the nine months ended September 30, 2022, the Company accrued dividends attributable to the series B senior convertible preferred shares in the amount of $113,052 and paid prior period accrued dividends of $77,548.
On August 26, 2022, the Company redeemed 16,667 series B senior convertible preferred shares for a total redemption price of $57,501.
Mezzanine Equity Classification
We applied the guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”), in order to determine the appropriate classification for both the series A senior convertible preferred shares and the series B senior convertible preferred shares.
ASC 480 requires equity instruments to be evaluated on an ongoing basis for mezzanine equity (temporary equity) vs permanent equity classification. As a result of the maximum number of common shares that may be issuable (upon conversion of the preferred securities) exceeded the number of authorized but unissued common shares available, temporary equity classification is required. As of December 31, 2021, there were 1,818,182 series A senior convertible preferred shares presented in mezzanine equity.
As a result of the 1-for-4 reverse split of our outstanding common shares (see Note 1 for additional information), the maximum number of common shares that may be issuable (upon conversion of the preferred securities) no longer exceeded the number of unissued common shares available, resulting in the reclassification of 1,684,849 series A senior convertible preferred shares and 481,566 series B senior convertible preferred shares from mezzanine equity to permanent equity. |
Shareholders’ Deficit |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHAREHOLDERS’ DEFICIT | NOTE 12—SHAREHOLDERS’ DEFICIT
Reverse Stock Split
The Company’s board of directors approved a 1-for-4 reverse stock split of its issued, outstanding common shares, which became effective August 2, 2022. See Note 1 for additional information.
Common Shares
As of September 30, 2022, the Company was authorized to issue 500,000,000 common shares. As of September 30, 2022 and December 31, 2021, the Company had 4,079,137 and 1,210,918 common shares issued and outstanding, respectively.
On February 16, 2022, the Company issued 38,096 common shares upon the conversion of 133,333 series A senior convertible preferred shares.
From July 12, 2022 to September 15, 2022, the Company issued 126,669 common shares upon cashless exercises of a warrants.
On August 2, 2022, the Company entered into an underwriting agreement with Craft Capital Management LLC and R.F. Lafferty & Co. Inc., as representatives of the underwriters named on Schedule 1 thereto, relating to the Company’s public offering of common shares. Under the underwriting agreement, the Company agreed to sell 1,428,572 common shares to the underwriters, at a gross purchase price per share of $4.20 per share, pursuant to the Company’s registration statement on Form S-1 (File No. 333-259011) under the Securities Act of 1933, as amended. On August 5, 2022, the closing of the public offering was completed and the Company sold 1,428,572 common shares for total gross proceeds of $6 million. After deducting underwriting commissions and expenses, the Company received net proceeds of approximately $5.15 million.
On August 2, 2022, the Company issued an aggregate of 800,000 common shares upon the partial extinguishment of 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. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Steven J. Parkey and Jose D. Garcia-Rendon, pursuant to which they agreed to convert an aggregate of $3,360,000 of the convertible notes into an aggregate of 800,000 common shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of $1,280,000.
On August 2, 2022, the Company issued 189,815 common shares upon the partial extinguishment of a contingent note payable. On September 30, 2020, 1847 Cabinet Inc. issued an 8% vesting promissory note in the principal amount of up to $1,260,000 to Stephen Mallatt, Jr. and Rita Mallatt. On July 26, 2022, the Company and 1847 Cabinet entered into a conversion agreement with Stephen Mallatt, Jr. and Rita Mallatt, pursuant to which they agreed to convert $797,221 of the vesting note into 189,815 common shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of $303,706.
On August 2, 2022, the Company issued 285,067 common shares to Bevilacqua PLLC, the Company’s outside securities counsel, upon the settlement of accounts payable. On July 26, 2022, the Company also entered into a conversion agreement with Bevilacqua PLLC, pursuant to which it agreed to convert $1,197,280 of the accounts payable owed to it into 285,067 common shares of the Company at a conversion price of $4.20 per share. As a result, the Company recognized a loss on extinguishment of debt of $456,109.
On March 23, 2022, the Company declared a common share dividend of $0.05 per share, or an aggregate of $249,762, to shareholders of record as of March 31, 2022. This dividend was paid on April 15, 2022.
On July 29, 2022, the Company declared a common share dividend of $0.13125 per share, or an aggregate of $337,841, to shareholders of record as of August 4, 2022. This dividend was paid on August 19, 2022.
On August 23, 2022, the Company declared a common share dividend of $0.13125 per share, or an aggregate of $505,751 to shareholders of record as of September 30, 2022. This dividend was paid on October 17, 2022.
