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Discontinued Operations
9 Months Ended
Sep. 30, 2024
Discontinued Operations [Abstract]  
DISCONTINUED OPERATIONS

NOTE 3—DISCONTINUED OPERATIONS

 

Asien’s Assignment for the Benefit of Creditors

 

On February 26, 2024, Asien’s entered into the Assignment Agreement, pursuant to which Asien’s transferred ownership of all or substantially all of its right, title, and interest in, as well as custody and control of, its assets to SG Service Co., LLC in trust. The Company received no cash consideration related to the assignment. Following the assignment, the Company retained no financial interest in Asien’s.

 

The assignment of Asien’s represents a strategic shift and its results are reported as discontinued operations for the three and nine months ended September 30, 2024 and 2023. The Company recognized a gain on disposition of Asien’s of $1,060,095, as a separate line item in discontinued operations in the consolidated statements of operations for the nine months ended September 30, 2024.

 

The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of Asien’s in the consolidated balance sheet as of December 31, 2023:

 

   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