DISCONTINUED OPERATIONS |
NOTE
3—DISCONTINUED OPERATIONS
Asien’s
Assignment for the Benefit of Creditors
On
February 26, 2024, Asien’s entered into the Assignment Agreement, pursuant to which Asien’s transferred ownership of all
or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust.
The Company received no cash consideration related to the assignment. Following the assignment, the Company retained no financial interest
in Asien’s.
The
assignment of Asien’s represents a strategic shift and its results are reported as discontinued operations for the three and nine
months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of Asien’s of $1,060,095, as a separate
line item in discontinued operations in the consolidated statements of operations for the nine months ended September 30, 2024.
The
following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of
Asien’s in the consolidated balance sheet as of December 31, 2023:
| |
December 31, 2023 | |
Current assets of discontinued operations | |
| |
Cash and cash equivalents | |
$ | 34,470 | |
Investments | |
| 278,521 | |
Receivables | |
| 88,770 | |
Inventories, net | |
| 1,398,088 | |
Prepaid expenses and other current assets | |
| 140,102 | |
Total current assets of discontinued operations | |
| 1,939,951 | |
| |
| | |
Non-current assets of discontinued operations | |
| | |
Property and equipment, net | |
| 88,505 | |
| |
| | |
Total assets of discontinued operations | |
$ | 2,028,456 | |
| |
| | |
Current liabilities of discontinued operations | |
| | |
Accounts payable and accrued expenses | |
$ | 923,945 | |
Customer deposits | |
| 2,143,493 | |
Current portion of notes payable | |
| 29,777 | |
Total current liabilities of discontinued operations | |
| 3,097,215 | |
| |
| | |
Non-current liabilities of discontinued operations | |
| | |
Notes payable, net of current portion | |
| 34,965 | |
| |
| | |
Total liabilities of discontinued operations | |
$ | 3,132,180 | |
The
following information presents the major classes of line items constituting the loss from discontinued operations of Asien’s in
the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
| |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenues | |
$ | - | | |
$ | 2,421,008 | | |
$ | 870,952 | | |
$ | 6,887,589 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| - | | |
| 1,976,031 | | |
| 744,706 | | |
| 5,461,866 | |
Personnel | |
| - | | |
| 246,567 | | |
| 98,213 | | |
| 784,561 | |
Depreciation and amortization | |
| - | | |
| 46,603 | | |
| 7,702 | | |
| 139,809 | |
General and administrative | |
| - | | |
| 369,835 | | |
| 203,377 | | |
| 1,118,993 | |
Professional
fees | |
| - | | |
| 42,204 | | |
| 78,807 | | |
| 150,678 | |
Total
Operating Expenses | |
| - | | |
| 2,681,240 | | |
| 1,132,805 | | |
| 7,655,907 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| - | | |
| (260,232 | ) | |
| (261,853 | ) | |
| (768,318 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| - | | |
| (6,191 | ) | |
| - | | |
| (5,817 | ) |
Interest
expense | |
| - | | |
| (33,837 | ) | |
| (724 | ) | |
| (280,979 | ) |
Total
Other Expense | |
| - | | |
| (40,028 | ) | |
| (724 | ) | |
| (286,796 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net
loss from discontinued operations before income taxes | |
| - | | |
| (300,260 | ) | |
| (262,577 | ) | |
| (1,055,114 | ) |
Income
tax benefit | |
| - | | |
| 1,145 | | |
| - | | |
| 43,145 | |
Net
loss from discontinued operations | |
$ | - | | |
$ | (299,115 | ) | |
$ | (262,577 | ) | |
$ | (1,011,969 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net
income (loss) attributable to non-controlling interests from discontinued operations | |
| - | | |
| 14,955 | | |
| (59,304 | ) | |
| 50,598 | |
Net
loss from discontinued operations attributable to 1847 Holdings | |
$ | - | | |
| (284,160 | ) | |
| (321,881 | ) | |
| (961,371 | ) |
The
following information presents the major classes of line items constituting significant operating, investing and financing cash flow
activities from discontinued operations of Asien’s in the unaudited consolidated statements of cash flows for the nine months ended
September 30, 2024 and 2023:
| |
Nine
Months Ended
September 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities | |
| | |
| |
Net loss | |
$ | (262,577 | ) | |
$ | (1,011,969 | ) |
Adjustments to reconcile net loss to net cash