Warrants
As described in Note 11, the Company issued units during the nine months ended September 30, 2022, with each unit consisting of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below. Accordingly, a portion of the proceeds were allocated to the warrant based on its relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 51.81%; (iii) weighted average risk-free interest rate of 0.31%; (iv) expected life of three years; (v) estimated fair value of the common shares of $7.76 per share; and (vi) various probability assumptions related to redemption, calls and price resets. The fair value of the warrants was $428,034, or $0.89 per warrant, resulting in the amount allocated to the warrants, based on their relative fair of $172,050, which was recorded as additional paid-in capital.
The warrants allow the holder to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment including upon any future equity offering with a lower exercise price), which may be exercised on a cashless basis under certain circumstances. The Company may force the exercise of the warrants at any time after the one year anniversary of the date of the warrants, if (i) the Company is listed on a national securities exchange or the over-the-counter market, (ii) the underlying common shares are registered or the holder of the warrant otherwise has the ability to trade the underlying common shares without restriction, (iii) the 30-day volume-weighted daily average price of the common shares exceeds 200% of the exercise price, as adjusted, and (iv) the average daily trading volume is at least 100,000 common shares during such 30-day period. The Company may redeem the warrants held by any holder in whole (but not in part) by paying in cash to such holder as follows: (i) $0.50 per share then underlying the warrant if within the first twelve (12) months of issuance; (ii) $1.00 per share then underlying the warrant if after the first twelve (12) months, but before twenty-four (24) months of issuance; and (iii) $1.50 per share then underlying the warrant if after twenty-four months, but before thirty-six (36) months.
On July 8, 2022, the Company entered into a securities purchase agreement with Mast Hill Fund, L.P., pursuant to which the Company issued to it a promissory note in the principal amount of $600,000, and a five-year warrant for the purchase of 100,000 common shares at an exercise price of $6.00 per share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below, which may be exercised on a cashless basis if the market price of the Company’s common shares is greater than the exercise price, for total net proceeds of $499,600. Additionally, the Company issued a three-year warrant to J.H. Darbie & Co (the broker) for the purchase of 3,600 common shares at an exercise price of $7.50 (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below, which may be exercised on a cashless basis if the market price of the Company’s common shares is greater than the exercise price. Accordingly, a portion of the proceeds were allocated to the warrants based on its relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 49.11%; (iii) weighted average risk-free interest rate of 3.13%; (iv) expected life of five years; (v) estimated fair value of the common shares of $7.23 per share; and (vi) various probability assumptions related to down round price adjustments. The fair value of the warrants was $2,405,306, or $6.01 per warrant, resulting in the amount allocated to the warrants, based on their relative fair of $402,650, which was recorded as additional paid-in capital. On August 10, 2022, the promissory note was repaid in full.
As a result of the issuance of the note to Mast Hill Fund, L.P. on July 8, 2022, the exercise price of certain of the Company’s outstanding warrants was adjusted to $5.20 pursuant to certain antidilution provisions of such warrants (down round feature). In addition, certain of the Company’s outstanding warrants include an “full ratchet” feature, whereby the exercise price was reset to $5.20 and the number of shares underlying the warrants was increased in the same proportion as the exercise price decrease. As a result, the Company recognized a deemed dividend of approximately $6.4 million, which was calculated using a Black-Scholes pricing model.
From July 12, 2022 to September 15, 2022, warrants for the purchase of 209,635 common shares were exercised on a cashless basis resulting in the issuance of 126,669 common shares.
On August 5, 2022, the Company issued a common share purchase warrant to each of Craft Capital Management LLC and R.F. Lafferty & Co. Inc., the representatives of the underwriters for the public offering described above, for the purchase of 35,715 common shares at an exercise price of $5.25, subject to adjustments. The warrants will be exercisable at any time and from time to time, in whole or in part, during the period commencing on February 5, 2023 and ending on August 2, 2027 and may be exercised on a cashless basis under certain circumstances.
As a result of the public offering, the exercise price of certain of the Company’s outstanding warrants was adjusted to $4.20 pursuant to certain antidilution provisions of such warrants (down round feature). In addition, certain of the Company’s outstanding warrants include an “full ratchet” feature, whereby the exercise price was reset to $4.20 and the number of shares underlying the warrants was increased in the same proportion as the exercise price decrease. As a result, the Company recognized a deemed dividend of approximately $2.6 million, which was calculated using a Black-Scholes pricing model.