used in operating activities: | |
| | | |
| | |
Deferred taxes | |
| - | | |
| (43,000 | ) |
Depreciation and amortization | |
| 7,702 | | |
| 139,809 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Receivables | |
| 73,769 | | |
| 137,546 | |
Inventories | |
| 213,399 | | |
| 42,460 | |
Prepaid expenses and
other current assets | |
| 108,686 | | |
| (86,813 | ) |
Accounts payable and
accrued expenses | |
| 320,362 | | |
| 1,178,940 | |
Customer
deposits | |
| (474,803 | ) | |
| (473,522 | ) |
Net
cash used in operating activities from discontinued operations | |
| (13,462 | ) | |
| (116,549 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Investments
in certificates of deposit | |
| - | | |
| (506 | ) |
Net
cash used in investing activities from discontinued operations | |
| - | | |
| (506 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Repayments
of notes payable | |
| (4,836 | ) | |
| (21,237 | ) |
Net cash used in financing
activities from discontinued operations | |
| (4,836 | ) | |
| (21,237 | ) |
| |
| | | |
| | |
Net change in cash and
cash equivalents from discontinued operations | |
$ | (18,298 | ) | |
$ | (138,292 | ) |
ICU
Eyewear Foreclosure Sale
As
described above, ICU Eyewear was in default under the ICU Loan Agreement and, with the approval of the other ICU Parties, consented to
a foreclosure by the ICU Lender and private sale of substantially all of its assets in an Article 9 sale process, pursuant to Section
9-610 of the Uniform Commercial Code as in effect in the State of New York and Section 9-610 of the Uniform Commercial Code as in effect
in the State of California. On August 5, 2024, ICU Eyecare Solutions Inc., an entity that is not affiliated with the Company, was the
successful bidder with a cash bid of $4,250,000. Pursuant to an agreement dated, August 5, 2024, and in consideration for such purchase
price, the ICU Lender having foreclosed on its security interest in all of the assets of ICU Eyewear then conveyed all of its rights,
title, and interest in all of such assets to ICU Eyecare Solutions Inc. The Company received no cash consideration related to the sale.
Following the sale, the Company retained no financial interest in ICU Eyewear.
The
sale of ICU Eyewear’s assets represents a strategic shift and its results are reported as discontinued operations for the three
and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of ICU Eyewear’s assets of $4,841,735,
as a separate line item in discontinued operations in the consolidated statements of operations for the three and nine months ended September
30, 2024. The
following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of
ICU Eyewear in the consolidated balance sheet as of December 31, 2023:
| |
December
31,
2023 | |
Current assets of discontinued operations | |
| |
Cash and cash
equivalents | |
$ | 12,594 | |
Receivables, net | |
| 1,578,764 | |
Inventories, net | |
| 5,123,478 | |
Prepaid
expenses and other current assets | |
| 19,990 | |
Total
current assets of discontinued operations | |
| 6,734,826 | |
| |
| | |
Non-current assets of discontinued operations | |
| | |
Property and equipment,
net | |
| 313,915 | |
Operating lease right-of-use
assets | |
| 1,690,937 | |
Long-term deposits | |
| 74,800 | |
Intangible assets, net | |
| 500,383 | |
Goodwill | |
| 757,283 | |
| |
| | |
Total
assets of discontinued operations | |
$ | 10,072,144 | |
| |
| | |
Current liabilities of discontinued operations | |
| | |
Accounts payable and
accrued expenses | |
$ | 5,580,313 | |
Current
portion of operating lease liabilities | |
| 274,683 | |
Total
current liabilities of discontinued operations | |
| 5,854,996 | |
| |
| | |
Non-current liabilities of discontinued operations | |
| | |
Operating lease liabilities,
net of current portion | |
| 1,459,184 | |
Revolving line of credit,
net | |
| 3,647,511 | |
Deferred
tax liability | |
| 15,000 | |
| |
| | |
Total
liabilities of discontinued operations | |
$ | 10,976,691 | |
The
following information presents the major classes of line items constituting the loss from discontinued operations of ICU Eyewear in the
unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
| |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenues | |
$ | 1,239,327 | | |
$ | 4,243,254 | | |
$ | 8,212,395 | | |
$ | 11,530,027 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 1,238,021 | | |
| 3,195,105 | | |
| 5,658,551 | | |
| 8,572,656 | |
Personnel | |
| 310,888 | | |
| 751,485 | | |
| 1,564,842 | | |
| 2,070,996 | |
Depreciation and amortization | |
| 39,454 | | |
| 108,636 | | |
| 248,646 | | |
| 277,839 | |
General and administrative | |
| 316,146 | | |
| 270,540 | | |
| 1,526,278 | | |
| 951,627 | |
Professional fees | |
| 47,522 | | |
| (61,381 | ) | |
| 672,855 | | |
| 132,967 | |
Impairment
of goodwill and intangible assets | |
| - | | |
| - | | |
| 1,216,966 | | |
| - | |
Total
Operating Expenses | |
| 1,952,031 | | |
| 4,264,385 | | |
| 10,888,138 | | |
| 12,006,085 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (712,704 | ) | |
| (21,131 | ) | |
| (2,675,743 | ) | |
| (476,058 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Other income | |
| (17,370 | ) | |
| (181,200 | ) | |
| 2,583 | | |
| (136,849 | ) |
Interest expense | |
| (531,250 | ) | |
| (521,899 | ) | |
| (911,437 | ) | |
| (785,202 | ) |
Amortization of debt discounts | |
| - | | |
| (13,175 | ) | |
| (683,029 | ) | |
| (13,175 | ) |
Gain
on bargain purchase | |
| - | | |
| - | | |
| - | | |
| 2,639,861 | |
Total
Other Income (Expense) | |
| (548,620 | ) | |
| (716,274 | ) | |
| (1,591,883 | ) | |
| 1,704,635 | |
| |
| | | |
| | | |
| | | |
| | |
Net
income (loss) from discontinued operations before income taxes | |
| (1,261,324 | ) | |
| (737,405 | ) | |
| (4,267,626 | ) | |
| 1,228,577 | |
Income
tax benefit (expense) | |
| - | | |
| (5,831 | ) | |
| 11,250 | | |
| (13,152 | ) |
Net
income (loss) from discontinued operations | |
$ | (1,261,324 | ) | |
$ | (743,236 | ) | |
$ | (4,256,376 | ) | |
$ | 1,215,425 | |
The
following information presents the major classes of line items constituting significant operating, investing and financing cash flow
activities from discontinued operations of ICU Eyewear in the unaudited consolidated statements of cash flows for the nine months ended
September 30, 2024 and 2023:
| |
Nine
Months Ended
September 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities | |
| | |
| |
Net income
(loss) | |
$ | (4,256,376 | ) | |
$ | 1,215,425 | |
Adjustments to reconcile net income (loss)
to net cash used in operating activities: | |
| | | |
| | |
Deferred taxes | |
| (15,000 | ) | |
| 9,000 | |
Inventory reserve | |
| 45,000 | | |
| 120,000 | |
Gain on bargain purchase | |
| - | | |
| (2,639,861 | ) |
Impairment of goodwill
and intangible assets | |
| 1,216,966 | | |
| | |
Depreciation and amortization | |
| 248,646 | | |
| 277,839 | |
Amortization of debt
discounts | |
| 683,029 | | |
| 13,175 | |
Amortization of right-of-use
assets | |
| 192,796 | | |
| 87,715 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Receivables | |
| 481,202 | | |
| 252,051 | |
Inventories | |
| 1,202,730 | | |
| 772,700 | |
Prepaid expenses and
other current assets | |
| (14,895 | ) | |
| (10,093 | ) |
Accounts payable and
accrued expenses | |
| 857,085 | | |
| 2,283,528 | |
Operating
lease liabilities | |
| (176,336 | ) | |
| (66,249 | ) |
Net
cash provided by operating activities from discontinued operations | |
| 464,847 | | |
| 2,315,230 | |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Investments in certificates
of deposit | |
| - | | |
| (3,670,887 | ) |
Purchases
of property and equipment | |
| - | | |
| (211,492 | ) |
Net cash used in investing
activities from discontinued operations | |
| - | | |
| (3,882,379 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Net
proceeds (repayments) of revolving line of credit | |
| (80,540 | ) | |
| 3,086,227 | |
Net cash provided by
(used in) financing activities from discontinued operations | |
| (80,540 | ) | |
| 3,086,227 | |
| |
| | | |
| | |
Net change in cash and
cash equivalents from discontinued operations | |
$ | 384,307 | | |
$ | 1,519,078 | |
Sale
of High Mountain
As
described above, on September 30, 2024, the Company entered into the Purchase Agreement with BFS and High Mountain, pursuant to which
the Company sold substantially all of the assets of Hight Mountain to BFS for an aggregate cash only purchase price of $17,000,000, subject
to certain pre-closing and post-closing adjustments. At closing, the purchase price was subject to a working capital adjustment and was
also reduced by the amount of outstanding indebtedness repaid at closing or assumed by BFS, as well as certain transaction expenses.