Below is a table summarizing the changes in warrants outstanding during the nine months ended September 30, 2022:
As of September 30, 2022, the outstanding warrants have a weighted average remaining contractual life of 1.68 years and a total intrinsic value of $98,125. |
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Earnings (Loss) Per Share |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||
| EARNINGS (LOSS) PER SHARE | NOTE 13—EARNINGS (LOSS) PER SHARE
The computation of weighted average shares outstanding and the basic and diluted loss per common share attributable to common shareholders for the three and nine months ended September 30, 2022 consisted of the following:
For the three and nine months ended September 30, 2022, there were 6,462,938 potential common share equivalents from warrants, convertible debt, and series A and B convertible preferred shares excluded from the diluted earnings per share calculations as their effect is anti-dilutive.
For the three and nine months ended September 30, 2021, there were 547,459 potential common share equivalents from warrants excluded from the diluted earnings per share calculations as their effect is anti-dilutive. |
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 14—SUBSEQUENT EVENTS
On October 20, 2022, 1847 Asien and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 entered into a letter agreement to amend the terms of that certain 6% amortizing promissory note in the aggregate principal amount of $1,037,500. Pursuant to the letter agreement, the parties agreed to extend the maturity date of this note to February 28, 2023 and revised the repayment terms so that the outstanding principal amount and all accrued interest thereon shall be payable monthly, beginning on November 30, 2022, in accordance with the payment schedule set forth on Exhibit A to the letter agreement. As additional consideration for entering into the letter agreement, 1847 Asien also agreed to pay the lender $87,707 as an amendment fee. |
Accounting Policies, by Policy (Policies) |
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Sep. 30, 2022 | |
| Basis of Presentation and Other Information [Abstract] | |
| Reverse Share Split | Reverse Share Split
On August 2, 2022, we effected a 1-for-4 reverse split of our outstanding common shares. All outstanding common shares and warrants were adjusted to reflect the 1-for-4 reverse split, with respective exercise prices of the warrants proportionately increased. The outstanding convertible notes and series A and B convertible senior 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 split. The total number of authorized common shares did not change. As a result of the reverse common share split, an amount equal to the decreased value of common shares was reclassified from “common shares” to “additional paid-in capital.”
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| Reclassifications | Reclassifications
Certain reclassifications within property and equipment, notes payable, preferred shares, and operating expenses have been made to 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.
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| Sequencing | Sequencing
Under ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest maturity date of potentially dilutive instruments first, with the earliest maturity date of grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy. |
Disaggregation of Revenues and Segment Reporting (Tables) |
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| Schedule of revenues |
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| Schedule of segment information |
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Property and Equipment (Tables) |
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| Schedule of property and equipment |
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Intangible Assets (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
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| Schedule of estimated amortization expense for intangible assets |
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Selected Account Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selected Account Information Table [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of receivables |
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| Schedule of inventories |
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| Schedule of accounts payable and accrued expenses |
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Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed consolidated balance sheet |
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| Schedule of maturities of operating lease liabilities |
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| Schedule of maturities of finance lease liabilities |
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Acquisitions (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions Table [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of unaudited pro forma results |
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Shareholders’ Deficit (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in warrants outstanding |
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Earnings (Loss) Per Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of weighted average shares outstanding and the basic and diluted loss per common share attributable to common shareholders |
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Liquidity and Going Concern Assessment (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Cash and cash equivalents | $ 1,584,499 | $ 1,383,533 |
| Operating loss | 1,096,364 | |
| Cash flows used in operations | 3,977,286 | |
| Working capital | $ 1,839,424 |
Disaggregation of Revenues and Segment Reporting (Details) |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Segment Reporting [Abstract] | |
| Reportable segments | 3 |
Disaggregation of Revenues and Segment Reporting (Details) - Schedule of segment information - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Segment Reporting Information [Line Items] | ||||
| Revenues | $ 14,472,361 | $ 6,735,028 | $ 39,437,482 | $ 18,163,257 |
| Operating expenses | ||||
| Cost of sales | 9,596,387 | 4,573,123 | 25,109,863 | 12,348,594 |
| Personnel | 3,182,286 | 876,992 | 6,446,145 | 2,198,231 |
| Depreciation and amortization | 516,414 | 299,476 | 1,526,759 | 547,655 |
| General and administrative | 2,688,877 | 1,844,979 | 7,451,079 | 4,519,504 |
| Total Operating Expenses | 15,983,964 | 7,594,570 | 40,533,846 | 19,613,984 |
| Income (loss) from Operations | (1,511,603) | (859,542) | (1,096,364) | (1,450,727) |
| Retail and Appliances [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 2,934,705 | 3,145,955 | 8,322,500 | 9,762,939 |
| Operating expenses | ||||
| Cost of sales | 2,183,972 | 2,300,663 | 6,245,993 | 7,409,913 |
| Personnel | 202,443 | 196,592 | 587,073 | 688,842 |
| Depreciation and amortization | 48,019 | 47,104 | 175,835 | 135,782 |
| General and administrative | 494,719 | 439,414 | 1,480,465 | 1,270,655 |
| Total Operating Expenses | 2,929,153 | 2,983,774 | 8,489,366 | 9,505,192 |
| Income (loss) from Operations | 5,552 | 162,182 | (166,866) | 257,747 |
| Construction [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 10,047,946 | 1,338,428 | 26,000,227 | 4,169,305 |
| Operating expenses | ||||
| Cost of sales | 6,544,843 | 805,513 | 15,835,830 | 2,280,009 |
| Personnel | 2,406,195 | 273,366 | 4,715,419 | 739,711 |
| Depreciation and amortization | 416,525 | 83,112 | 1,195,314 | 242,613 |
| General and administrative | 1,245,668 | 256,402 | 4,006,636 | 705,674 |
| Total Operating Expenses | 10,613,231 | 1,418,393 | 25,753,199 | 3,968,007 |
| Income (loss) from Operations | (565,285) | (79,965) | 247,028 | 201,298 |
| Automotive Supplies [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | 1,489,710 | 2,250,645 | 5,114,755 | 4,231,013 |
| Operating expenses | ||||
| Cost of sales | 867,572 | 1,466,947 | 3,028,040 | 2,658,672 |
| Personnel | 277,398 | 407,034 | 847,403 | 769,678 |
| Depreciation and amortization | 51,870 | 169,260 | 155,610 | 169,260 |
| General and administrative | 384,870 | 673,484 | 1,188,618 | 1,570,070 |
| Total Operating Expenses | 1,581,710 | 2,716,724 | 5,219,671 | 5,167,680 |
| Income (loss) from Operations | (92,000) | (466,080) | (104,916) | (936,667) |
| Corporate Services [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues | ||||
| Operating expenses | ||||
| Cost of sales | ||||
| Personnel | 296,250 | 296,250 | ||
| Depreciation and amortization | ||||
| General and administrative | 563,620 | 475,679 | 775,360 | 973,105 |
| Total Operating Expenses | 859,870 | 475,679 | 1,071,610 | 973,105 |
| Income (loss) from Operations | $ (859,870) | $ (475,679) | $ (1,071,610) | $ (973,105) |
Property and Equipment (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation expense | $ 151,722 | $ 32,420 | $ 432,683 | $ 85,005 |
Property and Equipment (Details) - Schedule of property and equipment - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Property and Equipment [Abstract] | ||
| Equipment and machinery | $ 1,401,103 | $ 808,592 |
| Office furniture and equipment | 156,544 | 105,203 |
| Transportation equipment | 911,426 | 864,121 |
| Leasehold improvements | 169,143 | 112,356 |
| Total property and equipment | 2,638,216 | 1,890,272 |
| Less: Accumulated depreciation | (588,720) | (194,961) |
| Property and equipment, net | $ 2,049,496 | $ 1,695,311 |
Intangible Assets (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Intangible Assets [Abstract] | ||||
| Amortization expense | $ 364,692 | $ 267,057 | $ 1,094,076 | $ 462,651 |