Additionally, the purchase price was reduced by $1,700,000, which may be used for certain post-closing payments (the “Holdback
Amount”). The
purchase price is also subject to a post-closing adjustment. Under this provision, High Mountain delivered to BFS an estimated closing
statement forth the estimated closing date payment amount, which included, among other things, High Mountain’s estimate of the
net working capital of High Mountain and its business as of the closing date, calculated in accordance with the asset purchase agreement.
Within 90 to 120 days following the closing date, BFS must deliver to High Mountain a final closing statement setting forth its determination
of the actual closing date payment amount, including, among other things, BFS’ determination of the net working capital as of the
closing date. If the actual closing date payment amount exceeds the estimated closing date payment amount, BFS must, within ten business
days, pay to High Mountain an amount of cash that is equal to such excess. If the estimated closing date payment amount exceeds the actual
closing date payment amount, High Mountain must, within ten business days, pay to BFS an amount in cash equal to such excess. If High
Mountain fails to make such payment, BFS will have the right to recover such amount from the Holdback Amount.
Under
the Purchase Agreement, BFS must use commercially reasonable efforts in the ordinary course of business to collect accounts receivable
in a manner no less rigorous than the collection efforts used its own business operations, but is entitled to compensation for any uncollected
accounts from the Holdback Amount. In addition, the Purchase Agreement provides that BFS must use commercially reasonable efforts in
the ordinary course of business to finish and sell any special order or custom inventory that was included in the final net working capital,
but is entitled to compensation, on the one-year anniversary of the closing, for any unsold special order or custom inventory from the
Holdback Amount.
The
sale of High Mountain’s assets represents a strategic shift and its results are reported as discontinued operations for the three
and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of High Mountain’s assets of $4,181,791,
as a separate line item in discontinued operations in the consolidated statements of operations for the three and nine months ended September
30, 2024.
The
following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of
High Mountain in the consolidated balance sheet as of December 31, 2023:
| |
December
31,
2023 | |
Current assets of discontinued operations | |
| |
Cash and cash
equivalents | |
$ | 45,905 | |
Receivables, net | |
| 4,186,800 | |
Inventories, net | |
| 1,082,940 | |
Prepaid
expenses and other current assets | |
| 106,342 | |
Total
current assets of discontinued operations | |
| 5,421,987 | |
| |
| | |
Non-current assets of discontinued operations | |
| | |
Property and equipment,
net | |
| 433,902 | |
Operating lease right-of-use
assets | |
| 1,219,813 | |
Long-term deposits | |
| 29,400 | |
Intangible assets, net | |
| 2,268,642 | |
Goodwill | |
| 8,371,877 | |
| |
| | |
Total
assets of discontinued operations | |
$ | 17,745,621 | |
| |
| | |
Current liabilities of discontinued operations | |
| | |
Accounts payable and accrued
expenses | |
$ | 2,642,566 | |
Contract liabilities | |
| 1,019,230 | |
Current portion of operating
lease liabilities | |
| 329,015 | |
Finance lease liabilities | |
| 6,754 | |
Current portion of notes
payable | |
| 64,170 | |
Current
portion of convertible notes payable, net | |
| 1,195,867 | |
Total
current liabilities of discontinued operations | |
| 5,257,602 | |
| |
| | |
Non-current liabilities of discontinued operations | |
| | |
Operating lease liabilities,
net of current portion | |
| 949,734 | |
Notes payable, net of current
portion | |
| 214,936 | |
Deferred
tax liability | |
| 334,000 | |
| |
| | |
Total
liabilities of discontinued operations | |
$ | 6,756,272 | |
The
following information presents the major classes of line items constituting the loss from discontinued operations of High Mountain in
the unaudited consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