Intangible Assets (Details) - Schedule of intangible assets - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Intangible Assets [Line Items] | ||
| Total intangible assets | $ 12,331,000 | $ 12,331,000 |
| Less: accumulated amortization | (1,981,179) | (887,103) |
| Intangible assets, net | 10,349,821 | 11,443,897 |
| Customer relationships [Member] | ||
| Intangible Assets [Line Items] | ||
| Total intangible assets | 5,791,000 | 5,791,000 |
| Marketing-related [Member] | ||
| Intangible Assets [Line Items] | ||
| Total intangible assets | 5,917,000 | 5,917,000 |
| Technology-related [Member] | ||
| Intangible Assets [Line Items] | ||
| Total intangible assets | $ 623,000 | $ 623,000 |
Intangible Assets (Details) - Schedule of estimated amortization expense for intangible assets |
Sep. 30, 2022
USD ($)
|
|---|---|
| Schedule of Estimated Amortization Expense For Intangible Assets [-Abstract] | |
| 2022 – remaining | $ 364,704 |
| 2023 | 1,458,780 |
| 2024 | 1,458,750 |
| 2025 | 1,325,745 |
| 2026 | 1,157,523 |
| Thereafter | 4,584,319 |
| Total | $ 10,349,821 |
Selected Account Information (Details) - Schedule of receivables - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Receivables [Abstract] | ||
| Total receivables | $ 5,695,018 | $ 3,737,996 |
| Allowance for doubtful accounts | (359,000) | (359,000) |
| Total receivables, net | 5,336,018 | 3,378,996 |
| Trade accounts receivable [Member] | ||
| Schedule of Receivables [Abstract] | ||
| Total receivables | 5,110,116 | 2,691,702 |
| Vendor rebates receivable [Member] | ||
| Schedule of Receivables [Abstract] | ||
| Total receivables | 139,322 | 126,118 |
| Credit card payments in process of settlement [Member] | ||
| Schedule of Receivables [Abstract] | ||
| Total receivables | 116,187 | |
| Retainage [Member] | ||
| Schedule of Receivables [Abstract] | ||
| Total receivables | $ 445,580 | $ 803,989 |
Selected Account Information (Details) - Schedule of inventories - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Inventory [Line Items] | ||
| Total inventories | $ 5,144,451 | $ 5,815,150 |
| Less reserve for obsolescence | (387,848) | (387,848) |
| Total inventories, net | 4,756,603 | 5,427,302 |
| Appliances [Member] | ||
| Inventory [Line Items] | ||
| Total inventories | 2,146,254 | 2,206,336 |
| Automotive [Member] | ||
| Inventory [Line Items] | ||
| Total inventories | 1,248,947 | 2,064,834 |
| Construction [Member] | ||
| Inventory [Line Items] | ||
| Total inventories | $ 1,749,250 | $ 1,543,980 |
Selected Account Information (Details) - Schedule of accounts payable and accrued expenses - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Accounts Payable And Accrued Expenses [Abstract] | ||
| Trade accounts payable | $ 2,705,828 | $ 3,117,825 |
| Credit cards payable | 130,013 | 52,300 |
| Accrued payroll liabilities | 630,846 | 263,590 |
| Accrued interest | 1,045,917 | 711,258 |
| Accrued dividends | 644,139 | 242,160 |
| Other accrued liabilities | 282,152 | 431,539 |
| Total accounts payable and accrued expenses | $ 5,438,895 | $ 4,818,672 |
Leases (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Jul. 13, 2022 |
Apr. 11, 2022 |
Mar. 28, 2022 |
Sep. 30, 2022 |
Sep. 30, 2022 |
|
| Leases [Abstract] | |||||
| Lease income | $ 7,518 | ||||
| Operating lease expense | 254,713 | ||||
| Rent expense | $ 278,823 | $ 804,544 | |||
| Purchase of machinery and equipment | $ 240,260 | $ 11,706 | $ 316,798 | ||
| Maturity date | June 2028 | June 2027 | January 2028 | ||
| Weighted-average remaining lease term | 5 years 2 months 12 days | 5 years 2 months 12 days |
Leases (Details) - Schedule of condensed consolidated balance sheet - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Condensed Consolidated Balance Sheet [Abstract] | ||
| Operating lease right-of-use assets | $ 3,037,676 | $ 3,192,604 |
| Lease liabilities, current portion | 707,419 | 613,696 |
| Lease liabilities, long-term | 2,419,449 | 2,607,862 |
| Total operating lease liabilities | $ 3,126,868 | $ 3,221,558 |
| Weighted-average remaining lease term (months) | 49 months | 59 months |
| Weighted average discount rate | 4.37% | 4.29% |
Leases (Details) - Schedule of maturities of operating lease liabilities - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Maturities of Operating Lease Liabilities [Abstract] | ||
| 2022 – remaining | $ 239,421 | |
| 2023 | 830,221 | |
| 2024 | 848,210 | |
| 2025 | 803,685 | |
| 2026 | 514,079 | |
| Thereafter | 194,495 | |
| Total | 3,430,111 | |
| Less: imputed interest | (303,243) | |
| Total operating lease liabilities | $ 3,126,868 | $ 3,221,558 |
Leases (Details) - Schedule of maturities of finance lease liabilities |
Dec. 31, 2021
USD ($)
|
|---|---|
| Schedule of Maturities of Finance Lease Liabilities [Abstract] | |
| 2022 – remaining | $ 58,482 |
| 2023 | 234,556 |
| 2024 | 218,099 |
| 2025 | 211,332 |
| 2026 | 211,332 |
| Thereafter | 238,875 |
| Total payments | 1,172,676 |
| Less: amount representing interest | (158,003) |
| Present value of minimum finance lease payments | $ 1,014,673 |
Acquisitions (Details) - Business Combination [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Oct. 08, 2021 |
Mar. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2022 |
|
| Wolo Industrial Horn & Signal, Inc. [Member] | ||||
| Acquisitions (Details) [Line Items] | ||||
| Outstanding capital stock percentage | 100.00% | |||
| Aggregate purchase price | $ 8,344,056 | |||
| Revenue | $ 1,489,710 | $ 5,114,755 | ||
| Net loss from continuing operations | 393,493 | 1,034,427 | ||
| High Mountain Door & Trim, Inc. [Member] | Sierra Homes, LLC [Member] | ||||
| Acquisitions (Details) [Line Items] | ||||
| Outstanding capital stock percentage | 100.00% | |||
| Aggregate purchase price | $ 15,441,173 | |||
| Revenue | 8,299,589 | 21,049,530 | ||
| Net loss from continuing operations | $ 2,846,780 | $ 3,633,437 |
Acquisitions (Details) - Schedule of unaudited pro forma results - Business Combination [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Schedule of Unaudited Pro Forma Results [Abstract] | ||||
| Revenues | $ 14,472,361 | $ 15,328,672 | $ 39,437,482 | $ 39,091,277 |
| Net income (loss) | (4,472,622) | 100,042 | (5,547,498) | 3,956,288 |
| Net income (loss) attributable to common shareholders’ | $ (13,440,062) | $ (149,043) | $ (14,801,040) | $ 1,614,167 |
| Earnings (loss) per share attributable to common shareholders’: | ||||
| Basic (in Dollars per share) | $ (4.51) | $ (0.12) | $ (8.08) | $ 1.37 |
| Diluted (in Dollars per share) | $ (4.51) | $ (0.12) | $ (8.08) | $ 0.78 |
Related Parties (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Apr. 15, 2013 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Related Parties (Details) [Line Items] | ||||||
| Management fee | $ 0 | $ 0 | $ 0 | $ 0 | ||
| Total management fees | 275,000 | 225,000 | 825,000 | 600,000 | ||
| Base rent | 7,000 | |||||
| Increase in base rent | 7,210 | |||||
| Total rent expense | 21,777 | 65,330 | ||||
| 37 Months [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Increase in base rent | 7,426 | |||||
| Manager [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Advances from related parties | 74,928 | 74,928 | $ 74,928 | |||
| Asiens [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Expensed management fees | 75,000 | 75,000 | 225,000 | 225,000 | ||
| Cabinet [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Expensed management fees | 125,000 | 75,000 | 375,000 | 225,000 | ||
| Wolo [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Total management fees | 75,000 | $ 75,000 | 225,000 | $ 150,000 | ||
| Advances [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Advances from related parties | $ 118,834 | $ 118,834 | $ 118,834 | |||
| Management Services Agreement [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Description of management fee | On April 15, 2013, the Company and 1847 Partners LLC (the “Manager”) entered into a management services agreement, pursuant to which the Company is required to pay the Manager a quarterly management fee equal to 0.5% of its adjusted net assets for services performed (the “Parent Management Fee”). | |||||
| Repayment, description | The amount of the Parent Management Fee with respect to any fiscal quarter is (i) reduced by the aggregate amount of any management fees received by the Manager under any offsetting management services agreements with respect to such fiscal quarter, (ii) reduced (or increased) by the amount of any over-paid (or under-paid) Parent Management Fees received by (or owed to) the Manager as of the end of such fiscal quarter, and (iii) increased by the amount of any outstanding accrued and unpaid Parent Management Fees. | |||||
| Offsetting Management Services Agreements [Member] | ||||||
| Related Parties (Details) [Line Items] | ||||||
| Additional advances, description | Pursuant to the offsetting management services agreements, 1847 Asien appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement), 1847 Cabinet appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement), which was increased to $125,000 or 2% of adjusted net assets on October 8, 2021, and 1847 Wolo appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets (as defined in the management services agreement); provided, however, in each case that if the aggregate amount of management fees paid or to be paid by such entities, together with all other management fees paid or to be paid to the Manager under other offsetting management services agreements, exceeds, or is expected to exceed, 9.5% of our gross income in any fiscal year or the Parent Management Fee in any fiscal quarter, then the management fee to be paid by such entities shall be reduced, on a pro rata basis determined by reference to the other management fees to be paid to the Manager under other offsetting management services agreements. | |||||