| |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenues | |
$ | 7,628,235 | | |
$ | 7,437,294 | | |
$ | 23,438,316 | | |
$ | 23,497,107 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 5,238,049 | | |
| 4,228,778 | | |
| 14,348,494 | | |
| 14,190,699 | |
Personnel | |
| 2,057,780 | | |
| 1,345,326 | | |
| 4,757,423 | | |
| 3,410,042 | |
Depreciation and amortization | |
| 148,910 | | |
| 139,618 | | |
| 445,328 | | |
| 407,674 | |
General and administrative | |
| 1,243,416 | | |
| 980,974 | | |
| 3,402,330 | | |
| 2,868,648 | |
Professional
fees | |
| 19,845 | | |
| 41,112 | | |
| 108,439 | | |
| 93,201 | |
Total
Operating Expenses | |
| 8,708,000 | | |
| 6,735,808 | | |
| 23,062,014 | | |
| 20,970,264 | |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
| (1,079,765 | ) | |
| 701,486 | | |
| 376,302 | | |
| 2,526,843 | |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Other income | |
| 1,290,000 | | |
| 35 | | |
| 1,290,275 | | |
| 35 | |
Interest expense | |
| 17,016 | | |
| (337,641 | ) | |
| (227,439 | ) | |
| (827,777 | ) |
Amortization of debt discounts | |
| (12,064 | ) | |
| (19,912 | ) | |
| (64,306 | ) | |
| (58,114 | ) |
Gain
(loss) on disposal of property and equipment | |
| - | | |
| 18,026 | | |
| (13,815 | ) | |
| 18,026 | |
Total
Other Income (Expense) | |
| 1,294,952 | | |
| (339,492 | ) | |
| 984,715 | | |
| (867,830 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net
income from discontinued operations before income taxes | |
| 215,187 | | |
| 361,994 | | |
| 1,361,017 | | |
| 1,659,013 | |
Income
tax benefit | |
| 104,000 | | |
| 42,000 | | |
| 364,000 | | |
| 557,000 | |
Net
income from discontinued operations | |
$ | 111,187 | | |
$ | 319,994 | | |
$ | 997,017 | | |
$ | 1,102,013 | |
| |
| | | |
| | | |
| | | |
| | |
Net
income attributable to non-controlling interests from discontinued operations | |
| (8,340 | ) | |
| (24,000 | ) | |
| (74,777 | ) | |
| (82,651 | ) |
Net
income from discontinued operations attributable to 1847 Holdings | |
$ | 102,847 | | |
| 295,994 | | |
| 922,240 | | |
| 1,019,362 | |
The
following information presents the major classes of line items constituting significant operating, investing and financing cash flow
activities from discontinued operations of High Mountain in the unaudited consolidated statements of cash flows for the nine months ended
September 30, 2024 and 2023:
| |
Nine
Months Ended
September 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities | |
| | |
| |
Net income | |
$ | 997,017 | | |
$ | 1,102,013 | |
Adjustments to reconcile net income to net
cash used in operating activities: | |
| | | |
| | |
Deferred taxes | |
| (334,000 | ) | |
| 68,000 | |
Loss (gain) on disposal
of property and equipment | |
| 13,815 | | |
| (18,026 | ) |
Depreciation and amortization | |
| 445,328 | | |
| 407,674 | |
Amortization of debt
discounts | |
| 64,306 | | |
| 58,114 | |
Amortization of right-of-use
assets | |
| 246,765 | | |
| 237,439 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Receivables | |
| 158,434 | | |
| (1,170,263 | ) |
Inventories | |
| 164,662 | | |
| (492,091 | ) |
Prepaid expenses and
other current assets | |
| 103,645 | | |
| (31,023 | ) |
Accounts payable and
accrued expenses | |
| 292,164 | | |
| 24,077 | |
Contract liabilities | |
| (150,298 | ) | |
| 95,279 | |
Operating
lease liabilities | |
| (243,685 | ) | |
| (223,634 | ) |
Net
cash provided by operating activities from discontinued operations | |
| 1,758,153 | | |
| 57,559 | |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchases
of property and equipment | |
| - | | |
| (1,500 | ) |
Net cash used in investing
activities from discontinued operations | |
| - | | |
| (1,500 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Repayments of notes payable
and finance lease liabilities | |
| (355,951 | ) | |
| (50,515 | ) |
Repayments
of convertible notes payable | |
| (1,260,173 | ) | |
| - | |
Net cash used in financing
activities from discontinued operations | |
| (1,616,124 | ) | |
| (50,515 | ) |
| |
| | | |
| | |
Net change in cash and
cash equivalents from discontinued operations | |
$ | 142,029 | | |
$ | 5,544 | |
|