Shareholders’ Deficit (Details) - USD ($) |
1 Months Ended | 2 Months Ended | 3 Months Ended | 9 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 23, 2022 |
Aug. 05, 2022 |
Aug. 02, 2022 |
Jul. 29, 2022 |
Jul. 08, 2022 |
Mar. 23, 2022 |
Feb. 16, 2022 |
Oct. 08, 2021 |
Sep. 30, 2022 |
Jul. 26, 2022 |
Sep. 15, 2022 |
Mar. 31, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Common stock, shares authorized | 500,000,000 | 500,000,000 | 500,000,000 | ||||||||||||
| Common stock, shares issued | 4,079,137 | 4,079,137 | 1,210,918 | ||||||||||||
| Common stock, shares outstanding | 4,079,137 | 4,079,137 | 1,210,918 | ||||||||||||
| Gross proceeds (in Dollars) | $ 6,000,000 | ||||||||||||||
| Net proceeds (in Dollars) | $ 5,150,000 | ||||||||||||||
| Aggregate principal amount (in Dollars) | $ 600,000 | ||||||||||||||
| Dividend per share (in Dollars per share) | $ 0.13125 | $ 0.13125 | $ 0.05 | ||||||||||||
| Common stock dividend (in Dollars) | $ 505,751 | $ 337,841 | $ 249,762 | ||||||||||||
| Aggregate gross proceeds description | As described in Note 11, the Company issued units during the nine months ended September 30, 2022, with each unit consisting of one (1) series B senior convertible preferred share and a three-year warrant to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment), which such exercise price was adjusted to $4.20 following the adjustments described below. Accordingly, a portion of the proceeds were allocated to the warrant based on its relative fair value using the Geometric Brownian Motion Stock Path Monte Carlo Simulation. The assumptions used in the model were as follows: (i) dividend yield of 0%; (ii) expected volatility of 51.81%; (iii) weighted average risk-free interest rate of 0.31%; (iv) expected life of three years; (v) estimated fair value of the common shares of $7.76 per share; and (vi) various probability assumptions related to redemption, calls and price resets. The fair value of the warrants was $428,034, or $0.89 per warrant, resulting in the amount allocated to the warrants, based on their relative fair of $172,050, which was recorded as additional paid-in capital. | ||||||||||||||
| Warrants description | The warrants allow the holder to purchase one (1) common share at an exercise price of $12.00 per common share (subject to adjustment including upon any future equity offering with a lower exercise price), which may be exercised on a cashless basis under certain circumstances. The Company may force the exercise of the warrants at any time after the one year anniversary of the date of the warrants, if (i) the Company is listed on a national securities exchange or the over-the-counter market, (ii) the underlying common shares are registered or the holder of the warrant otherwise has the ability to trade the underlying common shares without restriction, (iii) the 30-day volume-weighted daily average price of the common shares exceeds 200% of the exercise price, as adjusted, and (iv) the average daily trading volume is at least 100,000 common shares during such 30-day period. The Company may redeem the warrants held by any holder in whole (but not in part) by paying in cash to such holder as follows: (i) $0.50 per share then underlying the warrant if within the first twelve (12) months of issuance; (ii) $1.00 per share then underlying the warrant if after the first twelve (12) months, but before twenty-four (24) months of issuance; and (iii) $1.50 per share then underlying the warrant if after twenty-four months, but before thirty-six (36) months. | ||||||||||||||
| Purchase of common shares | 35,715 | 100,000 | 209,635 | 295,427 | |||||||||||
| Exercise price per share (in Dollars per share) | $ 5.25 | $ 6 | |||||||||||||
| Adjusted exercise price (in Dollars per share) | $ 4.2 | ||||||||||||||
| Total net proceeds (in Dollars) | $ 499,600 | ||||||||||||||
| Dividend yield | 0.00% | ||||||||||||||
| Expected volatility rate | 49.11% | ||||||||||||||
| Weighted average risk-free interest rate | 3.13% | ||||||||||||||
| Expected term | 5 years | ||||||||||||||
| Common share, per share (in Dollars per share) | $ 7.23 | ||||||||||||||
| Fair value of warrants (in Dollars) | $ 2,405,306 | $ 757,792 | |||||||||||||
| Warrants price per share (in Dollars per share) | $ 6.01 | ||||||||||||||
| Additional paid-in capital (in Dollars) | $ 402,650 | ||||||||||||||
| Exercise price (in Dollars per share) | $ 5.2 | ||||||||||||||
| Dividend income (in Dollars) | $ 6,400,000 | ||||||||||||||
| Issuance of common shares | 1,683,005 | 126,669 | 1,683,005 | ||||||||||||
| Deemed dividend (in Dollars) | $ 2,600,000 | ||||||||||||||
| Weighted average remaining contractual life | 1 year 8 months 4 days | ||||||||||||||
| Intrinsic value (in Dollars) | $ 98,125 | ||||||||||||||
| Common Stock [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Shares issued | 126,669 | ||||||||||||||
| Agrred to sale of common shares | 99,710 | ||||||||||||||
| Maximum [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Outstanding warrants (in Dollars per share) | $ 4.2 | ||||||||||||||
| Minimum [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Outstanding warrants (in Dollars per share) | $ 4.2 | ||||||||||||||
| Underwriting Agreement [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Agrred to sale of common shares | 1,428,572 | ||||||||||||||
| Offering public price per share (in Dollars per share) | $ 4.2 | $ 4.2 | |||||||||||||
| Sale of common shares | 1,428,572 | ||||||||||||||
| Series A Preferred Stock [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Shares issued | 38,096 | ||||||||||||||
| Convertible preferred shares | 133,333 | ||||||||||||||
| J.H. Darbie & Co [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Purchase of common shares | 3,600 | ||||||||||||||
| Exercise price per share (in Dollars per share) | $ 7.5 | ||||||||||||||
| Adjusted exercise price (in Dollars per share) | 4.2 | ||||||||||||||
| Mast Hill Fund, L.P. [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Adjusted exercise price (in Dollars per share) | $ 5.2 | ||||||||||||||
| Steven J. Parkey [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Offering public price per share (in Dollars per share) | $ 4.2 | ||||||||||||||
| Promissory principal percentage | 6.00% | ||||||||||||||
| Aggregate principal amount (in Dollars) | $ 5,880,345 | ||||||||||||||
| Convertible notes (in Dollars) | $ 3,360,000 | ||||||||||||||
| Conversion shares issued | 800,000 | ||||||||||||||
| Extinguishment of debt (in Dollars) | $ 1,280,000 | ||||||||||||||
| Steven J. Parkey [Member] | Promissory Note [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Agrred to sale of common shares | 800,000 | ||||||||||||||
| Stephen Mallatt, Jr.[Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Common stock, shares issued | 189,815 | ||||||||||||||
| Offering public price per share (in Dollars per share) | $ 4.2 | ||||||||||||||
| Promissory principal percentage | 8.00% | ||||||||||||||
| Aggregate principal amount (in Dollars) | $ 1,260,000 | ||||||||||||||
| Convertible notes (in Dollars) | $ 797,221 | ||||||||||||||
| Conversion shares issued | 189,815 | ||||||||||||||
| Extinguishment of debt (in Dollars) | $ 303,706 | ||||||||||||||
| Bevilacqua PLLC [Member] | |||||||||||||||
| Shareholders’ Deficit (Details) [Line Items] | |||||||||||||||
| Common stock, shares issued | 285,067 | ||||||||||||||
| Offering public price per share (in Dollars per share) | $ 4.2 | ||||||||||||||
| Convertible notes (in Dollars) | $ 1,197,280 | ||||||||||||||
| Conversion shares issued | 285,067 | ||||||||||||||
| Extinguishment of debt (in Dollars) | $ 456,109 | ||||||||||||||
Shareholders’ Deficit (Details) - Schedule of changes in warrants outstanding - $ / shares |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2022 | |||
| Schedule Of Changes In Warrants Outstanding Abstract | |||
| Warrants, Outstanding at beginning balance | 1,300,122 | ||
| Weighted- Average Exercise Price, Outstanding at beginning balance | $ 9.52 | ||
| Warrants, Granted | [1] | 1,978,432 | |
| Weighted- Average Exercise Price, Granted | [1] | $ 5.25 | |
| Warrants, Exercised | (209,635) | ||
| Weighted- Average Exercise Price, Exercised | $ (5.58) | ||
| Warrants, Outstanding at ending balance | 3,068,919 | ||
| Weighted- Average Exercise Price, Outstanding at ending balance | $ 5.1 | ||
| Warrants, Exercisable | 2,997,489 | ||
| Weighted- Average Exercise Price, Exercisable | $ 5.1 | ||
| |||
Earnings (Loss) Per Share (Details) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Earnings Per Share [Abstract] | ||||
| Effect of anti-dilutive shares | 6,462,938 | 547,459 | 6,462,938 | 547,459 |
Earnings (Loss) Per Share (Details) - Schedule of weighted average shares outstanding and the basic and diluted loss per common share attributable to common shareholders - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Schedule of Weighted Average Shares Outstanding And The Basic And Diluted Loss Per Common Share Attributable To Common Shareholders[ Abstract] | ||||
| Net loss per common share attributable to common shareholders’ | $ (13,440,062) | $ (14,801,040) | ||
| Weighted average common shares outstanding | 2,979,949 | 1,210,918 | 1,832,076 | 2,065,215 |
| Basic and diluted loss per share | $ (4.51) | $ (1.01) | $ (8.08) | $ (0.8) |
Subsequent Events (Details) - Subsequent Event [Member] |
1 Months Ended |
|---|---|
|
Oct. 20, 2022
USD ($)
| |
| Subsequent Events (Details) [Line Items] | |
| Convertible promissory note percentage | 6.00% |
| Aggregate principal amount | $ 1,037,500 |
| Maturity date | Feb. 28, 2023 |
| Amendment fee | $ 87,707 |